STUDY OF RETIREMENT SAVINGS AMONG ARLINGTON RESIDENTS

Prepared for: The City of Arlington

Renato Ganoza, Student Tarrant County College 2100 Southeast Parkway, Arlington, TX 76018 T: (817) 688-4421 E: renato.ganoza@my.tccd.edu October 29, 2012

STUDY OF RETIREMENT SAVINGS AMONG ARLINGTON RESIDENTS | 2

2100 Southeast Parkway Arlington, TX 76018 (817) 688-4421

Financial Services 101 S. Mesquite St. 8th Floor Arlington, Texas 76010

Attention: Mrs. Sherry Wright, CPA, Assistant Director of Financial Operations STUDY OF RETIREMENT SAVINGS AMONG ARLINGTON RESIDENTS Prepared for: The City of Arlington We have completed a comprehensive study on the retirement savings rates of Arlington residents, and compared them to national savings rates. This study was authorized on October 22, 2012. Research on savings rates followed the course outlined in our proposal dated October 23, 2012. This report compares selected data from Arlington residents with national data from a variety of sources. Arlington residents are aware of the importance of saving for retirement, but many have not actually started saving. We recommend that financial education be incorporated into the public school system with the help of local banks and credit unions, and that the city of Arlington work with local service providers like Catholic Charities and the United Way to expand their Money School program for adults. We further recommend that retirement savings rates be included in the Champion Arlington Economic Development Strategy. We are pleased to have had the opportunity to work in the interest of the city of Arlington. We look forward to our continued cooperation in the future. Sincerely,

Renato Ganoza, Student Tarrant County College

STUDY OF RETIREMENT SAVINGS AMONG ARLINGTON RESIDENTS | 3

CONTENTS
List of Illustrations Executive Summary Introduction National Savings Rates
Background Retirement Readiness

4 5 6 7
7 8

Local Savings Rates

Background Retirement Readiness

9
9 9

Conclusions and Recommendations

Conclusions Recommendations

11
11 11

Cost Analyses Appendix References Further Reading

13 14 15 15

STUDY OF RETIREMENT SAVINGS AMONG ARLINGTON RESIDENTS | 4

List of Illustrations
Figures 1. 2. 3. Tables 1. Page Retirement Readiness . 6 Personal Savings Rate . 7 Average and Median Retirement Account Balances of People Ages 50-64 ............................ 8 Page Per-Capita Income 9

STUDY OF RETIREMENT SAVINGS AMONG ARLINGTON RESIDENTS | 5

Executive Summary
The city of Arlington has hired Renato Ganoza to compare the retirement savings rates of Arlington residents to national levels. Retirement savings at the national level are very low, and may lead to widespread economic stability as Baby Boomers retire. Arlington is healthy economically now, but many younger residents have failed to start saving for their retirements. This failure to save potentially threatens Arlingtons long-term economic and social stability. Renato Ganoza polled students at Tarrant County College on October 22 , 2012. While many students expressed an interest in learning more about retirement funds and other long-term investment vehicles, they were largely ignorant of the benefits of saving from a young age and few actively contributed to their retirement funds. This is in line with national trends. Renato Ganoza believes that financial education is the key to ensuring that Arlington residents begin to save. By working with local banks, credit unions, and charities to foster savings rates for our residents, we can mitigate long-term instability at a minimal cost.
nd

STUDY OF RETIREMENT SAVINGS AMONG ARLINGTON RESIDENTS | 6

Introduction
We have conducted a comprehensive review of both national and local retirement savings rates. This introduction will describe our project and purpose, detail our scope and major sources of information, and outline our report format.

Project Description
The numbers are startling one in two Americans are not saving at all for retirement. Fifty-six percent of 18 to 34 year-olds are not saving for retirement. Only one in three Americans began putting money away for retirement in their 20s. With rising health care costs, high living costs and low bank balances, more older Americans are finding themselves in a tough financial position and still working. Hoping to keep their kids from being overburdened, only 24% of baby boomers are putting money away for their future, down from 44% in 2007. ("July 2012 Newsletter") Are Arlington residents in the same boat, and are there measures we could take to help prevent economic instability in our city?

