retirement insights - j.p. morgan · 2017-02-03 · millennials that binge-watch the series in its...

The MillennialsNow streaming: the millennial journey from saving to retirement

RETIREMENT INSIGHTS

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J .P. MORGAN ASSET MANAGEMENT 1

A B O U T

Introduction to The Millennials

The millennial generation (individuals born between 1982 and

2000) is the subject of intense scrutiny: their likes and

dislikes, social media inclinations and digital footprints,

fashion sense, dining habits, reproductive trends, political and

religious views, workplace objectives, etc. This year,

millennials will overtake the baby boomers as the largest

living generation in the United States, so there are plenty of

reasons to study them.

Our focus here is not on smartphone usage or cultural

preferences, but on how millennials will manage their finances

and maintain their financial independence throughout their

working years and through retirement. Our analysis is

presented in the form of a proposal for a web-based show

(The Millennials) available for live streaming, complete with

backstory, a list of episodes and detailed production notes.

Millennials that binge-watch the series in its entirety, as well

as their financial advisors, employers and parents, will gain a

greater understanding of the drivers of financial security in a

rapidly changing world, one that the millennials will now

inherit.

Michael Cembalest

J.P. Morgan Asset Management

J .P. MORGAN ASSET MANAGEMENT 32 RETIREMENT INSIGHTS



S U M M A R Y O F F I N D I N G S

Today’s millennials are highly educated, but face

headwinds in terms of student debt, global competition for

the best jobs, below-trend wage growth and rising

pressure on the federal government to curtail the

entitlements they currently and will eventually receive

At the same time, millennials are often inclined to hold

more cash than prior generations, are less likely to marry

or own a home, and will increasingly finance their own

retirements due to declining availability of defined benefit

pension plans. Given rising life expectancies, their

retirements may be longer than their working years

To add to these challenges, more than three-quarters of

adults in their 50s experience job layoffs, widowhood,

divorce, new health problems or the onset of frailty among

parents or in-laws, all of which disrupt their ability to save

The good news: the financial tools needed to deal with

these challenges are within reach, provided that

millennials use them early enough

How can median-income millennials do it? It starts with a

plan to put 4%-9% of pre-tax income into retirement

accounts each year, starting at age 25. For affluent

millennials, the range would be 9%-14%; and for high net

worth millennials, 14%-18%

The rest of the plan is based on additional savings from

after-tax income, employer matching contributions and

consistent investment discipline

One possible consequence of inadequate saving in advance

of adverse events: sharp declines in “income replacement

ratios”, which measure the amount of money millennials

will be able to spend in retirement

It may be hard for millennials to “invest their way out” of

adverse events. Example: single individuals retiring three

years earlier than planned may accumulate lower savings

before retirement, draw on savings sooner, and accelerate

Social Security at a discount. To fill the gap, they would

need to earn real equity returns over their lifetimes that

are close to the highest levels seen since 1935

0%

4%

8%

12%

16%

20%

Median-incomehouseholds

Affluenthouseholds

High net worthhouseholds

Recommended annual pre-tax contribution to savings by each working spouse to offset impact of adverse eventsPercent of pre-tax income

In addition to contributions shown, households are assumed to save 2% of after-tax income, and benefit from a 50% employer match of pre-tax savings, capped at 3%. Savings begin at age 25. Source: JPMAM. 2015.

60%

65%

70%

75%

80%

85%

90%

95%

100%

Median-incomehouseholds

Affluenthouseholds

High net worthhouseholds

Income replacement ratios if no savings adjustments take place to offset adverse eventsRetiree spending as a percent of pre-retirement disposable income

See Section 1 of the Production Notes on page 58 for an explanation of initial income replacement ratios and the subsequent trajectory of retirement spending adjusted for inflation. Source: JPMAM. 2015.

Original target

After impact of negative events

5%

6%

7%

8%

9%

10%

11%

Median-income

individual

Affluentindividual

High networth

individual

Medianreal S&Preturn

Peak real S&P

return

75th perc.real S&Preturn

Required annual real return on equity to offset the impact of a single individual retiring 3 years earlyReal return on equity, annualized

Original planned retirement age for median is 67; for affluent and high net worth, 65. Median, peak and 75th percentile returns based on 35-year rolling periods from 1935 to 2015. Source: Robert Shiller, JPMAM. 2015.

Calculated real return on equity

Historical S&P 500 real return


TA B L E O F C O N T E N T S

The Inspiration for The Millennials, a new miniseries 5

The Millennials: Backstory and character development 6

Season summaries 11

The Millennials, Season 1 summary: Median-income households 12

The Millennials, Season 2 summary: Affluent households 14

The Millennials, Season 3 summary: High net worth households 16

A note on the individual episodes 18

Season 1 19

Season 2 35

Key to plot devices used in The Millennials 53

Additional production notes 57

The retirement “spending smile”

How retirement account contributions and withdrawals work

Policy changes and who they impact

Understanding working income vectors

Financial market returns

The price risk of individual homes vs. an index

Modeling assumptions and constants

Sources and acronyms 66


T H E I N S P I R AT I O N F O R T H E M I L L E N N I A L S , A N E W M I N I S E R I E S

This production brings the drama and pathos of the

millennial journey to the small screen. There are a lot of

factors involved in depicting these journeys, as shown below.

Some are outside the control of our millennials (red), some

are completely within their control (blue), and others are

things that they influence but do not control directly (green).

In each episode of Seasons 1, 2 and 3 of The Millennials, their

lifestyle choices and the unpredictable forces of financial

markets and government policy collide to tell the story of

their financial lives, a journey which is more often than not

characterized by both triumph and tragedy (see box).

The trials and tribulations of aging, from a study conducted by

the Center for Retirement Research at Boston College:

Over any 10-year period, more than three-quarters of adults

aged 50-60 experienced job layoffs, widowhood, divorce, new

health problems, or the onset of frailty among their parents or

in-laws

More than two-thirds of adults age 70 and older experienced

at least one of these negative shocks over a nine-year period

Negative shock incidence rates were higher for married

people, who faced the added risk that their spouses could

develop health problems or lose their jobs

Source: Center for Retirement Research at Boston College, December 2005. See sources for details.


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T H E M I L L E N N I A L S : B A C K S T O R Y A N D C H A R A C T E R D E V E L O P M E N T

Backstory

“The Millennials” are a group of 8 college graduates from the

University of Colorado. Passionate, idealistic and full of

ambition, they enter the workforce at age 25 and make their

mark on the world. The series follows each of them

throughout their working lives and through their retirement

years, tracking their career successes and failures and

monitoring their financial wealth.

Character development

Here’s what viewers will learn about Evan, Meri, Jane, Chad,

Ken, Ima, Anita and Chip.

Millennials are highly educated, but indebted; some are at a global skills disadvantage

In 2013, 47% of 25-34 year-olds had a postsecondary

degree, and another 18% had completed some

postsecondary education – together, more educated than

any other generation of young adults in U.S. history1

60% of students with bachelor’s degrees in 2012-2013 graduated with an average debt balance of $27,3002. The

average student loan balance as a % of median income

has risen from 20% in the late 1990s to 50% in 20143 While American millennials are well educated, they may be

less prepared for today's job market than international

peers. U.S. millennials ranked 21st out of 22 Organisation

for Economic Co-operation and Development (OECD)

countries in numeracy; in literacy, half scored below the

minimum proficiency level; and on problem-solving, 56%

met minimum standards, ranking behind every other

OECD nation they were compared with4

1 “15 Economic Facts about Millennials”, The Council of Economic Advisers,

October 2014 2 “Trends in Student Aid 2014”, College Board, 2014 3 Bridgewater Daily Observations, June 19, 2015; for those aged 30-39 4 “America’s Skills Challenge: Millennials and the Future”, Educational

Testing Service, January 2015

Millennials are more likely to study social science or fields

such as communications, criminal justice and library

science, and less likely than previous generations to major

in fields like business, health, and STEM subjects (science,

technology, engineering and mathematics). Despite their

love for social media, the share of millennial computer

and information science majors has actually fallen over

time, particularly among female millennials5

Millennials are less likely to own a home

Our millennials will face labor market pressures, slower real

income growth, delayed household formation, the burden of

student loan repayment and aftershocks from the financial

crisis. As a result, in aggregate they are less likely to own a

home. Over the long run, home ownership has been positive

for most households given price appreciation and the ability

for families to leverage their purchase by 80% or more.

Renters do not build equity to draw upon in the future.

5 “15 Economic Facts about Millennials”

12%

13%

14%

15%

16%

17%

18%

19%

1980 1985 1990 1995 2000 2005 2010

Source: Bureau of Labor Statistics, Council of Economic Advisers. 2014.

Probability of homeownership: 18 to 34 year olds

ActualLong-run trend


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Millennials are less likely to marry

According to Pew Research, fewer millennials will be married

by age 34 compared to prior generations, and a larger

percentage of them will remain that way. The primary

financial consequence: without a working spouse, a single

individual forgoes the compounding effect of additional

household savings, dual Social Security benefits and the

ability to pool and share expenditures.

They are less likely to invest with retirement goals in mind

Some millennials invest in target date funds via auto-

enrollment plans whose equity allocations begin at 70%-

80%, and decline to 40% by retirement. However, others

are more skeptical about financial markets. This may be a

by-product of living through two 40%+ equity market

declines in the same decade, something that has not

happened since the Great Depression. Some millennials

prefer to save in cash: according to a Brookings Institution

study, 52% of those aged 21-36 said their savings were in

cash vs. 23% for savers of other ages6.

While this gap reflects intentions of young people to save for

homes and repay student loans, it also reflects skepticism of

the financial services industry according to Wells Fargo and

Goldman Sachs surveys. In one survey, only 20% of

millennials described the stock market as the best way to

save for the future. The challenge: above-average cash and

6 “Think you know the Next Gen investor? Think again”, UBS Investor

Watch, 2014

fixed income allocations, particularly at a time of financial

repression by the Federal Reserve, may not be conducive to

growing savings and meeting long-term retirement goals.

Some millennials do not have access to company-sponsored retirement plans, and most have to finance their retirement

According to the Employee Benefit Research Institute, only

51% of workers have employers that sponsor retirement

plans. Furthermore, as shown below for private sector

workers, these plans are overwhelmingly made up of defined

contribution plans, rather than defined benefit. Around 85%

of private sector workers, and a growing number of public

sector workers (see Munnell et al in sources), will have to

finance their own retirements via tax-advantaged retirement

and traditional money management accounts.

0%

10%

20%

30%

40%

50%

1960 1970 1980 1990 2000 2010 2020 2030

Perc

ent n

ever

mar

ried

Source: Pew Research Center. 2014. Dotted lines are projections.

One in four of today's young adults may never marryUnmarried people by generation

45-54

35-44

25-34

100

1,000

10,000

1975 1985 1995 2005 2015

S&P

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Source: Robert Shiller. March 2015.

The S&P 500 and millennial memory

Millennials join labor force

0%

5%

10%

15%

20%

25%

30%

35%

1979 1983 1987 1991 1995 1999 2003 2007 2011

Perc

ent p

artic

ipat

ing

Source: Employee Benefit Research Institute. 2012.

Private-sector workers participating in an employer-sponsored retirement plan, by plan type

Defined contribution plan only

Defined benefit plan only

Both types


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Millennials will likely face more job and wage uncertainty

Labor market conditions are more challenging for millennials

than for prior generations, as shown by weak real household

income growth and hours worked. While the business cycle

plays an obvious role here, there are longer-term secular

forces at work as well.

While employment and wage prospects for those with

bachelor’s degrees are higher than for high school

graduates7, millennials with college degrees face the risk

7 According to a Bureau of Labor Statistics Economic News Release,

college graduates are unemployed at half the rate of high school graduates (2.7% vs. 5.4%). Additionally, the college wage premium remains near an all-time high, at about 75% for those with bachelor’s degrees over those with a high school diploma, according to a November 2014 study by the New York Fed.

that their jobs will be computerized. Professors at Oxford

looked at different job segments and assigned “probabilities

of computerization” to each. Their findings: around half of

all U.S. jobs in both services and manufacturing are at “high”

risk of computerization over the next decade or two. Even if

their estimates are too high, the point is clear: some of our

millennials will face periods of un- or under-employment

during their lifetimes, which will interrupt their long-term

savings goals.

0.0

1.0

2.0

3.0

4.0

5.0

0.0 0.2 0.4 0.6 0.8 1.0

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. em

ploy

men

t, m

illio

ns

Probability

Transportation and Material MovingProductionInstallation, Maintenance, and RepairConstruction and ExtractionFarming, Fishing, and ForestryOffice and Administrative SupportSales and RelatedServiceHealthcare Practitioners and TechnicalEducation, Legal, Community Service, Arts, and MediaComputer, Engineering, and ScienceManagement, Business, and Financial

Source: "The Future of Employment: How Susceptible Are Jobs to Computerisation?", Frey and Osborne, September 2013.

Probability of computerization by occupation

Low32% Employment 17% Employment 51% Employment

Medium High

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

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1975 1980 1985 1990 1995 2000 2005 2010

Annu

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-yea

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Source: U.S. Census Bureau. 2013.

Real median household income growth

50

75

100

125

150

175

200

225

1975 1980 1985 1990 1995 2000 2005 2010 2015

Inde

x, 3

/31/

1980

= 1

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Source: Bureau of Labor Statistics, Federal Reserve Board. Q1 2015.

Manufacturing output vs. hours worked

Real output

Hours worked


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Millennials are expected to live longer and longer and longer…

Millennials are living longer, and many will have to finance

retirements that are longer than the number of years they

work. In 2014, the Society of Actuaries finally reflected this

emerging reality in their estimates, increasing their life span

projections by 2 – 2.5 years. Longer retirements need more

savings, particularly when saving for lifespans longer than the

simple medians shown in the next chart.

