T. Rowe Price
T. Rowe Price believes it's time to
make retirement a reality for all
of our nation's workers.
First Look: Assessing the
New Retiree Experience
Gain ideas and perspective to better understand the
experiences and challenges of today’s workers and
new retirees. Our quantitative study offers
valuable findings.
Retirement Savings
See how services such as auto enrollment and auto increase can cut costs while raising participation rates and enhancing savings potential. Read, Watch, Explore
Retirement Investing
A guide to finding target date solutions aligned with plan objectives and tailored to key participant goals.

Read, Watch, Explore
Faces of Retirement
Get unique emotional and financial insights from 88 Americans who discuss their journey to and through retirement.
Read, Watch, Explore
T. Rowe Price (including T. Rowe Price Group, Inc., and its affiliates) and its associates do not provide legal or tax advice. Any tax-related discussion, including all linked pages and documents, contained in T. Rowe Price websites is not intended or written to be used, and cannot be used, for the purpose of: 1. avoiding any tax penalties; or 2. promoting, marketing,
or recommending to any person any transaction or matter addressed herein. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax
issues raised in any discussion in T. Rowe Price websites.

© 2014 T. Rowe Price
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Getting Beyond Ordinary
Managing Plan Costs in Automatic Programs

A recently published white paper from T. Rowe Price demonstrates that pursuing improved retirement readiness for employees does not have to be costly.

Achieving plan objectives in an environment of constrained budgets, talent competition, and increasingly complex fiduciary requirements can sometimes seem like a difficult balancing act.

However, with the right combination of plan design and automated program features, plan sponsors can improve retirement plan effectiveness within reasonable budget levels.

This paper focuses on three foundational components:

  • Employer contributions
  • Vesting
  • Eligibility

Employer contributions: Adjusting the match schedule can significantly affect costs.

  • Change the match percentage while leaving the basic structure intact
  • Change the structure of the matching formula
  • Change the timing of when contributions are made
  • Move to a different type of contribution

Vesting: Realignment allows for more effective features.

  • Create multiple vesting schedules
  • Change the timing of when vesting occurs for new contribution types and/or new hires
  • Change the method by which vesting is calculated

Eligibility: Changes can offset improvement costs.

  • Change who is eligible for each type of contribution utilized
  • Change the timing of eligibility
  • Change the nature of eligibility calculations

Two examples of cutting costs while boosting participation rates AND IMPROVING RETIREMENT INCOME REPLACEMENT RATIO

Company ABC

Goal: Add a full range of automatic features while reducing annual cost


  • 100% match on the first 4% of deferrals
  • 2% nonelective contribution with a last-day rule
  • Auto-enroll all who are eligible at 4%
  • Auto-increase 1% each year up to 10%

Estimated results:

  • Annual cost reduced by 7.2%
  • Participation rate improves from 58.7% to 97.4%
  • Improve average retirement income replacement ratio average while maintaining the average for employees over age 60

Company XYZ

Goal: Decrease annual costs by 10% and increase participation rate


  • 100% match on the first 3% of deferrals
  • 0% matches on deferrals over 3%
  • Auto-enroll all who are eligible at 6%
  • Auto-increase 1% each year up to 15%

Estimated results:

  • Annual cost reduced by 10.4%
  • Participation rate improves from 85.1% to 99.3%
  • Improve average retirement income replacement ratio average while maintaining the average for employees over age 60

Communication is key

As is true for all types of plan changes, an effective and thorough plan for communicating changes to employees is critical to success. Similarly, when periodically reenrolling or resetting participants, a strong opt-out communications program will help ensure that participants aren't surprised by actions taken on their behalf and will create an opportunity to present a strong rationale for why the actions are being taken.



The future is uncertain; therefore, we predict many futures

To create our projections and model future uncertainty, we use a proprietary Monte Carlo simulation. Monte Carlo simulation is an analytical tool for modeling future uncertainty. In contrast to deterministic tools (e.g., expected value calculations) that model the average case outcome, Monte Carlo simulation generates ranges of outcomes based on our underlying probability model. Thus, outcomes generated via Monte Carlo simulation incorporate future uncertainty, while deterministic methods do not. Although the engine cannot predict future investment performance, by simulating thousands of hypothetical future market scenarios, it can help plan sponsors to more realistically assess whether their employees are likely to achieve their retirement income goals.

Material assumptions

The investment results shown in the various Plan Meter charts were developed with Monte Carlo modeling using the following material assumptions, as well as those outlined in the Plan Meter Report Appendix. The underlying long-term expected annual return assumptions for the asset classes indicated in the charts are not historical returns. Rather, these are based on our best estimates for future long-term periods. Our annual return assumptions take into consideration the impact of reinvested dividends and capital gains. We use these expected returns along with assumptions regarding the volatility for each asset class and the intra-asset class correlations to generate a set of simulated, random monthly returns for each asset class over the specified period of time.