RETIREMENT READINESS

CONFIDENCE
Many Americans are confident they will be able to afford their retirement.

ENROLLED IN RETIREMENT PLAN

Many Americans are enrolled in retirement plans.

WORKING PART-TIME AFTER 65

Many Americans are willing to work parttime after 65 to afford their retirement.

Scope Information
This study aims to measure the savings rates of Arlington residents and how prepared residents are for retirement. Savings rates were compared against figures compiled at the national level. Major sources of information for those figures were: U.S. Department of Commerce U.S. Census Bureau Federal Reserve Bank of St. Louis Fidelity Investments

MEAN SAVINGS RATE

While Americans are confident they are prepared, the numbers paint a different picture.

Figure 1: Retirement Readiness

80% 60% 40% 20%

Data for Arlington residents was provided by the City of Arlington Financial and Management Resources Department and a poll conducted October 22, 2012 at Tarrant County College Southeast Campus.

0% Young Americans Retirees

Report Format
This report consists of four main parts: 1. 2. 3. 4. National Savings Rates: data on national savings rates and an evaluation of retirement readiness. Local Savings Rates: data on Arlington residents and an evaluation of retirement readiness. Conclusions and Recommendations Cost Analyses

Confident about retirement Enrolled in a retirement plan

Willing or able to work after 65

Mean savings rate

STUDY OF RETIREMENT SAVINGS AMONG ARLINGTON RESIDENTS | 7

National Savings Rates

Background
While national savings rates spiked during the economic recession of 2008, they quickly dipped back to a low level. According to the U.S. Department of Commerce: Bureau of Economic Analysis, the national Personal Savings Rate as of September 2012 is just 3.3% as seen in Figure 2 below.

Figure 2: Personal Savings Rate Despite such low savings rates, two-thirds of Americans polled in August reported being satisfied that they have saved enough money for their retirement. ("Pew Social & Demographic Trends") What is enough for retirement, though? At Fidelity Investments, the largest 401(k) administrator in the United States, the average balance of a retirement account is $72,800. (Taylor) Its hard to imagine that being enough to support twenty years of retirement, even for the frugal. Three-quarters of Americans aged 50 to 64 have an average total retirement account balance of just $26,395 according to the U.S. Census Bureau's Survey of Income and Program Participation. The median value for half of these same Americans is zero, meaning that as many as 50% of near-retirees have no retirement savings at all.

Figure 3: Average and Median Retirement Account Balances of People Ages 50-64 A full 75% of Americans nearing retirement age have less than $30,000 saved, as seen in Figure 3 above. Financial advisers

STUDY OF RETIREMENT SAVINGS AMONG ARLINGTON RESIDENTS | 8

suggest that people save from twelve to twenty times their annual income to maintain their standard of living after retiring.

Retirement Readiness
Almost half of middle-class workers, 49 percent, will be poor or near poor in retirement, living on a food budget of about $5 a day. (Ghilarducci) Even adults with a retirement plan like those at Fidelity on average, face a potential 28% income drop in retirement. ("Fidelity Viewpoints") 68% of young Americans claim that they are willing to work part-time or full-time after 65 to support themselves. They may not have the chance to do so only 12% of retirees actually do work full or part-time. Many retirees cite layoffs and a slow economy as obstacles facing employment.

