Retirement Security in the Wake of COVID-19 - Conference Call Series

Event Overview and Context

• The Milken Institute hosted a virtual session titled "Retirement Security in the Wake of COVID-19" to address the intersection of public health, economic stability, and retirement planning.
• Approximately 55,000 Americans had died from COVID-19 as of the event date, with 80% of fatalities occurring in the 65-and-over demographic.
• The Dow Jones Industrial Average experienced significant volatility, dropping from a record high of nearly 30,000 points in January to under 20,000, before recovering partially.
• The Employee Benefit Research Institute projects a retirement savings deficit of nearly $4 trillion, potentially growing by an additional $150–$160 billion by the end of the year.
• Over half of adults aged 50 and older possess less than $100,000 in retirement savings, with 50% of that specific group having no savings at all.
• The average 65-year-old couple requires approximately $285,000 solely to cover medical and health costs between retirement and death.
• Ageism remains a significant barrier to employment for older adults, with 90% believing it impedes their ability to work and achieve financial goals.

Industry Perspectives on Market Volatility and Client Behavior

• Penny Pennington (Edward Jones) noted that client concerns shifted from physical well-being to emotional well-being, and finally to financial well-being, mirroring a "once-in-a-century" shock comparable to 9/11.
• Edward Jones clients are utilizing risk-aligned portfolio allocations to withstand market drops, reporting smaller declines (e.g., 10%) despite broader market losses (e.g., 30%), due to proper diversification.
• Marcy Frost (CalPERS) highlighted that 80% of the $3,300 monthly average benefit paid by CalPERS is spent within California, supporting the local economy.
• Only 3% of CalPERS beneficiaries receive annual benefits exceeding $100,000, though roughly one-third of the fund's members do not have access to Social Security.
• Michelle Seitz (Russell Investments) cited a global retirement gap estimated at $70 trillion as of 2015, projected to reach $400 trillion by 2050.
• In the U.S., the retirement gap equals 142% of GDP; pre-pandemic, 75% of households aged 55–65 had almost no chance of funding their retirement needs.
• Mike Milken distinguished the current crisis from the 2008 recession, noting the former was driven by a health virus rather than financial institution leverage.
• Milken argued that 50% of global economic growth over the last 200 years is attributable to public health and medical research, extending average lifespans from 42 years additional life in the last 120 years.
• The U.S. birth rate hit an all-time low last year, leading to projections that the U.S. population could shrink without immigration.
• Milken warned that low interest rates necessitate significantly higher savings rates; at a 0% return, an individual must save $25,000 annually for 40 years to accumulate $1 million.
• Unlike the stock market, which saw strong gains in health and tech sectors during the crisis, businesses in restaurants, airlines, and hotels faced near-total revenue loss.
• Milken emphasized that real estate, the largest investment for most Americans, offers zero inflation-adjusted returns over 120 years and lacks the liquidity of public equities.

Strategic Shifts and Future Recommendations

• Financial advisors are increasingly advising clients to prioritize "lifetime income" and personal funded ratios rather than simple index returns.
• The industry is moving toward hyper-personalized "financial genomes" for investors, utilizing data on income, savings rates, and network to customize asset allocation beyond blunt "average" tools like target-date funds.
• Edward Jones is targeting younger investors to emphasize long-term time horizons and promoting human financial advice over digital-only solutions.
• Studies cited show that investors with professional financial advice hold 25% more assets on average compared to those without.
• CalPERS advocates for defined benefit plans for public sector workers, contrasting them with defined contribution plans where workers bear the longevity and market risk.
• Russell Investments is deploying FinTech to create "default" savings mechanisms for gig workers and those without employer-sponsored plans, mimicking the Australian superannuation model.
• Mike Milken suggested that the crisis may accelerate the adoption of remote healthcare, tele-education, and tele-conferencing as standard practices for older adults.
• Milken proposed that society must learn to "live with" the coronavirus similarly to how cancer patients manage chronic conditions, shifting focus from death to quality of life and economic reopening.
• Surveys indicate that the primary definition of the "American Dream" is not personal wealth (16%), but the freedom to raise a family and the ability to live comfortably in retirement.

Specific Responses to Policy Questions (10-Second Responses)

• Social Security Solvency: Depleting Social Security would be catastrophic, but the problem is solvable if the fund is allowed to diversify assets to achieve a rate of return, as current government securities yield near zero.
• Retirement Age: With life expectancy rising from 50 to the mid-to-high 70s, the current retirement age is mathematically unsustainable and requires adjustment.
• Behavioral Shifts: The pandemic may reshape the relationship between government and individuals, increasing the role of public protection in health and safety, while also fostering a greater emphasis on private and public partnerships for retirement security.
• Economic Impact: The crisis is expected to accelerate macroeconomic drivers that were already emerging, effectively "clicking" long-term trends forward by several years.

Forward-Looking Statements

• The industry aims to stop the politicization of wealth and equity issues by delivering customized, data-driven solutions at scale earlier in individuals' careers.
• There is a strategic focus on creating interfaces that make "good decisions" easy for investors and "bad decisions" difficult through AI and analytical modeling.
• The financial services industry anticipates a surge in demand for trusted human advice as clients seek to navigate the complexities of health and finance post-pandemic.
• Future investment strategies will likely prioritize resilience against longevity risk and market volatility through dynamic, personalized rebalancing rather than static asset classes.