Millennials will likely face rising pressure on entitlements

Millennials may experience a curtailment of entitlements such

as Medicare and Social Security. While the U.S. federal debt is

expected to stabilize through 2025, it is projected to rise

thereafter. Even more to the point, the 2nd chart shows that

since the creation of the entitlement system in the late 1960s,

it has been rising inexorably at the expense of non-defense

discretionary spending items, categories which are critical

drivers of long-term growth and productivity. As per

Congressional Budget Office projections, consequences of the

Budget Control Act passed in 2011 will drive the entitlement-to-

discretionary ratio from 1:1 in the early 1970s to 4:1 by 2020.

Our millennials will probably be the generation that sees this

divergence come to an end, at their expense.

80

82

84

86

88

Men Women

Life

exp

ecta

ncy

at a

ge 6

5 by

bir

th y

ear Born in 1940 Born in 1950

Born in 1960 Born in 1970Born in 1980 Born in 1990Born in 2000

Source: U.S. Census Bureau. 2015.

Increasing median life expectancy for retirees

0%

20%

40%

60%

80%

100%

75 80 85 90 95 100Live to age

Source: Social Security Administration, JPMAM. 2014. Probability that one spouse will live to the listed age or beyond assuming both live to age 65.

Probability at least one millennial spouse lives to various ages

0%

20%

40%

60%

80%

100%

120%

1970 1980 1990 2000 2010 2020 2030

Perc

ent o

f GD

P

Source: Congressional Budget Office. July 2014.

Federal debt held by the public

Extended baseline projection

Actual

2%

4%

6%

8%

10%

12%

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Perc

ent o

f GD

P

Source: Congressional Budget Office. March 2015.

Entitlement and non-defense discretionary spending

CBO projection

Entitlement spending

Non-defense discretionary


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S E A S O N S U M M A R I E S

What follows are season summaries of Seasons 1, 2 and 3. In each episode of The Millennials, their choices and the world around them change. We summarize each episode by describing the savings they would need to make throughout their lives, starting at age 25, in order to help sustain their financial assets through the end of retirement. The following plot devices appear in each season. For a detailed explanation of how they work, please refer to Key to Plot Devices Used in “The Millennials” and Additional Production Notes.

Pre-tax contributions to savings Additional savings from after-tax income Employer match of pre-tax savings Asset allocation between stocks and bonds Financial market returns Retirement spending goal as a percentage of pre-

retirement disposable income Changes in retirement spending as a function of age Income level and income growth rate Periods of unemployment Unplanned family emergencies Long-term care expenses Home downpayment ratios Student debt levels College tuitions for children Inflation and interest rates Ordinary income and capital gains tax rates Government policy on entitlements and qualified

retirement plans

All characters appearing in this work are fictitious. Any resemblance to real persons,

living or dead, is purely coincidental.

No animals were harmed in the filming of this show.


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T H E M I L L E N N I A L S , S E A S O N 1 S U M M A R Y: M E D I A N - I N C O M E H O U S E H O L D S

The goal for median-income families in Season 1: spend the

same amount in retirement as they did in their final

working years, and have their financial assets last through

to the end of their lives with a small cushion to spare. Social Security plays a very important role in Season 1, and

finances the majority of retirement spending. When

everything goes according to plan (our millennials maintain

their health throughout their working lives, work to age 67

and live to old age with above-average health outcomes),

the 3% auto-enrollment rate common at many companies8

can be sufficient as a supplement to Social Security.

However, in the rest of Season 1, the millennials experience

a variety of real-life events that are out of their control.

Some impede their ability to save (unemployment, family

emergencies, early death of a spouse, forced early

retirement, repayment of student debt), while others slow

8 According to Vanguard, half of all plans they oversee have a 3% auto-enrollment rate. Twelve percent of plans are at a 2% rate, and another twelve percent are at a 4% rate. Around twenty percent have auto-enrollment rates of 5%-6% or more.

accumulation of their financial assets (lower market

returns, policy changes affecting Social Security, the lack of

an employer 401(k) match). In some episodes, their own

lifestyle decisions have an impact as well (conservative

investing, career detours). And in one episode, a perfect

storm hits in which a series of unfortunate events all occur

at the same time.

In Season 1, median-income millennials realize that a

financial plan designed to weather a variety of storms

starts with annual allocations of 4%-9% of pre-tax income

into retirement accounts (assuming they also benefit from

an employer match), on top of 2% saved each year out of

after-tax income. Such a plan wouldn’t address all potential outcomes, but would maintain financial

independence in a lot of them, and prevent them from

becoming wards of the state, or of their children.

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Ep. 1 Ep. 2 Ep. 5 Ep. 6 Ep. 7 Ep. 10 Ep. 8 Ep. 13 Ep. 12 Ep. 15 Ep. 9 Ep. 18 Ep. 16 Ep. 11 Ep. 17 Ep. 14 Ep. 20 Ep. 21 Ep. 24 Ep. 23

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Source: JPMAM. 2015.The Millennials: Summary of Season 1Annual pre-tax contribution to savings required by each median earner for financial wealth to last through end of retirement

Couple; single-income lifestyle Couple; dual-income lifestyle Single

All savings begin at age 25 and continue to retirement. In addition to retirement account contributions shown in the bars, households are assumed to save 2% of after-tax income, and benefit from a 50% employer match of pre-tax savings, capped at 3%. For couples, pre-tax contribution rates apply to both spouses.

4% 12% 13% 11% 12% 14% 12% 11% 14% 13% 13% 15% 16% 24% 26% 28% 13% 14% 15% 17%Corresponding household lifetime total savings rate (active + passive):


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What happens if they don’t save enough by retirement?

When median-income millennials didn’t save enough by

the time they retired, and when adverse events took

place, the millennials had to slash their retirement

spending by 25%-40% in real terms compared with pre-

retirement levels. In practical terms, such spending levels

brought them close to subsistence living.

Can working longer offset inadequate saving? Other options for the millennials: work for 3 to 4 more years, until age 70 or 71, in order to accumulate more savings, defer drawdown of retirement assets and boost Social Security payments. However, not all of them will be physically able to do it, and/or be able to find the necessary employment opportunities.

Could the millennials invest their way out of savings rates

that are too low? In one episode, Ken retires early and

tries to invest his way out to offset the reduction in

accumulated savings and the earlier withdrawals. The

challenge: he would have to generate 10.5% real annual

rates of return on equity every year throughout his entire

working and retirement life, which is way above any

recorded long-term post-war equity market index return.

What if the millennials start their savings journeys later?

The table shows the required pre-tax contributions to

savings by episode assuming savings begin at age 25,

along with the same figure for those who don’t start

saving until age 35.

Episode Ag e 25 Ag e 35Ep. 1 1.0% 1.7%Ep. 2 3.5% 5.9%Ep. 5 4.2% 7.0%

Ep. 6 3.0% 4.5%Ep. 7 3.6% 5.1%Ep. 10 3.7% 5.4%Ep. 8 4.0% 5.6%Ep. 13 4.3% 6.2%Ep. 12 4.5% 5.5%Ep. 15 4.6% 6.4%Ep. 9 4.7% 6.2%Ep. 18 5.5% 8.0%Ep. 16 5.8% 8.1%Ep. 11 8.8% 13.3%Ep. 17 9.6% 14.5%Ep. 14 15.4% 19.1%

Ep. 20 3.3% 4.8%Ep. 21 5.1% 7.2%Ep. 24 5.8% 8.3%Ep. 23 6.2% 8.8%

Median-income households

The season summary bar chart on the prior page shows required pre-tax contributions to savings assuming that savings begin at age 25. The table above shows required pre-tax contributions to savings assuming that savings begin at age 25, and also at age 35. Source: JPMAM. 2015.

Required pre-tax contribution by each spouse if saving s beg in at:


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T H E M I L L E N N I A L S , S E A S O N 2 S U M M A R Y: A F F L U E N T H O U S E H O L D S

The goal for affluent9 millennials in Season 2: retire in their

mid 60s, spend 15% less in retirement compared to what

they spent in their final working years, have their financial

assets last to the end of their lives with a modest cushion to

spare, and not have to sell the family home under duress.

In Episodes 1 and 15 of Season 2 (the best of circumstances,

when everything goes according to plan), a 7.5%-8.0%

contribution to retirement accounts out of pre-tax income

every year is sufficient for our millennials, alongside their

Social Security payments (Social Security plays a smaller

role in Season 2 than in Season 1, since it only finances

about half of their retirement spending).

However, in the rest of Season 2, the affluent millennials

experience a variety of real-life events that are mostly out

of their control. Some impede their ability to save

(repayment of student debt, unemployment, family

emergencies, forced early retirement, long-term care

9 In The Millennials, affluent families are those with household incomes in the top 5 percent, according to 2015 U.S. Census Bureau data

expenses, college tuitions), while others slow accumulation

of their financial assets (lower market returns, policy

changes affecting Social Security, no access to a 401(k)

plan). In some episodes, their own lifestyle decisions have

an impact as well (conservative investing). And in one very

dramatic episode, a perfect storm hits in which a series of

unfortunate events all occur at the same time.

In Season 2, the affluent millennials realize that a plan

designed to weather a variety of storms starts with annual

allocations of 9%-14% of pre-tax income into diversified

retirement accounts (assuming they benefit from an

employer match, capped at 3%), on top of 2% saved each

year out of after-tax income. Such a financial plan wouldn’t

address all outcomes, but would maintain their financial

independence in a lot of them, and prevents them from

becoming wards of their children, or having to make deep,

unexpected reductions in retirement spending.

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Ep. 15 Ep. 17 Ep. 19 Ep. 18 Ep. 16 Ep. 22 Ep. 20 Ep. 21 Ep. 24 Ep. 23

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The Millennials: Summary of Season 2Annual pre-tax contribution to savings required by each affluent earner for financial wealth to last through end of retirement

Single Couple; dual-income lifestyle


Source: JPMAM. 2015.

21% 23% 25% 21% 23% 23% 23% 25% 27% 24% 28% 28% 23% 23% 25% 27% 18% 26% 26% 28% 29% 25%

Ep. 1 Ep. 6 Ep. 7 Ep. 4 Ep. 5 Ep. 12 Ep. 9 Ep. 14 Ep. 2 Ep. 8 Ep. 13 Ep. 10

Corresponding household lifetime total savings rate (active + passive):


SE

AS

ON

S

UM

MA

RIE

S

• What happens if they don’t save enough by retirement?When a�uent millennials didn’t save enough by the timethey retired, and when adverse events took place, theyhad to slash their retirement spending by 35%-45% inreal terms compared to pre-retirement levels. In practicalterms, such spending levels brought them close tomedian-income living.

• Can working longer offset inadequate saving? Otheroptions for the millennials: work for 3 to 4 more years,until age 70 or 71, in order to accumulate more savingsand defer drawdown of retirement assets. However, notall of them will be physically able to do it, and/or find thenecessary employment opportunities.

• Could a�uent millennials invest their way out of savingsrates that are too low? In one episode, Ima tries to do justthat. The challenge: she would have to generate a real9% annual compound rate of return on her equityportfolio every year throughout her entire life, which isabove any recorded long-term post-war equity marketindex return.

• What about inheritances10? For a�uent millennials, theycan be very powerful as a counterweight to adverseevents. In one episode, the millennials experienceadverse policy changes, lower market returns and lifeevents. However, the receipt of $400,000 at age 35provides enough investible wealth so that theirretirements are the same as in Episode 1, when everythinggoes according to plan, without an increase in theirsavings rate.

10 Boston College projects $59 trillion of generational wealth transfer over the next decade. See: “A Golden Age of Philanthropy Still Beckons: National Wealth Transfer and Potential for Philanthropy Technical Report”, Center on Wealth and Philanthropy, Boston College, May 2014

• What if the millennials start their savings journeys later?The table shows the required pre-tax contributions tosavings by episode assuming savings begin at age 25,along with the same figure for those who don’t startsaving until age 35.

Episode Ag e 25 Ag e 35Ep. 1 7.5% 8.2%Ep. 6 8.9% 9.6%Ep. 7 9.1% 9.9%Ep. 4 9.5% 10.3%Ep. 5 9.7% 10.3%Ep. 12 10.6% 11.1%Ep. 9 11.2% 12.0%Ep. 14 11.4% 12.0%Ep. 2 12.2% 13.2%Ep. 8 12.3% 12.8%Ep. 13 12.9% 13.9%Ep. 10 14.0% 15.0%

Ep. 15 8.3% 9.9%Ep. 17 9.7% 11.7%Ep. 19 9.8% 11.8%Ep. 18 10.4% 12.4%Ep. 16 10.7% 13.0%Ep. 22 11.1% 13.0%Ep. 20 11.6% 13.2%Ep. 21 13.0% 15.2%Ep. 24 13.8% 15.8%Ep. 23 14.6% 16.4%

A�uent households




SE

AS

ON

S

UM

MA

RIE

S

T H E M I L L E N N I A L S , S E A S O N 3 S U M M A R Y: H I G H N E T W O R T H H O U S E H O L D S

The goal for high net worth11 millennial families in Season

3: retire in their early to mid-60s, spend 15% less in

retirement compared to what they spent in their final

working years, have their financial assets last through to

the end of their lives with a modest cushion to spare, and

not have to sell the family home.

In Episodes 1 and 13 of Season 3 (the best of circumstances,

when everything goes according to plan), a 12%

contribution to retirement accounts out of pre-tax income

every year is sufficient for our millennials. Note: Social

Security plays a much smaller role in Season 3, since it only

finances 25% of high net worth family retirement spending.

However, in the rest of Season 3, the high net worth

millennials experience a variety of real-life events that are

mostly out of their control. Some impede their ability to

save (family emergencies, forced early retirement, long-

term care events, private college tuitions), while others

11 In The Millennials, high net worth families are those with household

incomes in the top 1%, according to 2015 U.S. Census Bureau data.

slow accumulation of their financial assets (lower market

returns, policy changes affecting Social Security and no

access to a 401(k) plan). In some episodes, their lifestyle

decisions have an impact as well (conservative investing).