STUDY OF RETIREMENT SAVINGS AMONG ARLINGTON RESIDENTS | 9

Local Savings Rates

Background
While Arlington residents compare favorably to national averages among key metrics, we could do much more to bolster financial education among younger residents. Per-Capita Income Per-Capita Personal Income for Arlington residents was in line with national standards in 2007, 2006, and 2005 according to the U.S. Department of Commerce, Bureau of Economic Analysis. ("Annual Report Updating Financial Information and Operating Data For Fiscal Year Ending September 30, 2007" 12) The figures are displayed below in Table 1. 2007
ARLINGTON TEXAS UNITED STATES 4.2% 4.3 4.6

2006
4.8% 4.9 4.6

2005
5.1% 5.4 5.2

Table 1 Unemployment According to the Comprehensive Annual Financial Report for the Fiscal Year Ended September 30, 2011, Arlingtons workforce of 208, 628 residents suffered a 7.8% unemployment rate and 1,262 foreclosures in 2010. ("Comprehensive Annual Financial Report for the Fiscal Year Ended September 30, 2011") Population Arlington continues to grow. According to the Department of Community Development & Planning, Arlington added 330 new residents in just the second quarter of 2012. ("Quarterly Growth Profile - Second Quarter 2012"). According to the 2011 Annual Growth Profile, Arlington added approximately 558 residents and 219 housing units in 2011. ("Annual Growth Program - 2011" 7)

Retirement Readiness
On October 22, 2012 I polled thirty students at Tarrant County College. The students were from different age and ethnic groups. Questions asked: How much do you have saved for retirement? How much would $5,000 invested today and compounded annually at 8% interest for 45 years be worth? Are you interested in learning more about retirement funds? Did you learn about money from your parents?
$0 - $,5000 25 $5,000 - $10,000 3 $10,000 - $15,000 1 $15,000 or more 1

How much do you have saved for retirement?

STUDY OF RETIREMENT SAVINGS AMONG ARLINGTON RESIDENTS | 10

Even with a small sample size, trends are clear. The overwhelming majority of students polled had no retirement savings. Several students had small retirement funds from $5,000 to $10,000. The two oldest students polled had the most saved, with one $15,000 account and another valued at over $30,000.
How much would $5,000 invested today and compounded annually at 8% interest for 45 years be worth? $15,000 - $25,000 4 $25,000 - $35,000 4 $35,000 - $45,000 10 $45,000 - $60,000 7 $60,000 or more 5

$5,000 compounded annually for 45 years at 8% interest would be worth $160,000. Many of the respondents seemed to guess that linear growth would hold true, rather than exponential growth.
Are you interested in learning more about retirement funds? Not Interested 2 Maybe Interested 8 Interested 15 Definitely Interested 5

The majority of respondents were definitely interested or interested in learning more about retirement funds and other long-term investment vehicles.
Did you learn about money from your parents? Yes 22 No 5 Cant Remember 0 Other 3

The majority of respondents reported learning about money primarily about their parents. Three respondents reported learning about money from other family members, and five respondents said they learned primarily from school or selfstudy.

STUDY OF RETIREMENT SAVINGS AMONG ARLINGTON RESIDENTS | 11

Conclusions and Recommendations

Conclusions
At the national level, Americans seem to fail to recognize the importance of saving for retirement. While poll respondents pay lip service to the importance of saving money, most Americans retire with an inadequate amount of savings. Arlington residents are in a good position to save money, but a poll conducted at Tarrant County College seems to show that many locals have not begun to save for retirement themselves. Given that the average age of Tarrant County College students is 26, this is worrying. (About TCC) Many of the residents polled expressed a keen interest in learning more about retirement funds and long-term investment vehicles. We believe there is a great opportunity for the City of Arlington to help residents learn to take control of their financial futures.

Recommendations
On the basis of these conclusions, we recommend that the City of Arlington undertake the following actions: 1. 2. 3. Revise the Champion Arlington Economic Development Strategy to include retirement savings rates Work with local banks or credit unions and school districts to bring financial education opportunities to students from a younger age. Work with local charities to expand financial education programs for adult residents of Arlington.

