Workforce
EBRI’s Retirement Readiness Rating examined retirement preparedness levels by age and income and found that no group is completely prepared. Nearly half (47 percent) of early boomers, people ages 56 to 62, won’t have enough for regular living expenses and uninsured health care costs. Nearly two-thirds (64 percent) of Americans in the two lowest pre-retirement income levels will likely exhaust retirement savings after 10 years.
While higher-income workers fare better, 5 percent may run out of cash after 10 years, and 13 percent may run out after 20 years of retirement, the study says.
“We have to do more than worry about whether people are saving; we have to worry about whether they are saving enough,” says Jack VanDerhei, EBRI’s research director.
The study, which was last conducted in 2003, took into account new pension funding trends including an increased number of defined-contribution plans (versus defined-benefit plans), automatic enrollment and automatic escalation of employee deferrals. (Under automatic escalation, the employee’s contributions are increased unless the employee specifically intervenes to halt the escalation.) People were considered to be at risk if their projected savings fell below a combination of certain estimated spending levels, including the Bureau of Labor Statistics’ Consumer Expenditure Survey.
Compared with 2003, Americans are saving more today, lowering risk levels. That year, early boomers had a 59 percent chance of being at risk, versus 47 percent today; late boomers, ages 46 to 55, had a 54 percent change of being classified as at risk in 2003, versus 43 percent now. With the growing trend of plan sponsors moving from defined-benefit plans to defined-contribution plans, the higher savings rate does show that 401(k) plans can work, VanDerhei says.