And in one episode, a perfect storm hits in which a series of

unfortunate events occur at the same time.

In Season 3, the high net worth millennials realize that a

financial plan designed to weather a variety of storms

starts with annual allocations of 14%-18% of pre-tax

income into diversified retirement accounts (assuming they

benefit from an employer match, capped at 3%), on top of

2% saved each year out of after-tax income. Such a plan

wouldn’t necessarily address all potential outcomes, but it

would maintain their financial independence in a lot of

them (and prevent them from having to make deep,

unexpected reductions in retirement spending).

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Ep. 1 Ep. 6 Ep. 4 Ep. 5 Ep. 10 Ep. 12 Ep. 2 Ep. 11 Ep. 8 Ep. 7 Ep. 13 Ep. 17 Ep. 16 Ep. 15 Ep. 18 Ep. 21 Ep. 19 Ep. 14 Ep. 20

Pre-

tax

cont

ribu

tion

as a

% o

f inc

ome

The Millennials: Summary of Season 3Annual pre-tax contribution to savings required by each high net worth earner for financial wealth to last through end of retirement

Single Couple; dual-income lifestyle


Source: JPMAM. 2015.

28% 28% 27% 29% 29% 29% 31% 31% 31% 30% 28% 29% 29% 27% 28% 30% 31% 24% 29%Corresponding household lifetime total savings rate (active + passive):


SE

AS

ON

S

UM

MA

RIE

S

What happens if they don’t save enough by retirement?

When the high net worth millennials didn’t save enough by

the time they retired, and when adverse events took

place, they had to slash their retirement spending by 35%-

45% in real terms compared to pre-retirement levels in

order to remain solvent.

Could high net worth millennials invest their way out of

savings rates that are too low? In one episode, they try to

do just that. The challenge: they would have to generate a

real 8% annual compound rate of return on their equity

portfolio every year throughout their entire lives, which

would be close to the peak long-term post-war equity

market index return on record.

One challenge for high net worth millennials with high

savings rates: exhaustion of tax-advantaged savings

allowances. In many episodes, their intended level of tax-

efficient savings is above the allowable caps on 401(k)

plans and IRA accounts, and exceeds what they are

comfortable allocating to non-qualified deferred

compensation plans, given concerns about exposure as a

general unsecured creditor. As a result, some of their

intended tax-efficient savings have to be made in tax-

inefficient savings accounts, increasing the amount they

have to save for each dollar of retirement spending.

What about inheritances? They can be very powerful as a

counterweight to adverse events. In one episode, the

millennials experience adverse policy changes, lower

market returns and life events. However, the receipt of

$700,000 at age 35 provides enough investible wealth so

that their retirements are the same as in Episode 1, when

everything goes according to plan, without having to

increase their savings rate.

What if the millennials start their savings journeys later?

The table shows the required pre-tax contributions to

savings by episode assuming savings begin at age 25,

along with the same figure for those who don’t start

saving until age 35.

Episode Ag e 25 Ag e 35Ep. 1 12.3% 13.8%Ep. 6 12.9% 14.6%Ep. 4 14.3% 16.8%Ep. 5 15.0% 16.9%Ep. 10 15.9% 18.1%Ep. 12 15.9% 17.9%Ep. 2 16.2% 18.7%Ep. 11 17.0% 19.5%Ep. 8 18.9% 21.3%Ep. 7 19.2% 21.8%

Ep. 13 11.9% 13.8%Ep. 17 12.5% 14.6%Ep. 16 12.9% 15.2%Ep. 15 13.4% 16.0%Ep. 18 15.1% 17.4%Ep. 21 16.4% 19.1%Ep. 19 16.9% 19.8%Ep. 14 17.1% 19.4%Ep. 20 19.5% 22.6%

High net worth households




A N O T E O N T H E I N D I V I D U A L E P I S O D E S

In the following two sections, we outline some of the more

notable episodes from Seasons 1 and 2. The format of each

episode brief is the same: a narrative of the episode at the top,

accompanied by charts on the millennials’ household financial/

total assets and how their retirements are financed; a table on

their actual savings rates and breakeven annual savings rates

based on the circumstances of each episode; and a list of all

underlying assumptions. We left in the markings made by our

script editor, since they help illustrate the salient dramatic

points in each episode, and how they differ from each other.

Key Plot Devices and Production Notes follow the individual

episode briefs.

Episode narrative

How retirement is

financed

Savings rates and

breakeven analysis

Assumptions

Financial assets

Total assets

SEASON 1, EPISODE 6Chad and Jane Selphy when everything goes according to plan

Season 1, Episode 6: Saving s Chad Jane

Pre-tax contributions to savings 3.0% 3.0%

Employer match 1.5% 1.5%

Additional household savings as % of after-tax income 2.0%

Contribution from pre-tax/after-tax portfolio returns 5.5%

Lifetime savings rate (active + passive) 11.1%

Breakeven analysis:Actual pre-tax contributions by both spouses 3.0%

Pre-tax contributions to savings by both spouses required to reach

financial asset target by age 95 3.0%

Alternative: retirement income replacement of 100%

Source for all charts: JPMAM. 2015. which implies a real change in spending of -12%

Season 1, Episode 6: Other assumpt ions

Two spouses, median & median income No home purchased: insufficient downpayment accumulation

Retiring at 67/67, two-income lifestyle Equity return (real): 5.5%; Fixed income return (real): 1.0%

Retirement spending is 100% of pre-retirement disposable income

Second spouse dies at age 90

Spending reduction after death of a spouse: 20%

Social Security taken at age 68 at 108% of age 67 benefits

Debt at inception of $54,000

AT Savings Fixed Inc. allocation: 50% (age 25) to 50% (retire.)

Retirement plan Fixed Inc. allocation: 20% (age 25) to 60% (retire.)

2nd spouse Fixed Inc. allocation: 20% (age 25) to 60% (retire.)

In Episode 6, we meet Chad and Jane Selphy, music teachers who enjoy taking a lot of pictures of themselves and their students. They both work until retirement at age 67, and are active savers: they each put aside 3% of their pre-tax income, benefit from an employer match, and save another 2% of after-tax income. Including the benefit of portfolio returns, their lifetime savings rate is 11%. Chad and Jane need to save more than the Ablastes, since they're accustomed to living off of two incomes rather than one, and intend to spend roughly the same amount in retirement as they did when they were in their final working years. Chad and Jane never bought a home, since they were paying down student debt when they were young and couldn't simultaneously fund a downpayment.

Everything goes according to plan. Jane and Chad reintroduce the alpenhorn to a new generation of students, and are model teachers in their school district. They work until they are 67, and accumulate enough assets to allow them to meet their retirement spending objectives. Chad passes away at age 90, Jane draws on their savings given the loss of a Social Security benefit, and their financial assets last through to the end of Jane's retirement. Episode 6 ends on a happy note, but previews of upcoming episodes suggest that it may not last...

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Debt

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Total asset composition, Episode 6

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6 : Everything goes ac cording to plan

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68 71 74 77 80 83 86 89 92 95

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thou

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Savings Acct Mand 401(k)

Soc. Sec. Spending

Sources of funds for retirement spending, Episode 6


S E A S O N 1


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AS

ON

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SEASON 1, EPISODE 1Meri and Evan Ablaste when everything goes according to plan

Season 1, Episode 1: Savings Meri Evan




Contribution from pre-tax/after-tax portfolio returns 0.6%Lifetime savings rate (active + passive) 3.7%





Source for all charts: JPMAM. 2015. which implies a real change in spending of 7%

Season 1, Episode 1: Other assumptions


Retiring at 67/45, single-income lifestyle Equity return (real): 5.5%; Fixed income return (real): 1.0%









Meri and Evan Ablaste are architects, enjoy the outdoors and relish their annual trips to the Burning Man festival. The trips to Nevada aren't cheap, and consume most of their disposable income with little left for saving. In fact, Meri and Evan only contribute 1% of their pre-tax income to savings plans and 2% of after-tax income to a brokerage account; the rest of their income is consumed. They use their after-tax savings to pay down student debt and other consumer loans. Meri retires at age 45 to teach transcendental Irish step-dancing, and Evan retires at age 67, by which time they have adjusted to life on a single income.

In Episode 1, everything goes according to plan: Evan's health holds up and allows him to work until 67 without interruption, and Meri lives to age 90. Despite their minimal savings, the Social Security safety net is all they need: their dual Social Security payments finance their single-income lifestyle retirement spending. In fact, they accumulatesome savings along the way, since their Social Security payments rise faster than their spending targets. They might not realize it, but Evan and Meri should stop in Vegas on the way back from Burning Man, since they are massive gamblers...with their retirement. In Episode 2 we will find out why.

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AT Savings

Debt

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ions

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1: Everything goes according to plan

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68 71 74 77 80 83 86 89 92 95

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Savings AcctMand 401(k)Soc. Sec.Spending



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SEASON 1, EPISODE 2Meri and Evan Ablaste and the early death of a spouse (73) after involuntary early retirement (62)

Season 1, Episode 2: Savings Meri Evan












Retiring at 62/45, single-income lifestyle Equity return (real): 5.5%; Fixed income return (real): 1.0%









In Episode 2, reality comes crashing down on Meri and Evan. First, Evan is forced to retire at age 62 for health reasons related to toxic Guatemalan sunflowers he ingested at Burning Man. He and Meri must accelerate the receipt of Social Security payments to age 63, resulting in a 25% discount vs. age 67 levels. These lower payments no longer cover their spending needs, even though they cut spending targets to be equal to pre-retirement cash flow (rather than above it). Then, Meri passes away at age 73, depriving Evan of one of the Social Security benefits they had been living on. They can never meet their spending targets (even after an assumed 20% spending decline upon Meri's death), and have to cut spending by 40%-45% in real terms vs. pre-retirement levels, starting at age 68.

To avoid this catastrophic outcome, Meri and Evan would each have needed to put 3.5% of their respective incomes into a 401(k) every year, along with an assumed employer match of 1.8%. If they had, their assets would have outlived Meri and lasted until the end of Evan's retirement at age 95. Episode 2 highlights the importance of supplementing government savings plans: even for median earners, the government safety net will usually only suffice if nothing else ever goes wrong.

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2: Early spouse death, involuntary early retirement1: Everything goes according to plan

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63 66 69 72 75 78 81 84 87 90 93

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thou

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Savings Acct Discr 401(k)

Soc. Sec. Spending



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SEASON 1, EPISODE 6Chad and Jane Selphy when everything goes according to plan

Season 1, Episode 6: Savings Chad Jane





















In Episode 6, we meet Chad and Jane Selphy, music teachers who enjoy taking a lot of pictures of themselves and their students. They both work until retirement at age 67, and are active savers: they each put aside 3% of their pre-tax income, benefit from an employer match, and save another 2% of after-tax income. Including the benefit of portfolio returns, their lifetime savings rate is 11%. Chad and Jane need to save more than the Ablastes, since they're accustomed to living off of two incomes rather than one, and intend to spend roughly the same amount in retirement as they did when they were in their final working years. Chad and Jane never bought a home, since they were paying down student debt when they were young and couldn't simultaneously fund a downpayment.

Everything goes according to plan. Jane and Chad reintroduce the alpenhorn to a new generation of students, and are model teachers in their school district. They work until they are 67, and accumulate enough assets to allow them to meet their retirement spending objectives. Chad passes away at age 90, Jane draws on their savings given the loss of a Social Security benefit, and their financial assets last through to the end of Jane's retirement. Episode 6 ends on a happy note, but previews of upcoming episodes suggest that it may not last...

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Soc. Sec. Spending



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SEASON 1, EPISODE 7Chad and Jane Selphy and lower financial market returns






















In Episode 7, Chad and Jane stick to their savings plan, but a combination of factors leads to modestly lower financial market returns. The primary culprits: worsening demographics in the OECD which result in lower trend growth, and the lack of a sustained rebound in U.S. productivity, which remains well below peaks last seen in the 1960s and 1990s. Driverless cars and 3-D printing are interesting innovations, but they cannot match the productivity benefits from electrification (1930s), the interstate highway system (1950s) and the inception of the Internet (1990s). Over their lifetimes, equity and fixed income returns are 0.75% lower on an annual basis compared to Episode 6. The result: slower asset accumulation, particularly in retirement. Eventually, their savings are exhausted, in contrast to the modest financial cushion available at the end of Episode 6.

The Selphys could have prepared for such an outcome in advance by saving 3.6% of their pre-tax incomes instead of 3%. This seems like a small increase, but if made every year over the course of their entire working lifetimes, and when incorporating the higher employer match that goes with it, it adds up to a lot.

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SEASON 1, EPISODE 8Chad and Jane Selphy deal with life events (unemployment and emergencies)












Two spouses, median & median income Retirement plan Fixed Inc. allocation: 20% (age 25) to 60% (retire.)

Retiring at 67/67, two-income lifestyle 2nd spouse Fixed Inc. allocation: 20% (age 25) to 60% (retire.)

Retirement spending is 100% of pre-retirement disposable income No home purchased: insufficient downpayment accumulation

Second spouse dies at age 90 Equity return (real): 5.5%; Fixed income return (real): 1.0%




3 years of unemployment

2 family emergency years


In Episode 8, Chad and Jane deal with the financial consequences of unemployment and family emergencies. Given local budget cuts, Chad is unemployed for a total of 3 years, and works for 39 years instead of 42. The financial strain requires them to take out consumer loans which they eventually pay off, but which interrupt their savings until they do. To make matters worse, on two occasions, Chad and Jane deal with other unfortunate events: one of their children was texting while driving and crashed into a vintage clothing store, and the other went into rehab for a datingapp-related addiction. Both of these episodes cost Chad and Jane money to resolve, and temporarily interrupt their savings as well.