Revise the Champion Arlington Economic Development Strategy to include retirement savings rates The Champion Arlington Economic Development Strategy is a comprehensive plan by the City of Arlington aimed at both fostering economic development and enhancing the quality of life for Arlington residents. ("Champion Arlington Economic Development Strategy") In the current version of the plan, only one mention is made regarding savings: Encourage personal savings via a financial counseling program and possible development of a savings incentive program. Given that the current version of the plan dates to 2007 and we were unable to find any mention of the financial counseling program or savings incentive program on the City of Arlingtons websites, we believe it makes sense to both review the progress made and explicitly include retirement savings as a measurable benchmark in the report. Work with local banks or credit unions and school districts to bring financial education opportunities to students from a younger age Financially savvy children grow into financially stable adults. By encouraging students to learn to handle their finances from an early age, we empower them to more fully participate in our community as potential future investors and business owners. By partnering with local banks or credit unions already offering similar educational programs for their customers, we avoid expensive training sessions and additional stress on our teachers. Work with local charities to expand financial education programs for adult residents of Arlington Catholic Charities Fort Worth has been very successful in reaching out to communities in the Fort Worth and Arlington area and providing free financial education and services. In 2011 alone, Catholic Charities Fort Worth:

STUDY OF RETIREMENT SAVINGS AMONG ARLINGTON RESIDENTS | 12

Delivered 300 Financial Education classes to over 1900 area residents. Delivered one-on-one Financial Coaching to 697 area residents. Provided credit counseling from a licensed counselor to 225 area residents. Provided financial assistance to over 8,000 area residents. Prepared tax returns for over 3,500 low-income area families.

Catholic Charities Fort Worth claims that 80% of clients who attended classes, credit counseling, and one-on-one coaching experienced a changed behavior. Changed behaviors include: reducing debt, increasing savings, not having past due bills (if had initially), and not using payday loans (if using initially). Catholic Charities Fort Worth is just one of many charitable organizations operating locally. By supporting charities with proven track records, we allow them to expand their operations and reach more families in need. An educated populace helps make Arlington an attractive location for businesses.

STUDY OF RETIREMENT SAVINGS AMONG ARLINGTON RESIDENTS | 13

Cost Analyses
All costs below are estimates.
Costs The Economic Development Strategy is due for an update. The cost of adding an additional benchmark would be negligible. Associated costs would be initial research and positing the data for review. Vendors The Economic Development Steering Committee responsible for the Economic Development Strategy has retained the services of Market Street Services Inc. of Atlanta, Georgia. I propose we open a bid for local businesses instead.

Revising the Champion Arlington Economic Development Strategy

Costs Provide financial education opportunities for K-12 students Banks and credit unions may welcome the chance to educate a future potential consumer base. Once we have identified potential vendors we can perform a comprehensive review of associated costs.

Vendors I propose we open a bid for local banks and credit unions.

Work with local charities to expand financial education programs

Costs We can receive and review cost estimates from local charities.

Vendors I propose we contact local charities.

None of the recommendations we posit are inherently costly. We could further keep costs down by using free educational materials and students and volunteers in all of our programs.

STUDY OF RETIREMENT SAVINGS AMONG ARLINGTON RESIDENTS | 14

Appendix A
Retirement Calculators
AARP Retirement Calculator http://www.aarp.org/work/retirement-planning/retirement_calculator/

Vanguard Retirement Income Calculator https://retirementplans.vanguard.com/VGApp/pe/pubeducation/calculators/RetirementIncomeCalc.jsf

