Retirement Readiness Rating

Put a reality check on those retirement fears

2010-10-29T04:34:00.000-07:00

Plenty of studies show Americans' retirement resources are lacking. The Employee Benefit Research Institute recently said there is a $4.6 trillion national shortfall in retirement savings to cover basic expenses and health care.

Americans Uncertain How to Save for Retirement

2010-10-27T06:10:00.000-07:00

http://www.kiplinger.com

Americans' lack of retirement knowledge is reflected in savings data collected by the Employee Benefits Research Institute, a nonprofit research organization. The EBRI, in a report released this week, estimates that the nation's aggregate retirement savings shortfall is more than $4.5 trillion.

That's an average of $47,732 per person (among people aged 36 to 62).

When nursing-home and healthcare expenses are factored in, the shortfall grows even larger, the EBRI notes.

Nursing Home Costs a Big Factor in Retirement Adequacy Deficit

2010-10-27T06:06:00.000-07:00

http://www.consumeraffairs.com

EBRI's analysis finds the aggregate national retirement savings shortfall is $4.6 trillion, for an overall average of $47,732 per individual. The average shortfall varies by age, gender, and marital status.

The Institute says adding nursing home and home health care expense increases the average individual retirement savings shortfall for married households by $25,317. Single males experience an average increase of $32,433, while single females have an increase of $46,425.

"This helps quantify just how large of an impact nursing home and home health care expenses can have on people in retirement," said Jack VanDerhei, EBRI research director and author of the report.

EBRI's estimates are present values (stated in 2010 dollars) at age 65, and represent the additional individual average amount needed at age 65 to eliminate expected deficits in retirement. EBRI notes this aggregate deficit assumed that people will receive current-law Social Security benefits.

Retirement Plans Have Shortfalls of $4.6 Trillion, Study Says

2010-10-27T05:33:00.000-07:00

http://www.theepochtimes.com/n2/content/view/44618/

Retirement plans possessed by American adults face a collective shortfall of $4.55 trillion, or more than $47,000 per individual, the Employee Benefit Research Institute (EBRI) said in a study published this week.

The numerical amounts represent how much extra money a retiree would have to save or earn than they currently do in order to adequately pay for basic expenses and over-the-top medical expenses for retirement.

The EBRI’s Retirement Security Projection Model, which uses more than a decade of empirical data from 401(k) participants and projects retirement readiness based off of income, plan types, and wealth, noted that some demographics, in general, have higher Retirement Savings Shortfalls (RSS) than others.

EBRI found that households had the lowest RSS, while those with the largest retirement income deficit were single females.

Among different age groups, Generation Xers—those currently in their mid-30s to mid-40s—had a higher RSS than older adults, due to rising health care costs that would be very pricey when they retire.

Americans Aren’t Saving Enough for Retirement, Study Finds

2010-10-27T05:31:00.000-07:00

economix.blogs.nytimes.com

The typical middle-age American is saving far too little for retirement, and the Employee Benefit Research Institute has estimated the shortfall: an average of $47,732 per individual over the course of that person’s retirement.

The number was intended to show how much additional income future retirees — in this case, people currently 36 to 62 — would need to sufficiently cover basic expenses and uninsured health care costs upon reaching retirement age. (Not all health care costs are covered by Medicare, after all.)

The retirement savings shortfall varies by gender, household size and generation, according to the model used by the institute, which is a nonpartisan research organization.

For example, Generation Xers — that is, people born from 1965 to 1974 — have a higher estimated retirement shortfall for any given household type. That is primarily because health care costs are rising so quickly, and will be especially expensive by the time that generation retires.

The costs of nursing home and home health care expenses increase the average retirement shortfall by $25,317 for married households (whose inhabitants can pool expenses). The shortfall for single men increases an average of $32,433, and for single women the average increase is $46,425.

Home Healthcare and Nursing-Home Costs Add to Retirement Burden

2010-10-27T05:16:00.000-07:00

kiplinger.com

Already, the Employee Benefits Research Institute says, Americans are facing a severe retirement-savings shortfall - a situation that's made even direr when nursing-home and home healthcare costs are added to the mix.

The average savings shortfall for people between the ages of 36 and 62 is nearly $47,000. That estimate doesn't take into account the costs of nursing-home care or home-health services, however.

The average married couple would need to save $25,317 more to account for those expenses. Single people face an even greater burden: For single men, the shortfall is $32,433; for single women, it's $46,425.

Americans face retirement savings deficits of nearly $48,000 per person, on average, nonprofit group finds

2010-10-27T05:13:00.000-07:00

mcknights.com

A nonpartisan group estimates that the average retirement savings shortfall is $47,732 per person, or $4.6 trillion nationally.

Home-health care and nursing home costs can double both figures. Meanwhile, the elimination of Social Security benefits could drive those estimates to $89,000 per individual, or $8.5 trillion nationally, according to the Employee Benefit Research Institute. The institute used its own Retirement Security Projection Model to estimate the deficits at age 65 for three categories of workers: early boomers, late boomers and Generation Xers, according to ConsumerAffairs.com.

The totals vary by age, gender and marital status, but the values are based on 2010 dollars and for individuals who are 65. EBRI researchers said the numbers help individuals and care providers quantify the cost impact of home-health care and nursing homes on people in retirement.

Retirement income deficit would double without Social Security benefits, EBRI finds

2010-10-27T05:10:00.001-07:00

CCH

The total aggregate national deficit in U.S. retirement income adequacy is an estimated $4.6 trillion—or about an average of $48,000 per individual, according to congressional testimony by the nonpartisan Employee Benefit Research Institute (EBRI). Reflecting the importance of Social Security, EBRI's analysis finds that if Social Security retirement benefits were eliminated, the aggregate retirement income deficit would almost double—to $8.5 trillion, or an individual average of approximately $89,000.