While these kind of events are unforeseen, they are not entirely unexpected. If Chad and Jane had anticipated the eventual need for emergency expenses, they each could have saved 4% of their pre-tax incomes instead of 3.0%. In that case, they would not be facing a collapse in their financial assets late in retirement, leaving Jane with Social Security payments which amount to less than half of Jane's spending target once Chad passes away.

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8: Life events


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Mand 401(k) Soc. Sec.

Spending



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SEASON 1, EPISODE 9Chad and Jane Selphy are conservative investors in an era of financial repression






















In Episode 9, the Selphys still invest but they don't do much with their savings. A stock-broker ex-boyfriend of Jane's mother caused the family to go bankrupt during the 2001 tech collapse by recommending concentrated positions in online psychiatry companies. Chad and Jane were left with a deep suspicion of financial markets, and hold most of their savings in cash and fixed income (their equity asset allocation starts at 35% and falls to 20% by retirement). In addition, the era of "financial repression" continues in which the Federal Reserve uses low policy rates to manage the business cycle. The result: Chad and Jane's savings are more rapidly depleted in retirement given lower asset growth, and eventually run out; Jane is left with Social Security payments that are well below her spending needs.

It's OK to be a conservative investor as long as you make the necessary adjustments. To regain the same solvency they had in Episode 6, the conservatively investing Selphys would have needed to put 4.7% of pre-tax income into savings each year rather than 3%, a decision that would also have increased their employer match. If they don't have this epiphany until retirement, the Selphys would have to cut retirement spending by 20%-25% vs. pre-retirement levels.

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Retiring at 67/67, two-income lifestyle Limits on 401(k) contributions

Retirement spending is 100% of pre-retirement disposable income Higher Social Security income cap and means-testing

Second spouse dies at age 90 Use CPI for Social Security earnings compounding

Spending reduction after death of a spouse: 20% Use lower COLA for Social Security benefit growth

Social Security taken at age 68 at 108% of age 67 benefits Further reductions in itemized deductions

Debt at inception of $54,000 Equity return (real): 5.5%; Fixed income return (real): 1.0%




SEASON 1, EPISODE 10Chad and Jane Selphy deal with Social Security policy changesIn Episode 10, Chad and Jane save according to plan and invest in a balanced fashion, but the politics in Washington change. Extremists in both parties are pushed out by an electorate that finally tires of them, allowing for a return of the political moderates from hibernation. The country's new heroes are the great centrists of history: Theodore Roosevelt, Benjamin Franklin, Ward Cleaver and Foghorn Leghorn. The newly configured Congress addresses the long-term sustainability of entitlements (see pages 9 and 60), and requires sacrifices across the political and net worth spectrum. These sacrifices involve tax increases and means-testing which mostly affect the affluent and the wealthy, but median-income families like the Selphys are affected as well through modest reductions in their Social Security benefits.

Once again, the Selphys' financial assets run out before the end of their retirement, and Social Security is not enough to meet their spending targets. The Selphys could have prepared themselves for such an outcome by saving 3.7%instead of 3% in their pre-tax savings plans during their working years.

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SEASON 1, EPISODE 11Chad and Jane Selphy and the impact of early retirement at 62






















Can median families retire early? Not without a lot of planning. In Episode 11, Chad and Jane retire at age 62 (whether they want to retire or have to retire due to an inter-office indiscretion on Chad's part will remain unclear in the episode, leaving viewers to debate the nuances in online chat rooms). The problem with early retirement: Chad and Jane make fewer contributions to savings from earned income; they accumulate lower amounts of portfolio income since their savings balances are drawn down earlier; and they receive lower Social Security benefits due to the acceleration discount. At their level of savings (3% of pre-tax income), they almost immediately become insolvent in retirement at their planned level of spending. The alternative: cut their spending almost in half, which is practically impossible for non-hermits.

Early retirement is not impossible, but as shown below, it would take a seismic savings shift by the Selphys to plan for it: they would each have needed to make an 8.8% contribution to savings out of pre-tax income during their working years, and reduce consumption accordingly.

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SEASON 1, EPISODE 12Chad and Jane Selphy become late bloomers












Two spouses, late bloomer & late bloomer income No home purchased: insufficient downpayment accumulation










In Episode 12, the Selphys follow their dreams. In their late 20s, Chad and Jane form a singing duo called Pork Pie Hat, an acoustic/ukulele band whose music they intend to sell through online music services. Their mantra: follow your dreams when you're young, since you can always go back to a regular day job later. Unfortunately, this is exactly what happens: their music doesn't really catch on, since Jane is tone-deaf and Chad's overly earnest confessionals are considered by audiences to be disturbing.

Chad and Jane eventually give up on Pork Pie Hat after a scathing review by their own parents in a local paper. By their late 30s, they become music teachers and their incomes finally converge with median levels. The lower amount of savings compared to Episode 6 leaves the Selphys below the retirement “tipping point”, a level above which assets plus investment returns are greater than retirement spending. Late bloomers like the Selphys would have needed to save 4.5% instead of 3%, starting in their mid 20s, to regain the financial security of Episode 6. In other words, following your dreams is not inconsistent with a viable retirement, as long as you plan for it, and know when to say goodbye to the pork pie hat.

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SEASON 1, EPISODE 13Chad and Jane Selphy have no employer match






















While many employers offer a 401(k) plan, some do not provide a match to employee contributions. In prior episodes, the Selphys benefited from an employer match equal to 50% of what they contributed, capped at 3%. In Episode 13, however, the Selphys work for an employer that decides to terminate matching of employee contributions to savings plans. The impact is substantial, since in prior episodes both Chad and Jane received the match for over 40 years. In order to make up for the loss of the employer match, Chad and Jane would each need to contribute 4.3% to their pre-tax retirement accounts every year instead of 3%. In other words, the employer match has substantial economic value.

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SEASON 1, EPISODE 14Chad and Jane Selphy and the perfect storm (everything hits at once)












Two spouses, median & median income Retirement plan Fixed Inc. allocation: 20% (age 25) to 60% (retire.)

Retiring at 62/62, two-income lifestyle 2nd spouse Fixed Inc. allocation: 20% (age 25) to 60% (retire.)

Retirement spending is 100% of pre-retirement disposable income No home purchased: insufficient downpayment accumulation

Second spouse dies at age 90 Limits on 401(k) contributions

Spending reduction after death of a spouse: 20% Higher Social Security income cap and means-testing

Social Security taken at age 63 at 75% of age 67 benefits Use CPI for Social Security earnings compounding

Debt at inception of $54,000 Use lower COLA for Social Security benefit growth

3 years of unemployment Further reductions in itemized deductions

2 family emergency years Equity return (real): 4.8%; Fixed income return (real): 0.3%


Sometimes bad things happen to good people. In Episode 14, the Selphys are hit with a perfect storm: they experience periods of unemployment and family emergencies which interrupt their saving; financial market returns are below historical averages; they are both forced to retire early for health reasons at age 62; and policy changes reduce their Social Security benefits. As a result, they never have the chance to meaningfully accumulate financial assets, and their retirement crashes. They move in with Jane's elderly parents, who still refer to Chad as "that guy that Jane is seeing" and frequently invite Jane's old college boyfriends over for bridge and mahjongg.

To prepare for this unfortunate series of events, the Selphys would have needed to make annual pre-tax contributions to savings of 15.4% of income throughout their entire working lives. This would be challenging for most median-income families given the need to spend earned income on basic necessities. While this is an extreme case, it highlights the levels of savings needed to prepare for stormier retirement weather. If bad things come in threes, the Selphys would need to save even more than 4%-8% of pre-tax income that sufficed in prior episodes of Season 1.

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SEASON 1, EPISODE 20Ken Ebbis when everything goes according to plan

Season 1, Episode 20: Savings Ken

Pre-tax contributions to savings 3.3%

Employer match 1.7%



Breakeven analysis:Actual pre-tax contributions 3.3%

Pre-tax contributions to savings required to reach





Single individual, median income

Retiring at 67






No home purchased: insufficient downpayment accumulation

Equity return (real): 5.5%; Fixed income return (real): 1.0%

In Episode 20 we meet Ken Ebbis, a friend of Jane's from college. Ken stayed in Colorado after college and works as a distributor in the state's legal medical marijuana sector. Like many other millennials, Ken never marries, although in Ken's situation this is not his choice, and is apparently due to his preference for Hawaiian silk shirts and the Jimmy Buffett satellite radio station that constantly plays in his car.

Unlike a married couple, a single individual only accumulates one Social Security benefit and will generally need other sources of savings in retirement. In Episode 20, Ken works until he is 67 and consistently contributes 3.3% of his pre-tax income to his 401(k) plan. He benefits from an employer match of 1.7%, saves an additional 2% of after-tax income in a brokerage account, and has a stable retirement with a financial asset cushion at the end. Like the Selphys, the burden of student debt repayment precludes the purchase of a home. Otherwise, however, his retirement works out just fine, since everything goes according to plan.

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SEASON 1, EPISODE 21Ken Ebbis deals with life events (unemployment and emergencies)



Employer match 1.7%









Single individual, median income Equity return (real): 5.5%; Fixed income return (real): 1.0%

Retiring at 67




3 years of unemployment





While a 3.3% contribution worked out well for Ken in Episode 20, that's because everything went according to plan. Reality intrudes on Ken in Episode 21, which highlights an important issue: single people often need even greater savings to deal with life’s challenges given the inability to pool incomes, savings and expenses.

In Episode 21, Ken temporarily loses his job at the medical marijuana distribution center since supplies mysteriously disappeared on his watch, and also experiences family emergencies related to parents and a sibling. He gets rehired after an investigation reveals that a local sorority (Alpha Kappa Cheeba) was responsible for the theft, but the impact of these events leaves Ken with fewer financial assets in retirement. He is then forced to make a substantial 30% reduction in spending to deal with the consequences. Ken could have offset the financial impact of these events had he saved 5.1% out of pre-tax income during his working years, rather than 3.3%.

Recall that in Episode 8, the Selphys only needed to save an additional 1% to offset these life events, compared to 2% for Ken. The bottom line: for single individuals, higher incremental savings are often needed to mitigate the impact of unfortunate events when compared to married couples.

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SEASON 1, EPISODE 22Ken Ebbis decides to work longer to offset family emergency, policy and market headwinds



Employer match 1.7%









Single individual, median income Higher Social Security income cap and means-testing

Retiring at 70 Use CPI for Social Security earnings compounding

Retirement spending is 100% of pre-retirement disposable income Use lower COLA for Social Security benefit growth

Social Security taken at age 70 at 124% of age 67 benefits Further reductions in itemized deductions






Limits on 401(k) contributions

You don't have to pre-emptively increase savings to guard against unfortunate events taking place, if you are prepared to make other kinds of sacrifices. In Episode 22, Ken faces the life emergency, lower market return and policy changes that appeared in prior episodes. Nevertheless, throughout his working years, Ken maintains the same 3.3% contribution to savings from pre-tax income that he did in Episode 20. As a result, by the time Ken is in his 50s, it becomes apparent that life's headwinds have scuttled his plans for retiring at age 67 with the ability to spend roughly the same amount as he did pre-retirement.

Rather than having to slash retirement spending by 25%-30%, Ken decides to work longer and retire at age 70 instead. That decision increases his contributions to savings, increases his portfolio income and increases his Social Security benefit to 124% of the age 67 amount. All's well that ends well for Ken in Episode 22; but not everyone has the physical and mental ability to work until age 70 on an uninterrupted basis.

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SEASON 2, EPISODE 1Ima Narcissus when everything goes according to plan

Season 2, Episode 1: Savings Ima


Employer match 3.0%









Single individual, affluent income

Retiring at 65






Home purchased at age 36


In Season 2 of The Millennials, the story shifts to the affluent members of the group. In the 1960s, John and Agatha Narcissus have a daughter Ima, whom they name after noted American philanthropist Ima Hogg. Ima becomes a corporate healthcare consultant and moves to San Francisco. While Ima has some long-term relationships, she never marries. She gets engaged once to a macrobiotic food store owner who champions holistic healing modalities, but backs out when she discovers that he secretly eats veal every day for lunch. Ima is a diligent saver: she makes a 7.5%pre-tax contribution to savings every single year, benefits from a 3% employer match, and saves 2% from after-tax income. Including the benefit of portfolio returns, her lifetime savings rate is a little over 20%. In retirement, Ima intends to cut spending to 85% of the level she spent in her final working years.

While Ima has to pay off her student debt, she makes enough to also afford a downpayment on a home which she expects will appreciate in value over her lifetime. Episode 1 is a happy one: everything goes according to plan, Ima is able to work until she is 65 years old, and her financial assets last through retirement. A combination of Social Security and 401(k) withdrawals (both mandatory and discretionary) funds her retirement spending.

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SEASON 2, EPISODE 2Ima Narcissus decides to retire at 62



Employer match 3.0%










Retiring at 62








It's amazing how much difference three years can make. In Episode 2, Ima retires at age 62 instead of 65, a decision prompted by a buyout of the firm she works for by an Austrian conglomerate. The new management eliminates work-at-home policies that Ima enjoyed (despite evidence from a 2014 Stanford University study that home workers had higher productivity, fewer breaks and sick days and lower attrition). In any case, the loss of three years of savings and portfolio income, combined with accelerated withdrawals from after-tax and pre-tax savings, results in a gradual death spiral of Ima's financial assets by her late 70s.

As with the median-income Selphys, early retirement at age 62 is possible for households that prepare for it. In Ima's case, a 7.5% contribution to savings from pre-tax income builds a strong asset foundation, but not enough to draw upon at age 62 and maintain spending through retirement. Ima's options: (a) prepare in advance for early retirement and save 12% of pre-tax income in retirement accounts every year; (b) maintain a 7.5% pre-tax contribution rate and cut retirement spending by 45% vs. pre-retirement levels; or (c) sell her home at age 79 and live off the proceeds for the remainder of her life, assuming that the home appreciates in line with the market.