STUDY OF RETIREMENT SAVINGS AMONG ARLINGTON RESIDENTS | 15

References and Further Reading

References
City of Arlington, Texas (Tarrant County, Texas). Financial & Management Resources Department. Annual Report Updating Financial Information and Operating Data For Fiscal Year Ending September 30, 2007. 2008. Web. <http://www.arlingtontx.gov/finance/pdf/disclosure/2007_Disclosure.pdf>. "Planning for Retirement: Yes." July 2012 Newsletter. TCI Team, 2012. Web. Average and Median Retirement Account Balances of People Ages 50-64 in the U.S., by Personal Annual Income as of November 2010. 2012. 29 Oct. 2012. <http://www.tciteam.com/Libraries/Newsletters/July_2012.sflb>. Ghilarducci, Teresa . "Our Ridiculous Approach to Retirement." The Opinion Pages. The New York Times Company, 21 2012. Web. 29 Oct 2012. <http://www.nytimes.com/2012/07/22/opinion/sunday/our-ridiculous-approach-to-retirement.html?_r=0>. Schwartz Center for Economic Policy Analysis. Web. 29 Oct 2012. <http://www.economicpolicyresearch.org/guaranteeing-retirement-income/528retirement-account-balances-by-income-even-the-highest-earners-dont-have-enough.html>. . "Don't take a lifestyle cut in retirement." Fidelity Viewpoints. Fidelity Investments, 18 2012. Web. 29 Oct 2012. <https://www.fidelity.com/viewpoints/retirement-readiness>. City of Arlington, Texas. Department of Community Development & Planning. Quarterly Growth Profile - Second Quarter 2012. 2012. Web. <http://www.arlingtontx.gov/planning/pdf/publications/brochures/2012/2012_2nd.pdf>. City of Arlington, Texas. Department of Community Development & Planning. Annual Growth Program - 2011. 2011. Web. <http://www.arlingtontx.gov/planning/pdf/publications/brochures/2011/2011_AGP.pdf>. City of Arlington, Texas. Financial and Management Resources Department, Accounting. Comprehensive Annual Financial report for the Fiscal Year Ended September 30, 2011. 2012. Web. <http://www.arlingtontx.gov/finance/pdf/cafr/2011_CAFR.pdf>. Personal Saving Rate (PSAVERT). 2012. Economic Research, Federal Reserve Bank of St. Louis. Web. 29 Oct 2012. <http://research.stlouisfed.org/fred2/series/PSAVERT>. "The Lost Decade of the Middle Class: Fewer, Poorer, Gloomier." Pew Social & Demographic Trends. Pew Research Center, 22 2012. Web. 29 Oct 2012. <http://www.pewsocialtrends.org/2012/08/22/the-lost-decade-of-the-middle-class/>. "Quick Facts." About TCC. Tarrant County College District. Web. 29 Oct 2012. <http://www.tccd.edu/About_TCC/Quick_Facts.html>. Taylor, Chris. "Are we saving enough to retire? No (but we think we are)." Reuters, 21 2012. Web. 29 Oct 2012. <http://www.reuters.com/article/2012/09/21/us-column-save-retirement-idUSBRE88K0NB20120921>.

Further Reading
Helman, Ruth, Mathew Greenwald, Craig Copeland, and Jack VanDerhei. "The 2012 Retirement Confidence Survey: Job Insecurity, Debt Weigh on Retirement Confidence, Savings." Letter 369 of EBRI Issue Brief. Employee benefit Research Institute, . Web. 29 Oct. 2012. <http://www.ebri.org/pdf/surveys/rcs/2012/EBRI_IB_03-2012_No369_RCS.pdf>. Poterba, James, Steven Venti, and David Wise. "Were They Prepared for Retirement? Financial Status at Advanced Ages in the HRS and AHEAD Cohorts." Letter 17824 of NBER WORKING PAPER SERIES. Cambridge: National Bureau of Economic Research, . Print. <http://www.nber.org/papers/w17824.pdf?new_window=1>. Morin, Rich, and Richard Fry. "More Americans Worry about Financing Retirement." Pew Social & Demographic Trends. Pew Research Center, 22 2012. Web. 29 Oct 2012. <http://www.pewsocialtrends.org/2012/10/22/more-americans-worry-about-financing-retirement/>. City of Arlington, Texas. Economic Development Steering Committee. Champion Arlington Economic Development Strategy. 2007. Web. <http://www.arlingtontx.gov/business/pdf/resources/Champion Arlington Strategy Document.pdf>. Board of Governors of the Federal Reserve System. Changes in U.S. Family Finances from 2007 to 2010: Evidence from the Survey of Consumer Finances. 2012. Web. <http://www.federalreserve.gov/pubs/bulletin/2012/pdf/scf12.pdf>.