These monthly returns are then used to generate 1,000 simulated market scenarios. These scenarios represent a spectrum of possible performance for the asset classes being modeled. The success rates are calculated based on these scenarios. We take taxes and required minimum distributions (RMDs) into consideration, as described in the Appendix, but we assume no early withdrawal penalties. Investment expenses in the form of an expense ratio are subtracted from the expected annual return of each asset class. These expenses are intended to represent the average expenses for a typical actively managed, no-load fund within the peer group for each asset class modeled. The analysis does include all of a participant's assets in the defined contribution plan(s), but categorizes them simply as individual stocks, diversified stock funds, bonds, and short-term investments. Other asset classes not considered or modeled may have characteristics similar or superior to those being analyzed.

The replacement income (in current dollars) is the percentage of the employee's current annual salary withdrawn in the first year of retirement; in each subsequent year, the amounts withdrawn are adjusted to reflect a particular annual rate of inflation. The underlying long-term expected annual return assumptions (gross of fees) used in each of the Monte Carlo simulations are 10% for large-cap individual stocks; 11% for mid-/small-cap individual stocks; 10% for stock funds; 6.5% for intermediate-term, investment-grade bonds; and 4.75% for money market/stable value investments. The following expense ratios are then applied to arrive at net-of-fee expected returns: 0% for individual stocks; 1.211% for stock funds; 0.726% for intermediate-term, investment-grade bonds; and 0.648% for money market/stable value investments. The simulation success rate of each employee's retirement planning strategy is identified for a sponsor's plans in the Rules and Assumptions section of the Plan Meter Report. Simulation success is defined as having at least one dollar remaining in the portfolio at the end of retirement. (The retirement period in the simulations is assumed to end at age 95.) The simulation success rate of a particular retirement strategy is determined by counting the number of simulation scenarios that result in at least one dollar remaining and dividing this figure by the total number of simulation scenarios of that strategy used.

Limitations of the model

Material limitations of the investment model include: Extreme market movements may occur more frequently than represented in our model. Some asset classes have relatively limited histories. While future results for all asset classes in the model may materially differ from those assumed in our calculations, the future results for asset classes with limited histories may diverge to a greater extent than the future results of asset classes with longer track records.

Market crises can cause asset classes to perform similarly over time, reducing the accuracy of the projected portfolio volatility and returns. The model is based on the long-term behavior of the asset classes and, therefore, is less reliable for short-term periods.

The model assumes that there is no correlation between asset class returns from month to month. This means that the model does not reflect the average periods of bull and bear markets, which can be longer than those modeled.

Inflation is assumed to be constant; variations in inflation levels are not reflected in our calculations. These results are not predictions, but they should be viewed as reasonable estimates.

This paper has been prepared by T. Rowe Price Retirement Plan Services, Inc., for informational purposes only. T. Rowe Price Retirement Plan Services, Inc., its affiliates, and its associates do not provide legal or tax advice. Any tax-related discussion contained in this paper, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this paper.

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First Look: Assessing the New
Retiree Experience
Many 401(k) participants are transitioning to retirement with considerable assets, high satisfaction

How are new retirees managing in retirement? Research by T. Rowe Price Retirement Plan Services, Inc., suggests they are faring quite well.


A quantitative, national study First Look: Assessing the New Retiree Experience, offers compelling data on the spending behaviors and experiences of people who have been part of the 401(k) system and are now—on average—about three years into retirement. While the research reflects a diverse range of investors, ages under 50 to 75 and older, the majority are baby boomers 50 to 68 years old.

This context is critical for plan sponsors and advisors: It provides valuable perspective on the early years of retirement and, in particular, the transition to retirement based on a unique 401(k)-affiliated sample.


Overall, the research shows a positive picture of retirement, especially in terms of the adjustments that retirees have made at this early stage. They are moving confidently into retirement and managing their spending according to their income:

  • Many enter retirement with substantial household assets*
    ($1,303,000 average/$473,000 median).
  • Almost half (48%) have a withdrawal plan and they are withdrawing a median of 4% of their portfolio.
  • 80% say they track expenses carefully and only three in 10 are surprised by how hard it is to live without their preretirement paycheck.

Attitudinally, these individuals are in a good place. Nearly 90% of survey respondents say they are satisfied with their retirement so far, and almost three-quarters feel they are better off financially than their parents at the same age. However, single households, particularly female headed, report significant challenges.


Here are five key findings from the First Look research that show new retirees who have saved in 401(k)s are making the first years of retirement work for them. According to the study:

  • Retirees are living on an average of 66% of preretirement income.
  • Those with a withdrawal plan draw a median of 4% of their balance.
  • 85% say they don't have to spend as much in retirement to be satisfied.