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SEASON 2, EPISODE 3Ima Narcissus wants to retire at 62 and invest her way outWhile Ima is not an optimist regarding marriage, in Episode 3 she is very optimistic about her investment acumen. Ima still plans to retire at age 62, and sticks to a 7.5% pre-tax contribution rate. Her solution? Fill the savings gap by being a superior investor. In principle, it sounds plausible: at some equity market return, the hole left by early retirement could be filled by greater portfolio returns. However, by the end of Episode 3, Ima realizes just how hard this is going to be: for her to regain the financial security that she had in Episode 1, she would need to generate equity investment returns that are 3.6% above the market every single year for over 50 years. Ima is visited by the ghost of 17th century mathematician/physicist Blaise Pascal who tells her that her financial plan is scientifically unachievable and logically implausible. They date briefly before he disappears.

While anything is possible, a real long-term equity return of 9.1% would be the highest long-term return in post-war history, even above the 30-year trailing equity return in 1999 after the Volcker disinflation and the tech boom took place. Greater savings would be a more reliable way to plan for early retirement.

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SEASON 2, EPISODE 4Ima Narcissus deals with parent elder-care costs

Season 2, Episode 4: Savings Ima Pre-tax contributions to savings 7.5%

%0.3hctam reyolpmEAdditional household savings as % of after-tax income 2.0%Contribution from pre-tax/after-tax portfolio returns 8.8%

%9.71)evissap + evitca( etar sgnivas emitefiL

Breakeven analysis:%5.7 snoitubirtnoc xat-erp lautcA

Pre-tax contributions to savings required to reach%5.959 ega yb tegrat tessa laicnanif

Alternative: retirement income replacement of 77%Source for all charts: JPMAM. 2015. which implies a real change in spending of -34%

Season 2, Episode 4: Other assumptionsSingle individual, a�uent incomeRetiring at 65Retirement spending is 85% of pre-retirement disposable incomeSocial Security taken at age 66 at 93% of age 67 benefitsDebt at inception of $27,0005-year parent elder-care expense periodAT Savings Fixed Inc. allocation: 50% (age 25) to 50% (retire.)Retirement plan Fixed Inc. allocation: 20% (age 25) to 60% (retire.)Home purchased at age 36Equity return (real): 5.5%; Fixed income return (real): 1.0%

In Episode 4, Ima's savings intentions are interrupted for several years due to extensive elder-care costs. Ima doesn't shoulder the burden alone, since her siblings help...but not that much, which causes a falling out after Ima points out how much money her siblings spend on wearable video camera equipment and all their wingsuit flying expeditions. In any case, in order to provide her parents with the kind of assisted living facility that she is comfortable with, Ima must contribute the equivalent of $40,000 per year in 2015 dollars. That amount is in excess of what Ima can fund by cutting annual spending alone, requiring her to take a break from savings contributions for a while. The impact on her accumulated nest egg is felt shortly after she retires, when her financial assets are drawn down more quickly and run out before age 95.

By the end of Episode 4, Ima has an epiphany: viable spending and retirement plans that assume uninterrupted savings contributions for decades don't allow real life to intrude, and may lack cinematic realism. Instead of saving 7.5% per year in pre-tax plans, Ima would have needed to save 9.5% in order to be able to contribute to her parents' assisted living costs while still maintaining her long-term retirement spending goals.

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SEASON 2, EPISODE 5Ima Narcissus and lower market returns



Employer match 3.0%










Retiring at 65








A combination of factors leads to modestly lower financial market returns. The primary culprits: worsening demographics in the OECD which result in lower trend growth, and U.S. productivity which remains well below prior peaks last seen in the 1960s and 1990s. Driverless cars and 3-D printing are interesting innovations, but they cannot match the productivity benefits from electrification (1930s), the interstate highway system (1950s) and the inception of the Internet (1990s). Over Ima's lifetime, equity and fixed income returns are 0.75% lower on an annual basis compared with Episode 1. She will have to make higher savings contributions from pre-tax income (9.7% rather than 7.5%) in order to offset the impact.

There is an important axiom at work in Episode 5: lower financial market returns have a bigger impact the more a retiree relies on investment returns as a complement to Social Security. Case in point: the median-income Selphys from Season 1 could have mitigated the impact of lower market returns by increasing annual pre-tax contributions by 0.6%. For Ima, the increase in annual required contributions was 2.2%.

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Employer match 3.0%









Single individual, affluent income Use CPI for Social Security earnings compounding

Retiring at 65 Use lower COLA for Social Security benefit growth

Retirement spending is 85% of pre-retirement disposable income Further reductions in itemized deductions

Social Security taken at age 66 at 93% of age 67 benefits Equity return (real): 5.5%; Fixed income return (real): 1.0%






Higher Social Security income cap and means-testing

SEASON 2, EPISODE 6Ima Narcissus and the impact of Social Security, tax and 401(k) policy changesPolitics in Washington change: extremists in both parties are pushed out by an electorate that finally tires of them, allowing for a return of political moderates from hibernation. The country's new heroes are the great centrists of history: Theodore Roosevelt, Benjamin Franklin, Ward Cleaver and Foghorn Leghorn. The newly configured Congress addresses the long-term sustainability of entitlements (see pages 9 and 60) and requires sacrifices across the net worth spectrum. A range of policy changes are enacted to bring entitlements under control, and reserve their use as much as possible for the bottom deciles of the net worth and income distribution.

Episode 10 of Season 1 showed the impact of these policy changes on the median-income Selphys, which was modest:a 0.7% increase in required contribution rates. Episode 6 of Season 2 examines the impact on Ima, which is greater: a 1.4% increase, bringing her annual required pre-tax savings contribution to 8.9%. The reason: some policy changes under discussion are designed to impact wealthier individuals (via Social Security means-testing, limits on 401(k) contributions and reduced itemized deductions), with "wealthy" defined as those earning more than $250,000. Ima never considered herself wealthy, but realizes that Congressional grand bargains on tax and entitlement reform may entail definitions of "wealthy" that differ starkly from her own.

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SEASON 2, EPISODE 7Ima Narcissus is made redundant







Season 2, Episode 7: Other assumptionsSingle individual, redundant a�uent incomeRetiring at 65Retirement spending is 85% of pre-retirement disposable incomeSocial Security taken at age 66 at 93% of age 67 benefitsDebt at inception of $27,000AT Savings Fixed Inc. allocation: 50% (age 25) to 50% (retire.)Retirement plan Fixed Inc. allocation: 20% (age 25) to 60% (retire.)Home purchased at age 36Equity return (real): 5.5%; Fixed income return (real): 1.0%

In Episode 7, Ima is confronted with the unpleasant reality of having to find a new job when she is in her 50s. Ima's employer, a healthcare consulting firm that advises hospitals on expense management and billing, develops a web-based tool that eliminates the need for client coverage teams. Ima and her colleagues are made redundant and forced to find new jobs. Given similar trends at other consulting firms, at age 58, Ima ends up taking a job in the meal plan procurement department of a local hospital, with part-time responsibility as the resident food tester. For the remainder of her working years, she earns a median-income salary rather than an affluent one.

For most of Ima's working life, she was an a�uent earner with an a�uent lifestyle. If she wanted to maintain an a�uent retirement as well despite her late-stage redundancy, she would have needed to contribute 9.1% every year to her retirement plan instead of 7.5%. The alternative: adjust to a median-income retirement, which implies a 30%-35% reduction in retirement spending. Another reminder that it's very difficult to adjust late in life to adverse circumstances; it may be better to plan for them all along in order to be able to withstand them.

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SEASON 2, EPISODE 8Ima Narcissus is an ultra conservative investor







Season 2, Episode 8: Other assumptionsSingle individual, a�uent incomeRetiring at 65Retirement spending is 85% of pre-retirement disposable incomeSocial Security taken at age 66 at 93% of age 67 benefitsDebt at inception of $27,000AT Savings Fixed Inc. allocation: 80% (age 25) to 90% (retire.)Retirement plan Fixed Inc. allocation: 80% (age 25) to 90% (retire.)Home purchased at age 36Equity return (real): 5.5%; Fixed income return (real): 1.0%

In Episode 8, Ima is a consistently high saver but does not do much with her money. When Ima gets home every night, she logs onto her computer and reads apocalyptic websites that advocate a return to the gold standard, warn against impending Armageddon, and call for a fundamental reworking of the global financial system. This paralyzes Ima with respect to her financial investments, which she mostly leaves in cash and fixed income.

The problem: a�uent retirees reliant on market returns may not reach their wealth accumulation targets if they invest very conservatively. The conservative Selphys from Season 1 had to increase contributions by 1.7% to o¢set slower asset accumulation. For Ima, that same figure is almost 5% (from 7.5% to 12.3%). Another way to think about the issue: in many successful retirement outcomes, portfolio returns end up accounting for more than half of a retiree's total lifetime savings. When Ima is a very conservative investor, that number is around one-third. As we learned in Season 1, it's OK to be a conservative investor as long as you make the necessary savings adjustments in advance.

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SEASON 2, EPISODE 10Ima Narcissus and the perfect storm (everything hits at once)



Employer match 3.0%












Social Security taken at age 64 at 80% of age 67 benefits Equity return (real): 4.8%; Fixed income return (real): 0.3%







In Episode 10, bad things come in threes and the perfect storm hits: Ima is forced to retire early, market returns are lower and policy changes impact her retirement benefits, 401(k) contributions and effective tax rate. Ima would have needed to set aside 14% of her pre-tax income in tax-deferred vehicles, in addition to saving 2% out of after-tax income and benefiting from an employer match, in order to prepare for this kind of perfect storm. In other words, her annual contributions to savings from pre-tax income would almost have to double. While this is an extreme example, it is far from the worst one imaginable.

This perfect storm is severe enough to deplete Ima's financial assets entirely by age 78, at which point she sells her home and lives off of the proceeds until they are depleted at age 88. An important assumption here is that Ima's home appreciates along with the entire housing market. But what if it doesn’t? See next episode.

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Social Security taken at age 64 at 80% of age 67 benefits Home price appreciation change vs. national average of -1.25%







SEASON 2, EPISODE 11Ima Narcissus, the perfect storm and the lower home priceIn Episode 10, Ima dealt with the perfect storm by selling her home at age 78 and living off of the proceeds, which last through age 88. However, there's a big difference between projecting the value of a diversified portfolio of assets and projecting the value of a single one. As explained in the production notes on page 63, the idiosyncratic price risk associated with homes in individual regions, neighborhoods and zip codes can be substantial.

A one standard deviation reduction in home price appreciation (e.g., something that happens quite frequently) would mean that Ima's home appreciates at a rate that is 1.25% below national averages. That's what happens in Episode 11: property values in Ima's neighborhood grow less rapidly due to the construction of a maximum security prison that is powered by extremely loud wind farms. The sales proceeds on Ima's home only last until age 84 instead of 88, leaving her with no financial or real assets to live on thereafter. While residential real estate can represent a very important store of value for median and affluent families, the idiosyncratic price risk associated with the value of one specific home can have a huge impact on retirement dynamics. As a result, residential real estate should be supplemented with substantial financial assets.

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SEASON 2, EPISODE 15Anita and Chip Oatley when everything goes according to plan

Season 2, Episode 15: Savings Anita Chip











Two spouses, affluent & affluent income Home purchased at age 36










Chip Oatley, a sales rep for the genetically modified organism department of a large agribusiness, marries Anita Loya shortly after college. They move to Milwaukee after Anita, a former District Attorney, joins a Wisconsin-based law firm that specializes in defending college professors and students accused of committing "microaggressions", which are best described by a September 2015 article in The Atlantic ("The Coddling of the American Mind"). In Episode 15, the Oatleys each contribute 8.3% of pre-tax income to savings, save an additional 2% of after-tax income, and benefit from an employer match. After taking portfolio returns into account, their lifetime savings rate is above 20%. They earn more than enough to repay Chip's student debt and purchase a home. The home they purchase goes up in value along with national averages, providing an additional cushion in retirement.

Chip and Anita never face any issues related to unemployment, family emergencies, lower financial market returns, policy changes or their health. As a result, their retirement assets grow uninterrupted and they are both able to retire at age 63. Another happy episode in Season 2 of The Millennials, since everything goes according to plan.

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SEASON 2, EPISODE 16Anita and Chip Oatley have no access to 401(k)

Season 2, Episode 16: Savings Anita ChipPre-tax contributions to savings 8.3% 8.3%

%0.0%0.0hctam reyolpmEAdditional household savings as % of after-tax income 2.0%Contribution from pre-tax/after-tax portfolio returns 7.4%

%0.51)evissap + evitca( etar sgnivas emitefiLIntended tax-e�cient savings diverted due to contribution caps: 42%Breakeven analysis:Actual pre-tax contributions by both spouses 8.3%Pre-tax contributions to savings by both spouses required to reach

%7.0159 ega yb tegrat tessa laicnanif Alternative: retirement income replacement of 75%


Season 2, Episode 16: Other assumptionsssecca nalp )k(104 oNemocni tneulffa & tneulffa ,sesuops owT

63 ega ta desahcrup emoHelytsefil emocni-owt ,36/36 ta gniriteRRetirement spending is 85% of pre-retirement disposable income Equity return (real): 5.5%; Fixed income return (real): 1.0%Second spouse dies at age 90Spending reduction after death of a spouse: 20%Social Security taken at age 64 at 80% of age 67 benefitsDebt at inception of $27,000AT Savings Fixed Inc. allocation: 40% (age 25) to 40% (retire.)Retirement plan Fixed Inc. allocation: 20% (age 25) to 60% (retire.) 2nd spouse Fixed Inc. allocation: 20% (age 25) to 60% (retire.)

