“We’re not serving pre-retirees as well as we could,” said Chip Castille, managing director and head of U.S. and Canada defined contribution group of BlackRock. Retirement planning should be fast, efficient and something the individual would want to come back to for information, he said.
People nearing retirement, who are within 10 years of retiring, need three things, Castille said. They want to be told how they are doing. Are they on track? In this first stage, they need help getting their bearings. Second, they want help understanding changes over time. And third, they need to be told what action to take. “But that action has to have a particular quality,” he said. They want to know that they are managing behaviors to match the desired outcome.
The CoRI Indexes are backed by the firm’s analytics and will enable an investor or adviser to calculate either of two critical figures: (1) how much estimated annual income an investor’s savings will provide throughout retirement, or conversely, (2) the level of savings an investor needs to generate a desired amount of annual income throughout retirement.
The indexes can also be used as a benchmark for monitoring retirement portfolio performance relative to an income goal, or in the course of designing and implementing a retirement income-focused investment plan. According to Castille, they deliver support for investors struggling with the most critical financial planning question: Do I have enough money to retire?
The indexes distill investors’ retirement income need into a single number that can be accessed easily and checked regularly, he pointed out, so they are a valuable new starting point for retirement planning. They can also support better informed discussions between investors and advisers on strategies for securing retirement income.
Unlike traditional retirement planning calculators that rely on user assumptions and hypothetical inputs, the CoRI Indexes are based on real-time market data and a broad-based portfolio of fixed-income securities.
The CoRI Indexes are designed to assist investors age 55 and older in planning for retirement by tracking the estimated cost of $1 of future, annual inflation-adjusted lifetime income beginning at age 65, better equipping those investors to make necessary adjustments to their savings or investing strategy during the “pre-retirement” period when good planning and appropriate course-correction are vital.
The value or “level” of each CoRI Index in the series reflects the performance of a portfolio of corporate US dollar-denominated bonds, US government bonds and US Treasury STRIPS (Treasury securities with separate interest and principal payments) that have been selected to deliver a return that approximates the cost of a person’s lifetime income as it fluctuates over time.
Based on proprietary methodology developed by BlackRock, a CoRI Index level is designed to converge with the median price of an annuity at age 65.
The CoRI Index series is designed mainly for individuals ages 55 to 64 years old. Each Index within the series is constructed with a view to the specific year in which those individuals will retire (assumed to be at the age of 65). The current series includes 10 Indexes, from the BlackRock CoRI Retirement Index 2014 (NYSE: CORI2014) through the BlackRock CoRI Retirement Index 2023 (NYSE: CORI2023). A new index will be added every year.
In each case, a CoRI Index will provide a single number that a saver can use to calculate the amount of money needed today for every dollar of estimated annual income he or she wants in retirement.
As an example – using the BlackRock CoRI Retirement Index 2018 closing price on Tuesday, July 30, an investor who has saved $750,000 toward retirement as of July 30 and will turn 65 in the year 2018 would divide $750,000 by the CoRI Index 2018 level of $16.06 – and determine that those savings could fund an estimated $46,700 in annual income in retirement. Alternatively, the same investor wanting to fund $65,000 in annual income at retirement would multiply $65,000 by $16.06 – and determine that as of July 30, a nest egg of $1,043,900 would be required to achieve that goal.
“The CoRI Indexes use real numbers to provide real answers that transform the unknown into the known, translating today’s retirement savings into an estimate of future annual income,” said Matthew O’Hara, managing director and head of research and product development for BlackRock’s defined contribution group. “It is a set of living, breathing indexes that will offer a valuable, forward-looking picture of annual retirement income for those investors within 10 years of retirement.
“The bond portfolio that underlies each index is the most significant innovation, representing a dynamic, market-based approach for tracking income pricing that gives investors unique insight into their progress toward their income goals,” O’Hara said.
A CoRI Index’s quantitative inputs include: the individual’s age and years to retirement (at 65); current interest rates; the average price of immediate annuities (as a proxy for the price of lifetime income); and average life expectancy rates. The calculation of each Index includes a cost of living adjustment (COLA) that is set at inception by considering yields for U.S. Treasury Inflation Protected Securities (the TIPS curve) and observed historical inflation over time, as a measure of real inflation rates. BlackRock plans to use the TIPS curve as input for setting the COLA for future indexes as well.Savers Can Track in Real Time
Index values will be published daily and, like any other widely known financial index, will be available to investors and advisers via major financial information outlets and on BlackRock.com. As an index value or level changes, savers will be able to track, in real time, changes to the estimated “price” of future retirement income and the impact on the level of savings needed for the income they want.
The CoRI Indexes will be calculated using the services of Interactive Data, a global provider of financial market data and index-related solutions.
“At the same time that a CoRI Index helps investors understand their retirement income needs, the bond portfolio that underlies the Index can be the basis for the development of innovative investment products that help enable those same investors to effectively plan for their future retirement income requirement,” O’Hara said.
To help clients use the CoRI Indexes quickly and effectively, BlackRock has also developed an online tool called CoRI. More than a simple calculator, CoRI delivers in seconds a clear and intuitive “translation” between retirement savings and estimated annual retirement income, allowing for more personalized and dynamic retirement planning.
“We’ve shifted the retirement savings burden to individual investors and in doing so have tasked them with the impossible. How does someone know exactly how much to save when they don’t know how long they are going to live?” Castille said. “Up to this point, all people have been able to do is guess at how big their nest egg needs to be in order to get the lifelong income they want.
“Workers in their 50s in particular can’t just rely on estimates or guesses. They need to understand with certainty whether their savings will provide enough income to support their desired lifestyle in retirement,” he said. “We have created the CoRI Indexes to help address this challenge.”
Information about the online tool CoRI is here. An interactive screen lets the user input age and asset information, and explains how factors such as life expectancy, market risk and inflation are calculated.