  • 89% have found they can adjust their lifestyle according to income.
  • 78% reduce spending if spending exceeds their income.

  • 21% are working.
  • 14% are seeking work.
  • 65% are fully retired.

  • 63% stick to a spending budget.
  • 33% maintain an emergency fund.
  • 52% have a financial advisor.

  • 89% of retirees are satisfied with retirement so far.
  • 78% feel on track to meet their financial goals.
  • 74% feel better off than their parents were at their age.


“While we know there are people with little or no retirement savings, our sample indicates that many who saved in a 401(k) plan are entering retirement with considerable assets,” said Anne Coveney, Vice President, Client and Market Insights, T. Rowe Price Retirement Plan Services, Inc. “What's more, we are also seeing some evidence of financial discipline in budgeting and spending.” The analysis captures a moment in time—many new retirees have yet to tap their 401(k) balances and use Social Security as their main source of income. Nonetheless, the study results send a powerful message to plan sponsors, advisors, and especially those individuals still preparing for retirement. “New retirees are making retirement work—it is possible to save in a 401(k) plan and enter retirement in a positive state,” she said.


T. Rowe Price initiated First Look: Assessing the New Retiree Experience, a quantitative study, conducted independently by Brightwork Partners LLC.

Interviewees included 1,030 working adults age 50 or over who are currently contributing to a 401(k) plan, or are eligible to contribute, and have a balance with their current employer of $1,000 or more and 1,507 adults who have retired in the past one to five years and have a Rollover IRA or a balance remaining in a 401(k) plan.

Interviewing was conducted between February 19 and March 3, 2014. Findings in both samples are subject to a margin of error of just under 3%.

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Faces of Retirement
Real-life stories offer fresh perspective

What do people really think about retirement?

A new study by T. Rowe Price Retirement Plan Services, Inc., is revealing some surprising insights.

Faces of Retirement provides a refreshing, unedited glimpse into the lives of 88 Americans—those in retirement as well as those transitioning to retirement. Their candid stories—captured during a series of in-depth interviews—offer valuable insight into the thoughts and experiences of real retirees and preretirees. This context is critical for providers, sponsors, and advisors: It shapes current thinking and provides a basis for thoughtful solutions and meaningful conversations.

Here's a summary of some key points regarding the Faces of Retirement study.


Faces of Retirement is a comprehensive study with a specialized focus:

  • Collect information through the eyes of, and in the language of, people within seven years (on either side) of retirement
  • Speak with people who represent the nation's diversity
  • Uncover underlying reasons for attitudes, perceptions, and behaviors of those approaching—and living in—retirement

Respondents—44 preretirees and 44 retirees—were surveyed and interviewed at length in July 2012. Through the study, T. Rowe Price summarized the conversations into top key findings.


The study gives an inside look at the hopes, concerns, and lessons learned in planning for and living in retirement. According to Anne Coveney, Vice President, Thought Leadership and Research, the notion that Americans are feeling more positive about retirement is a continuing trend.

"Retirement may not be as daunting, particularly for recent retirees. It's no surprise those with a 'plan' were feeling much more positive about retirement," said Coveney. "Overall, we were pleased that nearly all the survey respondents were so forthcoming and at ease sharing their experiences."


Faces of Retirement is more than a one-time study. T. Rowe Price intends to track the same respondents through ongoing journaling, interviews, and online surveys.

This phase is distinct among industry research and provides a deeper understanding of the experiences people face early into retirement. T. Rowe Price is currently testing other ways to bring the stories to life.


Retirement is a topic that touches almost every aspect of the financial services and retirement plan industry. With the latest research, you can gain clarity on the issues and mindsets of today's preretirees and retirees—and define how you can best meet their needs.

  • To the advisor: provides valuable information to boost your knowledge and expertise to DC clients and prospects; helps you position products and frame the conversation about retirement income.
  • To the plan sponsor: helps you provide the support that workers need to feel more comfortable and confident during the transition to retirement; points to plan enhancements and designs that will have the most impact for your organization.

The Faces of Retirement video series highlights the real-life stories of preretirees and retirees who participated in the year-long study. With a very personal mix of emotion and straight talk, they share their hopes, successes, and mistakes—and offer practical advice to underscore the importance of early planning. These videos help bring the most inspiring stories to life and align with current theories that personal stories can be a powerful way to shape participant behavior.

These short videos feature compelling stories and insights from retirees and preretirees that are intended to help your participants prepare for retirement.
Planning for a
rainy day
Planning for a Rainy Day
Thoughts on
transitioning to
Thoughts on Transitioning to Retirement
What is Retirement?
What is Retirement?
Advice to my
younger self
Advice to my Younger Self
Work hard now,
reap rewards later
Work Hard Now, Reap Reward Later
Speaking of...
Candid advice on achieving retirement success from actual participants:
"People who are young don't realize how it's never, ever too early to save."
"I've worked hard, I've saved...it's time to play!"
"Start saving money as soon as you start making money."
"If a person wants to do big things in retirement, they have to plan for it."
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Get philosophical about target date evaluation:
How to align the best product with each retirement plan.