As Season 2 comes to a close, the a¡uent millennials face some real-life events that haven't yet been covered in prior episodes. In Episode 16, the Oatleys discover that the companies they work for do not sponsor 401(k) plans. As a result, they contribute to IRA accounts instead. There are two negative impacts: first, there are lower caps on IRA contributions that are eventually reached, after which savings must be done on an after-tax basis in a non-tax-advantaged account; and second, they do not benefit from an employer match. The joint impact of these two factors is substantial: their accumulated savings by retirement are half of what they were in Episode 15.

To o¤set the impact of tax-ine�cient saving and no employer match, the Oatleys would each have needed to set aside the equivalent of 10.7% of their pre-tax income rather than 8.3%, and do so every year during their working lives.The alternative: cut their retirement spending by 40% vs. pre-retirement levels, which is a very large and possibly untenable adjustment. Bottom line: your savings rate needs to reflect the tax efficiency of your savings account, and the degree to which it is accompanied by employer matching contributions.

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SEASON 2, EPISODE 17Anita and Chip Oatley pay for private college tuitions

Season 2, Episode 17: Savings Anita ChipPre-tax contributions to savings 8.3% 8.3%

%0.3%0.3hctam reyolpmEAdditional household savings as % of after-tax income 2.0%Contribution from pre-tax/after-tax portfolio returns 10.7%


Breakeven analysis:Actual pre-tax contributions by both spouses 8.3%Pre-tax contributions to savings by both spouses required to reach

%7.959 ega yb tegrat tessa laicnanif Alternative: retirement income replacement of 78%


Season 2, Episode 17: Other assumptions).eriter( %06 ot )52 ega( %02 :noitacolla .cnI dexiF esuops dn2 emocni tneulffa & tneulffa ,sesuops owT

63 ega ta desahcrup emoHelytsefil emocni-owt ,36/36 ta gniriteRRetirement spending is 85% of pre-retirement disposable income Equity return (real): 5.5%; Fixed income return (real): 1.0%Second spouse dies at age 90Spending reduction after death of a spouse: 20%Social Security taken at age 64 at 80% of age 67 benefitsDebt at inception of $27,0005 years of college fundingAT Savings Fixed Inc. allocation: 40% (age 25) to 40% (retire.)Retirement plan Fixed Inc. allocation: 20% (age 25) to 60% (retire.)

In prior episodes, as the millennials age and have families, their children finance their educations by taking out student loans, which they repay once they start working (just like their parents did). However, in Episode 17, student loan programs are unavailable given a surge in default rates resulting from a June 2015 editorial in the New York Times in which the author is seen as advising default as a universal strategy. As a result, the Oatleys must pay for part of their children's university tuitions themselves. They do not reduce their consumption to finance the tuition payments; instead, they interrupt their savings contributions for a few years until their children graduate from college.

The Oatleys finance half of the tuition cost for 2 children at private universities for 4 years; the children pay for the rest through a variety summer jobs. The decision to interrupt savings reduces the Oatleys' nest egg by the time they retire. If the Oatleys wanted to be able to interrupt savings for a few years to pay college tuitions without having to make any retirement spending sacrifices, they would need to have a higher savings rate in those years during which they were saving. The required contribution to savings from pre-tax income rises in this episode from 8.3% to 9.7%.

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SEASON 2, EPISODE 18Anita and Chip Oatley and the long-term care event












Two spouses, affluent & affluent income 2nd spouse Fixed Inc. allocation: 20% (age 25) to 60% (retire.)

Retiring at 63/63, two-income lifestyle Home purchased at age 36

Retirement spending is 85% of pre-retirement disposable income Equity return (real): 5.5%; Fixed income return (real): 1.0%





Long-term care event



The life span of the millennial generation will be greater than all those that preceded it. However, not all of the consequences will be positive. As more people live to old age and as progress is made on cerebrovascular diseases that used to affect people at younger ages, more people are getting Alzheimer's. According to the Alzheimer's Association, in the U.S., 11% of those over 65 suffer from the disease; over age 85, 32% are affected. The financial strain compounds the emotional strain that families are subjected to: the cost of round-the-clock care is generally not covered by traditional insurance plans, and can rapidly drain a family's finances.

In Episode 18, Anita gets Alzheimer's at age 79 and lives until age 82. Using current estimates of long-term care costs and long-term care inflation, we have a sense for how much it might cost Chip to care for her. He would have to rapidly deplete their savings, and sell their home at the tail end of Anita's battle with the disease. Had the Oatleys wanted to prepare in advance for this kind of tragic but increasingly observed outcome, both of them would have needed to set aside 10.4% of pre-tax income instead of 8.3%. In that case, their financial assets would have lasted through to the end of Chip's retirement.

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SEASON 2, EPISODE 19Anita and Chip Oatley and the cost of long-term care insurance












Two spouses, affluent & affluent income Home purchased at age 36










Chip and Anita believe that there is an Alzheimer's gene affecting their family given its prevalence on both sides. While the hereditary aspects of the disease are still being researched, Chip and Anita don't want to take any chances of being hit with a long-term care event that they haven't prepared for. As a result, they purchase long-term care insurance. Premiums begin at age 55 and are paid through death or the onset of a covered disease.

In Episode 19, Chip and Anita pay for the cost of long-term care insurance, which they end up needing when Anita comes down with a covered condition at age 79 and lives until age 82. The outcome is only modestly better than the prior episode, when Chip had to draw down on family savings to pay for long-term care costs. Why didn't the insurance help their financial condition to a greater degree? A matter of cost: long-term care insurance is very expensive (almost $10,000 per year in 2015 dollars), which may reflect the uncertainty that underwriters face in pricing these policies as the population ages. In any case, the Oatleys would need to increase their annual contributions to savings from pre-tax income from 8.3% to almost 10% to pay for the cost of the insurance.

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19: Cost of long-term care insurance15: Everything goes according to plan

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A N O T E O N S E A S O N 3

To limit production expenses, the plotlines for Season 3 of The

Millennials are the same as for Season 2, except for the fact

that the Season 3 millennials are high net worth earners rather

than affluent. As a result, the episode descriptions for Season

3 would be similar; the only differences would be the required

pre-tax contributions to savings for the high net worth

households, which are shown in the Season 3 summary bar

chart on page 16.


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K E Y T O P L O T D E V I C E S U S E D I N T H E M I L L E N N I A L S

The following plot twists appear in each episode. Here’s a key to understanding them.

Pre-tax contribution

to savings:

How much the millennials save in tax-efficient vehicles12 such as 401(k) plans, Individual Retirement

Accounts (IRAs) and non-qualified deferred compensation plans, expressed as a percentage of their pre-

tax income. Some employers match a portion of 401(k) contributions made by their employees (the

“employer match”).

Additional savings as

a % of after-tax

income

How much the millennials save as a percentage of their after-tax income, and which resides in brokerage

or money management accounts.

Asset allocation Retirement plan and after-tax savings portfolio allocations to equities and fixed income. We show the

asset allocation for fixed income (“FI AA”) for each episode, starting with age 25. Allocations change

linearly and converge to the level specified by retirement age, and remain constant thereafter. Equities

are assumed to be the remainder.

Unless otherwise stated, millennial asset allocation preferences in qualified retirement plans conform to

industry standards for target date retirement funds. Generally these funds start with an 80% equity

allocation and a 20% fixed income allocation. These allocations change over time as the individual

approaches retirement (commonly referred to as a “glide path”). At retirement, these funds would

typically have a 40% equity allocation and a 60% fixed income and cash allocation.

Financial market

returns

The equity and fixed income returns that are assumed to be earned on pre-tax and after-

tax savings. See page 62 for more details.

12 Tax-efficiency derives primarily from tax-free compounding of assets. Distributions are taxable if the account is funded with pre-tax income; otherwise, there are no taxes on distribution.


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Understanding the lifetime total savings rate

The savings and asset allocation decisions described on the prior page, when combined with financial market returns, result in a “lifetime savings rate”. This rate includes the impact of active savings and portfolio income.

Note how active savers (like the one illustrated below) can derive a lot of their savings from portfolio returns. We present the household total savings rate at the bottom of each season summary chart as well as in each episode.

Calculating the lifetime total savings rate Lifetime income (USD) Contributions (USD)What you and your spouse contribute 7.50% of pre-tax earned income: 8,538,336 = 640,375What your employer contributes 3.00% of pre-tax earned income: 8,538,336 = 256,150Your additional after-tax savings 2.00% of after-tax household income: 5,892,401 = 117,848

Total contributions to savings accounts 1,014,373

Portfolio income earned in retirement accounts 899,401Portfolio income earned in household savings account 111,398

Total portfolio income 1,010,799

Lifetime total savings rate calculationsPre-tax earned income 8,538,336Portfolio income 1,010,799

Total income 9,549,135

Active savings rate (contributions divided by total income) 1,014,373 9,549,135 10.6%Passive savings rate (portfolio income divided by total income) 1,010,799 9,549,135 10.6%Lifetime savings rate (contributions plus portfolio income divided by total income) 2,025,172 9,549,135 21.2%


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Retirement “smile” After retirement, spending typically does not rise in a linear fashion. We use data from JPMorgan

Chase’s Consumer and Community Bank to derive how retiree spending evolves. For some income

categories, retirement spending tends to fall in real terms before rising again later in retirement,

creating the pattern of a smile. See page 58 for more details.

Retirement spending

projections

Post-retirement spending is a by-product of (a) the initial income replacement goal, (b) the retirement

smile of spending (in real terms), and (c) assumed inflation.

For median-income households, the initial income replacement goal is set at 100% of terminal pre-

retirement cash flow. For most median-income families, there is limited scope to reduce expenses in

retirement, since they live on a tight budget during their working years.

For affluent and high net worth households, the initial income replacement goal is set at 85% of

terminal pre-retirement cash flow. Typical spending reductions by affluent families in retirement:

commuting and clothing expenses, meals away from home, professional association dues, mortgage

expenses, college and other educational support for children, etc. While we assume a 15% spending

decline, some financial advisors observe that spending does not decline immediately in retirement,

since new expenses replace discontinued ones.

Financial assets and

total assets

The ultimate tally of our millennials’ savings journeys are captured in charts which show their financial

assets, and their total assets (including a home, if one was purchased). The charts include their

working years, when assets are growing, and their retirement years, when their assets are depleted. A

successful retirement occurs when our millennials can fund their spending entirely via financial assets,

rather than having to sell their home. For more information on why we do not see the home as a

sufficiently reliable backstop for retirees, see page 63.

Breakeven savings

rates

In the introductory episode for each household, the millennials achieve their retirement targets:

financial assets lasting through age 95, with a modest cushion to spare. Then, a series of unfortunate

events or lifestyle choices get in the way. The household has a choice: prefund these risks and

outcomes through a higher savings rate, or reduce spending in retirement below the original planned

income replacement goal. The breakeven pre-tax contribution rate computes the former: how much

both spouses would have to save as a percentage of pre-tax income to regain the solvency of the

introductory episode.

Policy changes Due to pressures on government spending, future policy changes may limit the ability of our millennials

to make contributions to tax-efficient savings plans; may reduce Social Security benefits; and may

reduce the degree to which they can deduct state/local taxes, mortgage interest and charitable

contributions. See page 60 for more details.


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A D D I T I O N A L P R O D U C T I O N N O T E S

The retirement “spending smile” 58

How retirement account contributions and withdrawals work 59

Policy changes and who they impact 60

Understanding working income vectors 61

Financial market returns 62

The price risk of individual homes vs. an index 63

Modeling assumptions and constants 64


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I. The retirement “spending smile”

A common approach to estimating retirement spending is to

choose a target spending level at the age of retirement and

grow it each year at the rate of inflation. However, research

shows that this approach does not reflect the reality of retiree

spending behavior, since when measured in real terms,

retirees generally curtail spending compared to what they

spent before retiring.

We based millennial retirement spending on data provided by

JPMorgan Chase’s Consumer and Community Bank. Their

teams analyze spending patterns of households by age and

wealth level, and provide insight into how spending patterns

change as individuals retire and grow older. The Bureau of

Labor Statistics’ Consumer Expenditure Survey shows similar

trends. However, Chase data provides higher frequency

observations and for a longer age range (the last age category

tracked by the BLS is 75+ while our data extends to 95+). For

both sources, retirement spending is computed in real terms,

and adjusts for inflation.

The retirement smile. Median-income real spending tends to

decline as individuals approach retirement, and continues to

decline through age 80, driven by reductions in spending on

housing, transportation and food. Eventually, healthcare

spending accelerates13, doubling as a proportion of overall

spending. The rise in healthcare spending later in retirement,

along with small increases in apparel and other spending,

causes overall spending by median-income families to

eventually start increasing in real terms. As a result, real

retirement spending for median-income households has a

shape that looks like a “smile”.

13 As one indication of the impact of rising healthcare spending: about half of Americans filing for bankruptcy in 2001 cited medical causes. Note that three-quarters of those who declared bankruptcy in part because of medical bills had health insurance at the onset of the illness, so this is not just an issue for the uninsured.

Affluent household retirement spending curves are different.

Like median households, their spending decreases as they

head into retirement, and continues to decline thereafter. And

like median households, affluent households also experience a

large increase in healthcare spending during retirement.

However, the increase in healthcare spending is more than

offset by continued decreases in housing, food and apparel, so

there is no real spending increase later in life.

Retirement spending curves are therefore constructed based

on the following 3 steps:

Determine an income replacement goal for the first year of

retirement, expressed as a percentage of household cash

flow in their last year of employment (e.g., their after-tax,

after-savings cash flow)

Grow this spending level each year based on the retirement

smile (the “real” change in spending)

Adjust for assumed inflation (nominal change in spending)

For couples, we assume that spending declines by 20% after

the death of a spouse. This might seem like a small reduction

given the 50% decline in the size of the household, but our

research suggests that many retirement expenses are inelastic

relative to the number of individuals in it (e.g. housing,

utilities, transportation, etc).

