Thursday Complexity Post August 3, 2006 Boomers Face Unprecedented Risk and Uncertainty Baby Boomers, the 77 million Americans born between 1946 and 1964, face old-age insecurities and economic peril that previous generations have never confronted. “Research shows that boomers, on average, are about at the same position financially as previous generations,” says Olivia Mitchell, a Wharton professor of insurance and risk management. “However, they face must greater uncertainty. For example, my parents’ generation had Social Security to look forward to. …today…Social Security is running short of financing. My parents; generation benefited from a huge run-up in the value of their houses. What we don’t know looking forward, is, how secure is that asset?” “The risks are greater, and the uncertainties are terrific,” Dr. Mitchell says. “”The capital markets are much more globally integrated, and more volatile. And therefore, baby boomers really have a very great challenge facing them, quite distinct from what their precursor generations confronted.” Dr. Mitchell and Christopher “Kip” Condron, president and CEO of AXA Financial, the world’s largest financial services firm, in a provocative discussion with Knowledge at Wharton. assert young boomers need to save more and most will need to work well beyond the traditional retirement age of 65. Mr. Condon notes that the idea of retiring at age 65 came about 100 years ago from Benjamin Disraeli, because 65 was the life expectancy then. According to 2000 data, he says, if a couple reaches age 65, there is a 62 percent probability that one partner will live past 90. In 1970, that probability was 40 percent. Longer lives are not an unmixed blessing. They mean greater probability of incurring high health care costs, and greater likelihood that retirement savings won’t stretch far enough. Both note that while many Americans own homes that could aid financial survival in old age, financial service companies are still working to perfect the design of reverse mortgages that could allow them to stay in their homes and tap them as a major asset. But that’s not a panacea. A story in U.S. News by Paul J. Lim notes that low mortgage rates and surging home values have induced Americans to refinance their homes in droves—which means many will be entering retirement age with years of payments ahead of them. If they refinanced to renovate, they probably will have even larger payments late in life. The same story quotes a Merrill Lynch survey that only 17 percent of boomers want to retire for good, and it may be fortunate that fewer people have that desire. Analysts note Boomers must cope with massive social changes in the nature and structure of employment, changed attitudes about work and leisure, the decline of defined benefit pension plans, and global changes that have local effect. Some public policies aim to stretch resources. Eligibility for full Social Security benefits has been raised from sage 65 to age 67.for younger workers. One element in the pension overhaul passed by the House of Representatives last week would let employers automatically shift some of their employees pay into retirement savings plans. While that could hurt low-income workers, many experts say long-term benefits outweigh the pain. . The Commerce Department’s Bureau of Economic Analysis reported last week that US personal savings rate dropped to zero in June. A story by Kathleen Pender in the San Francisco Chronicle quotes economists who say we shouldn’t worry much about that, and others who suggest we are in big trouble. On broad scale, this report says, savings provide the capital companies need to build plants, buy equipment and employ people. Because US companies haven’t been able to finance all their investment needs with their own earnings, they have had to borrow from other countries, particularly in Asia, where savings rates are high. That means returns on American capital will be paid to foreign creditors, a large scale economic risk. Disposable income is the amount of income a person doesn’t spend and doesn’t have to pay in taxes. Savings rate is expressed as a percentage of disposable income. The rate has been falling for decades. It was 10.8 percent in 1984. But even those who save face an unpredictable future. How can people estimate the impact of inflation 30 years hence? What happens if they lose their physical or mental health? Will a large segment of the population live to be extremely old, and what changes will that bring ? The experts are sill working on these questions. Don’t Forget PlexusCalls August 25, 2006. 1PM to 2 PM ET How Complexity Principles Align With Management 563-843-5600, access code 716551 followed by # Guests: Marc Narkus-Kramer, Henri Lipmanowicz, Lisa Kimball Marc Narkus-Kramer has spent the last 20 years working on air traffic control modernization with the MITRE Corporation’s Center for Advanced Aviation System Development (CAASD) based in MacLean, Virginia. MITRE is a non-profit corporation working in the public interest in partnership with government clients. It addresses issues of cal national importance, combining systems engineering and information technology to develop e solutions. Mr. Narkus-Kramer is now National Airspace System Architect with responsibility for integrating the work program across MITRE/CAASD. He was previously responsible for managing a $6 million dollar project related to modernizing the air traffic control system. He has been involved in several management transformational activities in his organization and the aviation community Henri Lipmanowicz retired after a distinguished career at Merck, where he was president of the Merck Intercontinental and Japan Division and a member of the Management Committee. He is a student of complexity, one of the founders of Plexus Institute and serves as Chair of Institute’s Board of Trustees. 2000. Lisa Kimball, PhD, is executive producer and owner of Group Jazz, an organization devoted to supporting the efforts of teams task forces, communities and organizations. She earned her doctorate in educational psychology, cognition and learning and is active in on line community work, organizational development and is skilled in using complexity-inspired principles. She is also a Plexus Trustee. Plexus Institute, The Olde Mill, …fostering the health of individuals, P.O. 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"Mitre Corporation Stretch Project"