The target date landscape has become increasingly complex for defined contribution (DC) plan sponsors. Products designed to simplify the investment selection at the participant level have left sponsors grappling with the responsibility of selecting the “right” target date product for their plan.

The demand is growing among plan sponsors for a resource that can ease the burden of selecting an appropriate suite of target date products. This step-by-step method will help you navigate the evaluation process.


Providers have come to increasingly rely on quantitative analysis as the first (and sometimes only) step in the target date evaluation process. All too often, they focus their clients’ attention on two key data points: performance and cost.

However, data and analytics can be easily attained through home office screeners, proprietary tools, asset manager resources, and third-party services. That is why T. Rowe Price believes that a genuine and thorough evaluation of target date funds should begin with a conversation about plan objectives and participant investment risks. This starts the decision-making process off on the right track.


To kick off an evaluation of target date products, sponsors must decide where they stand with respect to three key considerations: a plan’s objectives, investment risks, and participant preparedness.


Plan sponsors usually have one of two primary objectives for their retirement plan:

  • Providing their participants with adequate lifetime income to sustain a potentially lengthy (25 to 30 years) retirement.
  • Providing their participants with greater principal preservation by moderating volatility at or near the target retirement date.

The primary challenge for sponsors is striking a balance between these two plan objectives.

Identify Plan Objective

A sponsor whose objective is to provide lifetime income may align with a higher-equity target date product, whereas a sponsor who prefers the chance for greater principal preservation near retirement may be better aligned with a more moderate equity product.


Once sponsors determine the plan objective, they can prioritize the three primary investment risks that participants face while investing for retirement:

  • Longevity risk—The risk that participants will outlive their retirement savings.
  • Inflation risk—The risk of losing purchasing power over time due to insufficient capital appreciation.
  • Market risk—The risk of principal loss due to negative market fluctuation.

Prioritize Investment Risk

Prioritizing these investment risks will essentially serve to advance the selection process—either pushing sponsors further to one side or bringing them back closer to the starting point.


Several plan design and demographic factors can also influence the evaluation process:

  • Current account balance (as a percentage of salary)
  • Savings levels (employee and employer money)
  • Other retirement income (Social Security or defined benefit plan)

For example, Social Security replaces a higher percentage of income for low-wage earners than for high-wage earners. As a result, high-wage earners must save a larger percentage of salary to maintain their preretirement standard of living. Thus, with all else being equal, the income replacement goal is a heavier burden for DC plans in which participants tend to have higher salaries.

Similarly, considerations should be given to savings rates, company contributions, and the existence of an accompanying defined benefit plan—all of which can affect the preparedness of participants.

If a plan has high savings rates, generous company contributions, and a defined benefit plan and the sponsor is really focused on longevity and inflation risks, then the sponsor may lean toward a higher-equity product because the “very prepared” participants can afford more volatility. Conversely, if a plan has only modest savings rates, limited employer contributions, and restricted or no access to a defined benefit plan; the sponsor may be more focused on market risk, in which case, then the sponsor may lean towards a lower-equity product since it wants lower volatility at or near the target retirement date.

Participant Preparedness

Prioritizing these investment risks will essentially serve to advance the selection process—either pushing sponsors further to one side or bringing them back closer to the starting point.


Once the target date evaluation narrows the available fund choices that align with the objectives, risk priorities, and level of participant preparedness, you can use quantitative and qualitative screening and analysis to help make the final decision. Following a robust evaluation process, you can emphasize the following considerations:

  • Underlying investment components
  • Diversification across sectors and asset classes
  • Performance versus the benchmark
  • Performance versus peer group
  • Fees versus peer group
  • Management tenure
  • Well-respected, third-party industry evaluation (if applicable)


To learn more about T. Rowe Price target date products, our investment philosophy, or our approach to target date evaluation, contact your T. Rowe Price representative.

The principal value of target date funds is not guaranteed at any time, including at or after the target date, which is the approximate date when investors plan to retire. These funds typically invest in a broad range of underlying mutual funds that include stocks, bonds, and short-term investments and are subject to the risks of different areas of the market. In addition, the objectives of target date funds typically change over time to become more conservative.

Call 1-800-638-7780 to request a prospectus, which includes investment objectives, risks, fees, expenses, and other information that you should read and consider carefully before investing.

This discussion has been prepared by T. Rowe Price Investment Services, Inc., for informational purposes only. T. Rowe Price Investment Services, Inc., its affiliates, and its associates do not provide legal or tax advice. Any tax-related discussion contained in this discussion, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this discussion.