60

65

70

75

80

85

90

95

100

60 65 70 75 80 85 90 95

Inde

x, s

pend

ing

at a

ge 6

0 =

100

Source: JPMorgan Chase. 2013.

Real retirement spending paths differ by wealth level

Median

Affluent and high net worth


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II. How retirement account contributions and withdrawals work

Savings accumulation during the millennials’ working years

Our protagonists make two savings decisions during their

working careers: (a) what percentage of their pre-tax income

to contribute to tax-advantaged plans, and (b) what

percentage of their disposable after-tax income to contribute

to a taxable investment account.

Here are the steps our millennials take:

Come up with a plan for tax-efficient savings, expressed as

a percentage of pre-tax income. For example, something

like 5%, 8% or 10%

Allocate these amounts to 401(k) plans and Individual

Retirement Accounts, up to their respective allowable

annual contribution limits

For any contributions that the millennial intended to make

but could not due to annual caps, convert these unmet

contributions into an after-tax equivalent (so as to

maintain the same level of after-tax income available for

consumption), and put it into an after-tax savings account

Also come up with a plan for savings out of after-tax cash

flow (e.g., how much money is left from pre-tax income

after paying taxes)

Millennials may also opt to allocate pre-tax income to

non-qualified deferred compensation plans, subject to

their tolerance for general unsecured creditor status

Withdrawal waterfall (post-retirement)

At retirement, our protagonists begin to draw on their accumulated savings and Social Security to finance their spending. They are assumed to first use Social Security benefits and mandatory payments from retirement accounts14 to meet spending needs. If those payments exceed the spending requirement, any excess is invested in the taxable account for consumption in future years. If those payments are insufficient, our withdrawal waterfall prioritizes distributions from less tax-efficient savings:

First reduce any shortfall by drawing on balances in the

taxable savings account

If a shortfall still exists after clearing out the taxable

savings account, discretionary withdrawals from

retirement plans would be required. We first reduce the

traditional 401(k) plans, and then Roth IRAs

As a last resort, our protagonist would have to sell their home and use the after-tax proceeds to meet spending needs. For more information on why the home sale is treated as a last resort, see page 63

14 Mandatory payments can be either required minimum distributions from 401(k) accounts, which begin April 1 of the year following the later of the year the account owner turns 70 ½ or the year of retirement (if allowed by the company plan), or scheduled distributions from non-qualified deferred compensation plans.


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III. Policy changes and who they impact

The charts on page 9 highlight the risks related to U.S. federal

government finances, and the increasing shift towards

entitlement spending accompanied by declines in non-defense

discretionary spending. During their lifetimes, our millennials

will face the risk that entitlement spending will be reined in.

We have modeled five possible policy changes:

1. Bowles-Simpson 401(k) limitations that set lower caps on

contributions:

We model the “20/20” rule, which limits total annual

employer and employee contributions to the lesser of

20% of the employee’s compensation or $20,000.

While Bowles-Simpson was not adopted by Congress,

many of its provisions may become blueprints for future

policy legislation

This limitation could impact all savers, but is more likely

to negatively impact the affluent whose total

contribution would be affected by a lower cap

2. Means-testing of Social Security:

We model two components of Social Security means-

testing. First, we assume a 50% increase in the cap

applied to the amount of income subject to Social

Security taxes during working years. Second, we

assume benefit curtailment for high income individuals

during retirement through the addition of a 3rd income

“bend-point”, which lowers benefits paid above the new

income threshold

Both of these measures would impact high-income

earners

3. Changes to Social Security benefit calculations:

One part of the Social Security benefit calculation

involves compounding lifetime earnings forward to age

60 constant dollars

One possible policy change involves the use of CPI

instead of wage inflation in this indexation calculation.

Historically, CPI has been lower than wage inflation, so

such a policy change would result in a lower calculated

benefit

While important for all retirees, a lower Social Security

payment is more impactful on those more reliant on such

benefits to meet retirement spending

4. Cost-of-living adjustments (COLA) for Social Security

benefits:

We use chain-weighted CPI for COLA increases. Chain-

weighted CPI has been historically lower than the

measure currently used by the Social Security

Administration (CPI-W) to adjust benefit payments

Again, while important for all retirees, a lower Social

Security payment is more impactful on those more

reliant on Social Security

5. Itemized deductions:

Similar to previous changes resulting from the American

Taxpayer Relief Act (the “Pease” limitations), Congress

could further reduce the ability of wealthy taxpayers to

deduct items like state/local taxes, mortgage interest

and charitable contributions. We model a lower income

threshold at which deduction curtailment occurs

These reductions would impact high-income earners


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IV. Understanding working income vectors

Since millennials are the most highly educated generation in

history15, we assumed that all of our protagonists are

bachelor’s degree holders. We develop 4 different millennial

prototypes, each one representing a different earnings career

path:

1. Median

2. Median late bloomer

3. Affluent – the 5th percentile of earners

4. High net worth – the 1st percentile of earners

For median and late bloomer income, we used U.S. Census

Bureau data for median bachelor’s degree earners by age

cohort. Our late bloomer initially earns 45% of median income

and then converges to median income by age 45.

We derived our affluent and high net worth protagonist real

income curves from a joint study by the University of

Minnesota, the Minneapolis Federal Reserve, Princeton

University and the Social Security Administration16, as well as

data from the U.S. Census. The approach involves the

extrapolation of individual income curves from household data

using ratios of household income for affluent households

relative to median at each age cohort.

Finally, we inflation-adjusted income curves based on

assumed wage inflation (see page 65 for more details) to

construct each protagonist’s income curve throughout their

working career.

15 “15 Economic Facts about Millennials” 16 “The Glass Ceiling and The Paper Floor: Gender Differences among Top

Earners, 1982 – 2012”, Fatih Guvenen, Greg Kaplan and Jae Song, October 2014

$0

$10

$20

$30

$40

$50

$60

25 30 35 40 45 50 55 60 65 70

2013

USD

thou

sand

s

Source: U.S. Census Bureau, JPMAM. 2013.

Real income curves by millennial type

Late bloomer

Median

$0

$50

$100

$150

$200

$250

$300

$350

$400

25 30 35 40 45 50 55 60 65 70

2013

USD

thou

sand

s

Source: Univ. of Minnesota, Princeton Univ., SSA, U.S. Census, JPMAM. 2013.

Real income curves by millennial type

Affluent

High net worth


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V. Financial market returns

Financial market assumptions are a key driver of retirement

projections given the importance of portfolio income in the

retirement equation. As mentioned earlier, in many cases,

portfolio returns may end up representing half or more of total

lifetime savings by retirement.

We use a simplified portfolio of stocks, bonds and cash. As

shown below, the real returns (over inflation) on large cap U.S.

equities in the post-war era have ranged from 5% to 7% when

measured over rolling 35-year periods. More recently, they

have spiked a bit higher. However, this is something of an

anomaly, since the most recent period begins at a cyclical low

point in 1980 (during a double-dip recession and after the

stagflation of the 1970s), and ends in 2015 after an equity

market recovery propelled by low interest rates. Our base

case expectation for equity market returns that millennials will

earn: 5.5% over inflation. This would be a bit closer to the

bottom of the range than the top, and is consistent with

consensus estimates of falling U.S. potential growth and an

aging population, as well as the mean reversion that tends to

take place after periods of higher returns.

Real bond market returns are much more directional, and

reflect the changing backdrop of the U.S. economy as it

experienced deflation (Great Depression), reflation (WWII), low

inflation (1960s), inflation (1970s), disinflation (Volcker era)

and financial repression (post-financial crisis Greenspan/

Bernanke era). While the most recent 35-year period was one

characterized by very high real returns on bonds, let’s

remember the starting point in 1980: 12%-14% yields on

intermediate-duration government bonds. The second chart is

more useful in projecting where we go from here; it plots the

real return on government bonds as a function of where yields

were when the period began. Today, intermediate government

yields are 1%-2%. Historically, with that kind of starting point,

subsequent real returns have ranged from -1% to +2%. We

estimate real returns of +1% on government bonds for

millennial investors. In other words, low yields today limit the

potential for real returns in the future.

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

1905 1920 1935 1950 1965 1980 1995 2010

35-y

ear

rolli

ng to

tal r

eal r

etur

n

Source: Robert Shiller, JPMAM. March 2015. Data begins in 1871.

S&P 500 total real returnThe post-war channel of real returns, 35-year rolling periods

-3%

-1%

1%

3%

5%

7%

1965 1975 1985 1995 2005 2015

35-y

ear

rolli

ng to

tal r

eal r

etur

n

Source: Ibbotson Associates, BLS, JPMAM. May 2015. Data begins in 1930.

U.S. bond market real return35-year rolling periods

Intermediate U.S. treasuries

Long corporate bonds

-2%

-1%

0%

1%

2%

3%

4%

5%

0% 2% 4% 6% 8% 10% 12% 14%

35-y

ear

rolli

ng to

tal r

eal r

etur

n

Yield at beginning of each 35-year period

Source: Ibbotson Associates, BLS, JPMAM. May 2015.

U.S. bond market returns vs. inception yieldsIntermediate U.S. treasuries, 1926-2015


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VI. The price risk of individual homes vs. an index

In many of our episodes, when our protagonists run out of

financial assets, they still have a home to rely on. So why do

we describe a “successful” retirement as one in which

financial assets last all the way to the end, rather than one in

which total household assets last all the way to the end? The

reason: the idiosyncratic risk associated with a specific home,

which is a single non-diversifiable asset in one location.

Consider one of our episodes in which a retiree runs out of

financial assets at age 77. If we assume home price

appreciation based on a national index of home prices over

the last 125 years, the home could be sold for around $1.5

million with the proceeds deposited in a savings account – just

enough to last to age 88 based on assumed after-tax returns

on portfolio savings. If we assumed annual home price

appreciation that is 1.25% lower, the house would sell for

around half as much, and the retiree’s savings would run out

about a half decade earlier.

How rare would it be for a home to appreciate at a rate that is

1.25% less than the appreciation of the “average” home? Not

very. There are several ways to try and estimate this. One

involves the degree to which home prices in individual

Metropolitan Statistical Areas (MSAs) can differ from nation-

wide average home prices as reported in an index like Case-

Shiller or FHFA. As shown below, there were a substantial

number of MSAs whose home prices were between 1% and

1.5% below the median home price returns, measured from

1975 to 2015. From a dispersion perspective, the standard

deviation of home price returns by MSA was a little over 1%,

which supports the notion that your home’s cumulative

appreciation can differ substantially from the overall market.

We also looked at the dispersion of neighborhood-level home

prices (with neighborhoods being much smaller units of

geography than an MSA; for example, there are often multiple

neighborhoods per individual zip code). From 2004 to 2015,

the standard deviation of home prices when calculated at the

neighborhood level was 2.4%, which is higher than the MSA

dispersion. As a result, the smaller the geographical unit of

analysis, the greater the level of return dispersion when

compared with price returns for a nationwide home price

index. That’s why it can be risky to rely excessively on the

value of a specific home in retirement: a 1% or a 1.5% annual

difference in home price appreciation amounts to a lot over

40-50 years.

0

5

10

15

20

25

30

35

40

45

50

> -2

.00%

> -1

.75%

> -1

.50%

> -1

.25%

> -1

.00%

> -0

.75%

> -0

.50%

> -0

.25%

> 0.

00%

> 0.

25%

> 0.

50%

> 0.

75%

> 1.

00%

> 1.

25%

> 1.

50%

> 1.

75%

> 2.

00%

> 2.

25%

> 2.

50%

> 2.

75%

> 3.

00%

> 3.

25%

> 3.

50%

> 3.

75%

> 4.

00%

> 4.

25%

Num

ber

of M

SAs

Source: CoreLogic Case-Shiller, BLS, JPMAM. Q1 2015.

Real home price returns by MSA, 1975-2015

Median MeanMSAs with returns 1% - 1.5% less than median


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VII. Modeling assumptions and constants

In all episodes, consumer debt and mortgage debt are

assumed to be fully paid off by retirement. This might be an

overly optimistic assumption: data from the Employee

Benefit Research Institute shows that 42% of households

between the ages of 65 and 74 had housing debt in 2013,

compared with 18% in 1992. To the extent that households

carry debt into retirement, their savings rates would need to

be higher, all else equal

Student debt is typically repaid with after-tax savings, with

most households repaying fully within ten years

Households are assumed to be able to purchase a home if

they have set aside enough of a downpayment consistent

with their income level by their mid thirties; otherwise they

remain renters

High net worth households are assumed to put up to 5% of

pre-tax income in non-qualified deferred compensation

plans. Distributions are taken in lump-sum form at

retirement

Millennials are assumed to begin their savings journeys at

age 25; at ages 24 and under, all earnings are used for

consumption

Retirement spending projections described on page 55 are used to determine necessary withdrawals from retirement and savings accounts. When such withdrawals result in taxation (i.e., taxable withdrawals from 401(k) plans), additional withdrawals take place to pay taxes such that retirement spending cash flow needs are met in full

Unemployment years, when applicable: ages 32, 33 and 50.

The occurrence of unemployment is assumed to interrupt

income accumulation and saving, and requires short-term

loans to sustain spending. Unemployment only applies to

median-income households (BLS statistics show much lower

unemployment rates for affluent and high net worth

earners). Longer periods of unemployment, particularly

when they occur later in life, are highly negative with

respect to household asset accumulation given the likely

inability to find a new job at similar pay

Family emergencies result in a savings hiatus; when

applicable, they occur at ages 45 and 55. In most

circumstances, they result from unanticipated medical, legal

or liability-related expenses, but they can also refer to

discretionary purchases that either displace savings or add

to household consumer debt

In the model, unless otherwise stated, millennial savings

patterns are not affected by college tuitions of their own

children: the millennials are assumed to pay their tuition by

reducing consumption, and/or their children take on

student loans of their own. In specified episodes, millennial

savings are affected by college tuitions of their offspring,

and in the following manner: a savings hiatus from ages 49

to 52 which entails 50% parental funding of college tuition

for 2 children for 4 years

Parental elder-care expenses result in a savings hiatus;

when applicable, it occurs from ages 48 to 52

For couples, we do not model the highly negative financial

consequences of divorce. A Boston College study cited

household wealth declining by roughly half when divorces

take place

On insurance. We do not include the costs of or

distributions from life insurance policies. First, the episodes

are designed to examine whether financial assets last

through the end of retirement, rather than to assess

whether there are sufficient assets in the case of early

death. Second, the average U.S. household life insurance

coverage amount ($175,000 - $225,000 in 2014$ according

to our sources) would not be enough to materially change

the outcomes in most episodes, since the benefit payments

would occur 40-50 years in the future using our longevity

assumptions


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InflationWage inflation 2.5% The rate at which real incomes, adjusted for age cohort, grow over timeCPI inflation 2.0% General inflation assumption used to compute real returns on stocks and bonds,

adjust expenditures from 2015$, and adjust tax brackets and deductionsChain-weighted CPI inflation 1.7% Applies when policy changes occur; used to grow Social Security benefits

Financial cushion required by end of retirement, in 2015$Median households 100,000Affluent households 200,000High net worth households 250,000

Long-term careAnnual long-term care cost 90,000 Cost of providing round-the-clock on-site care to elderly patients needing

substantial medical attention, in 2015$LTC inflation 3.25% Annual increase in long-term care costs, until breakpoint age; afterwards, LTC

costs rise with CPILTC inflation breakpoint age 45LTC event ages 79 to 82LTC insurance cost 9,250 Annual premium paid beginning at age 55 and until onset LTC event, in 2015$

Other tax and home ownership assumptionsDividend yield 2% Impacts taxes realized in after-tax savings accountsAnnual equity turnover 30% Impacts taxes realized in after-tax savings accounts

Charitable contributions 1.0% As a percentage of earned incomeProperty tax rate 3.0% As a percentage of estimated home valueState/local tax rate 2.7%

Home price downpayment 20%Home price sales commission 5%Residential exemption 500,000 Capital gain exemption for primary residence, in 2015$Home price appreciation 2.34% Nominal return, see page 63 for idiosyncratic price risk of a single home

The model incorporates all aspects of the tax code as it applies to millennials and assumes a continuation of current statutory rates; income brackets are adjusted upwards over time for inflation. Earned income is subject to Federal ordinary income tax, payroll taxes, applicable Medicare surtaxes and state/local taxes. Unearned income is subject to corresponding ordinary income and capital gains taxes, applicable Medicare surtaxes and state/local taxes. Both types of income are also subject to Alternative Minimum Tax adjustments where necessary. Deductions and exemptions are adjusted based on income per existing legislation.


S O U R C E S

“15 Economic Facts about Millennials”, The Council of Economic Advisers, October 2014.

“2014 Wells Fargo Millennial Study”, Wells Fargo Advisors, 2014.

“A Golden Age of Philanthropy Still Beckons: National Wealth Transfer and Potential for Philanthropy Technical Report”, John Havens and Paul Schervish, Center on Wealth and Philanthropy, Boston College, 2014.

“America’s Skills Challenge: Millennials and the Future”, Educational Testing Service, January 2015.

“The Coddling of the American Mind”, Greg Lukianoff and Jonathan Haidt, The Atlantic, September 2015.

“Defined Contribution Plans In the Public Sector: An Update”, Alicia Munnell, Jean-Pierre Aubry and Mark Cafarelli, Center for Retirement Research at Boston College, April 2014.

“Do the benefits of college still outweigh the costs”, Jaison Abel, Richard Deitz and Yaqin Su, Federal Reserve Bank of New York, 2014.

“Does working from home work? Evidence from a Chinese experiment”, Nicholas Bloom, James Liang, John Roberts, and Zhichun Jenny Ying, Stanford University, November 2014.

Economic News Release – Employment status by educational attainment, Bureau of Labor Statistics, May 2015.

“Employment-Based Retirement Plan Participation: Geographic Differences and Trends, 2013”, Craig Copeland, EBRI, 2014.

“Estimating the True Cost of Retirement”, David Blanchett, Morningstar Investment Management, November 2013.

“Failure to Launch”, Anthony Carnevale, Andrew Hanson, Artem Gulish, Georgetown University, October 2013.

“The Future of Employment: How Susceptible Are Jobs to Computerisation?”, Carl Benedikt Frey and Michael Osborne, Oxford, Sept. 2013.

“The Glass Ceiling and the Paper Floor: Gender Differences among Top Earners, 1982 – 2012”, Fatih Guvenen, Greg Kaplan and Jae Song, September 2014.

“How America Saves 2014”, The Vanguard Group, 2014.

“Millennials: The Money Survey”, Goldman Sachs Global Investment Research, June 2015.

“Record Share of Americans Have Never Married”, Wendy Wang and Kim Parker, Pew Research Center, September 2014.

“Think you know the Next Gen investor? Think again”, UBS Investor Watch, Q1 2014.

“Trends in Student Aid 2014”, College Board, 2014.

“U.S. Student Loan Update”, Bridgewater Daily Observations, June 2015.

“When the Nest Egg Cracks: Financial Consequences of Health Problems, Marital Status Changes, and Job Layoffs at Older Ages”, Richard Johnson, Gordon Mermin and Cori Uccello, Center for Retirement Research at Boston College, December 2005.

“Who buys life insurance in the U.S.? Why? And, When?”, Gerber Life Insurance Company, 2014.

“Why I Defaulted on My Student Loans”, Lee Siegel, The New York Times, June 2015.

A C R O N Y M S

BLS: Bureau of Labor Statistics

CBO: Congressional Budget Office

COLA: Cost-of-living adjustments

CPI: Consumer Price Index

CPI-W: Consumer Price Index for Urban Wage Earners and Clerical Workers

EBRI: Employee Benefit Research Institute

Fed: Federal Reserve

FHFA: Federal Housing Finance Agency

FI AA: Fixed income asset allocation

IRA: Individual Retirement Account

JPMAM: J.P. Morgan Asset Management

LTC: Long-term care

MSA: Metropolitan Statistical Area

OECD: Organisation for Economic Co-operation and Development

SSA: Social Security Administration

STEM: Science, technology, engineering and mathematics


JPMorgan Chase & Co. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. Each recipient of this material, and each agent thereof, may disclose to any person, without limitation, the US income and franchise tax treatment and tax structure of the transactions described herein and may disclose all materials of any kind (including opinions or other tax analyses) provided to each recipient insofar as the materials relate to a US income or franchise tax strategy provided to such recipient by JPMorgan Chase & Co. and its subsidiaries.

The material contained herein is intended as a general market commentary. Opinions expressed herein are those of Michael Cembalest and may differ from those of other J.P. Morgan employees and affiliates. This information in no way constitutes J.P. Morgan research and should not be treated as such. Further, the views expressed herein may differ from that contained in J.P. Morgan research reports. The prices/quotes/statistics referenced herein have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness; any yield referenced is indicative and subject to change. The views and strategies described herein may not be suitable for all investors. Certain opinions, estimates, investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice. The information contained herein should not be relied upon in isolation for the purpose of making an investment decision. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. References to the performance or characteristics of our portfolios generally refer to the discretionary Balanced Model Portfolios constructed by J.P. Morgan. It is a proxy for client performance and may not represent actual transactions or investments in client accounts. To the extent referenced herein, real estate, hedge funds, and other private investments may present significant risks, may be sold or redeemed at more or less than the original amount invested; there are no assurances that the stated investment objectives of any investment product will be met. JPMorgan Chase & Co. and its subsidiaries do not render accounting, legal or tax advice and is not a licensed insurance provider. You should consult with your independent advisors concerning such matters.

In the United Kingdom, this material is approved by J.P. Morgan International Bank Limited (JPMIB) with the registered office located at 25 Bank Street, Canary Wharf, London E14 5JP, registered in England No. 03838766 and is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. In addition, this material may be distributed by: JPMorgan Chase Bank, N.A. Paris branch, which is regulated by the French banking authorities Autorité de Contrôle Prudentiel and Autorité des Marchés Financiers; J.P. Morgan (Suisse) SA, regulated by the Swiss Financial Market Supervisory Authority; JPMCB Dubai branch, regulated by the Dubai Financial Services Authority; JPMCB Bahrain branch, licensed as a conventional wholesale bank by the Central Bank of Bahrain (for professional clients only). In Hong Kong, this material is distributed by JPMorgan Chase Bank, N.A. (JPMCB) Hong Kong branch except to recipients having an account at JPMCB Singapore branch and where this material relates to a Collective Investment Scheme (other than private funds such as private equity and hedge funds) in which case it is distributed by J.P. Morgan Securities (Asia Pacific) Limited (JPMSAPL). Both JPMCB Hong Kong branch and JPMSAPL are regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission of Hong Kong. In Singapore, this material is distributed by JPMCB Singapore branch except to recipients having an account at JPMCB Singapore branch and where this material relates to a Collective Investment Scheme (other than private funds such as a private equity and hedge funds) in which case it is distributed by J.P. Morgan (S.E.A.) Limited (JPMSEAL). Both JPMCB Singapore branch and JPMSEAL are regulated by the Monetary Authority of Singapore. Dealing and advisory services and discretionary investment management services are provided by JPMCB Hong Kong/ Singapore branch (as notified). Banking and custody services are provided to you by JPMIB. The contents of this document have not been reviewed by any regulatory authority in Hong Kong, Singapore or any other jurisdictions. With respect to countries in Latin America, the distribution of this material may be restricted in certain jurisdictions. Receipt of this material does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation.

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From the approved pool of strategies, our portfolio construction teams select those strategies we believe best fit our asset allocation goals and forward looking views in order to meet the portfolio’s investment objective. As a general matter, J.P. Morgan provides restricted advice as we prefer J.P. Morgan managed strategies unless we think third party managers offer substantially differentiated portfolio construction benefits. Consequently, we expect the proportion of J.P. Morgan managed strategies will be high (in fact, up to 100 percent) in strategies such as, for example, cash and high-quality fixed income, subject to applicable law and any account-specific considerations.

We prefer internally managed strategies because they generally align well with our forward looking views and our familiarity with the investment processes, as well as the risk and compliance philosophy that comes from being part of the same firm. It is important to note that J.P. Morgan receives more overall fees when internally managed strategies are included.

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68 RETIREMENT INSIGHTS

MICHAEL CEMBALEST Chairman of Market and Investment Strategy, J.P. Morgan Asset Management

Michael Cembalest is Chairman of Market and Investment Strategy for J.P. Morgan Asset Management, a global leader in

investment management and private banking, with $2.0 trillion of client assets worldwide. He is responsible for leading the

strategic market and investment insights across the firm’s Institutional, Funds and Private Banking businesses. Mr. Cembalest

is also a member of the J.P. Morgan Asset Management Investment Committee and a member of the Investment Committee

for the J.P. Morgan Retirement Plan for the firm’s 260,000 employees. Mr. Cembalest was most recently Chief Investment

Officer for the firm’s Global Private Bank, a role he held for eight years. He was previously head of a fixed income division

of Investment Management, with responsibility for high-grade, high yield, emerging markets and municipal bonds. Before

joining J.P. Morgan Asset Management, Mr. Cembalest served as head strategist for Emerging Markets Fixed Income at J.P.

Morgan Securities LLC. Mr. Cembalest joined J.P. Morgan in 1987 as a member of the firm’s Corporate Finance division. He

earned an M.A. from the Columbia School of International and Public Affairs in 1986 and a B.A. from Tufts University in 1984.

ANTHONY WOODS Advice Lab, J.P. Morgan Asset Management

Anthony Woods is the Legislative and Fiscal Strategist for J.P. Morgan Private Bank’s Advice Lab, where he analyzes the

impact of tax and fiscal policy on wealth planning and management. Mr. Woods’ expertise encompasses federal, state

and international tax and fiscal issues. Since 2005, he has been working in Advice Lab, the Private Bank’s think tank,

staffed with a multidisciplinary team of experts responsible for developing innovative strategies in the areas of taxation,

executive compensation, philanthropy, analytical techniques and global ownership structures. Before joining Advice

Lab, Mr. Woods worked with the J.P. Morgan Private Bank’s Wealth Advisory Hub, where he focused on estate planning

and wealth transfer strategies. Prior to joining J.P. Morgan in 2000, Mr. Woods was an assistant professor of history at

St. John’s University. He also taught at the University of Toledo and was a Fulbright lecturer at the University of Malawi’s

Chancellor College. Mr. Woods earned his M.A. and Ph.D. in history from Michigan State University after receiving his B.A.

from Kalamazoo College.

S. KATHERINE ROY Chief Retirement Strategist, J.P. Morgan Asset Management

S. Katherine Roy, Managing Director, is Chief Retirement Strategist and Head of Individual Retirement for J.P. Morgan

Funds. In this role, Ms. Roy is responsible for delivering timely personal retirement-related insights to financial advisors.

Focused on the retirement income-related landscape for more than 15 years, Ms. Roy specializes in identifying themes,

strategies and solutions that can help advisors successfully partner with individuals in the transition and distribution

life stages. Ms. Roy is consistently ranked as a top speaker at major industry and firm-specific conferences and events.

She also has been interviewed and quoted in the financial press on a variety of key retirement planning topics. Prior to

joining the firm, Ms. Roy was Head of Personal Retirement Planning & Advice at Merrill Lynch, where she led strategy and

innovation in retirement income solutions for individuals, and the retirement planning, advice and guidance programs

available to integrated benefits plan participants. She also held several roles in financial planning product development,

participant communications and consulting, and interactive client experience initiatives. Ms. Roy received a B.A. from Yale

University and is a Certified Financial Planner®.

RETIREMENT INSIGHTS

J.P. MORGAN ASSET MANAGEMENT

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