The estimates are present values (stated in 2010 dollars) at age 65, and represent the additional individual average amount needed at age 65 to eliminate expected deficits in retirement. EBRI notes this aggregate deficit assumed that Americans will receive current-law Social Security benefits.

"These numbers show that the national retirement income deficit—which is already quite large—would almost double without current-level Social Security benefits," said Jack VanDerhei, EBRI research director, testifying at a hearing by the Senate Committee on Health, Education, Labor and Pensions. His full testimony is on EBRI’s website.

Retirement 'Deficit' Measured in Trillions

2010-10-12T04:45:00.000-07:00

thestreet

The financial gap between what Americans need for retirement and what they have is $4.6 trillion as a national aggregate and an average $48,000 per person, according to congressional testimony by the Employee Benefit Research Institute.

Jack VanDerhei, EBRI's research director, was among those testifying at a hearing Thursday, The Wobbly Stool: Retirement (In)security in America, convened by the Senate Committee on Health, Education and Labor. Testimony and video of the hearing on U.S. retirement income adequacy is available online.

EBRI is a research institute based in Washington, D.C., that focuses on retirement and economic security issues. Its analysis estimates how much money will be needed for "basic" expenses (such as food and shelter) and uninsured health care costs in retirement, and what financial resources retirees are likely to have.

The deficit projection assumes no changes to the current Social Security benefit structure. If Social Security benefits were to be eliminated, the aggregate deficit would jump to $8.5 trillion and the average amount would increase to about $89,000.

The National Retirement Income Adequacy Deficit: $4.6 Trillion

2010-10-08T08:55:00.000-07:00

The total aggregate national deficit in U.S. retirement income adequacy is an estimated $4.6 trillion—or about $48,000 per-individual average, according to congressional testimony by the nonpartisan Employee Benefit Research Institute (EBRI).

Reflecting the importance of Social Security, the EBRI analysis finds that if Social Security retirement benefits were eliminated, the aggregate retirement income deficit would almost double, to $8.5 trillion, or an individual average of approximately $89,000.

"These numbers show that the national retirement income deficit—which is already quite large—would almost double without current-level Social Security benefits,” said Jack VanDerhei, EBRI research director, testifying at a hearing Oct. 7 by the Senate Committee on Health, Education, Labor and Pensions.

The Senate HELP Committee’s website for the hearing is online here .

America's $4.6 trillion retirement hole

2010-10-08T08:23:00.000-07:00

money.cnn.com

On average, U.S. workers would need to have an additional $48,000 when they retire at 65 to ensure they don't run shy of cash in retirement, the Employee Benefit Research Institute said.

All told, the group estimates that the national retirement deficit is $4.6 trillion.

The research group estimated how much money retirees will need for "basic" expenses such as food, shelter and uninsured health care costs. It compared those expenses to the financial resources workers are likely to have at the typical retirement age, including Social Security, pensions and savings plans such as 401(k)s.

If Social Security benefits are deducted, the group estimates that the national retirement deficit would jump to $8.5 trillion, or about $89,000 for the average worker.

In all cases, low-income workers are most at risk of not having enough savings to retire on, Jack VanDerhei, research director at EBRI, told lawmakers Thursday. EBRI estimates that 41% of low-income Baby Boomers will run short of money within 10 years of retirement.

However, he noted that the number of households that are projected to have inadequate retirement income has declined since the last time EBRI studied the topic in 2003.

VanDerhei said the improvement over the last seven years is largely due to an increase in the number of employers that automatically enroll workers in 401(k) plans.

Automatic enrollment, which allows workers to opt out, can increase participation in retirement savings plans dramatically, he said, particularly among lower-income employees.

Retirement Readiness: Can Employers Do More?

2010-09-16T07:49:00.000-07:00

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.

WSJ: Another Threat to Economy: Boomers Cutting Back

2010-08-16T06:28:00.000-07:00

WSJ

Low yields present retirees with a difficult choice: Accept the lower income offered by safer bonds, or take the risk of staying in the stock market. Either way, their predicament could put a long-term damper on the consumer spending that typically drives U.S. growth.

"If these rates stay as low as they are, then a lot more people are going to be hurting," says Jack VanDerhei, research director at the Employee Benefit Research Institute. The non-partisan outfit estimates that if current conditions persist, nearly three in five baby boomers will be at risk of running short of money in retirement. "There are going to be many luxury items that will simply have to be eliminated," for retirees to make ends meet.

...

At the same time, the return people can hope to earn on their assets has fallen, particularly for those who switch into bonds or annuities to guarantee a fixed income. The average yield on U.S. government, corporate and mortgage bonds stands at about 2.4%, while stock-market valuations suggest a long-term return of about 6%. At those levels of return, some 59% of people aged 56 to 62 will be at risk of not having enough money to cover basic living and health-care costs in retirement, estimates Mr. VanDerhei. If market returns are higher—8.9% for stocks and 6.3% for bonds—the picture isn't a lot better: The percentage at risk falls to about 47%.

USAT: Boomers wanting to work past retirement age find limited options

2010-08-10T09:34:00.000-07:00

USA Today

Nearly half of Baby Boomers ages 56 to 62 are at risk of not having enough savings for basic expenses and uninsured medical bills, according to Employee Benefit Research Institute's new Retirement Readiness Rating. And 41% of the lowest-income older Boomers .... are likely to run short of money after 10 years of retirement.

Health care, variable payouts factor into retirement puzzle

2010-08-09T04:50:00.001-07:00

Rockford Register Star

The EBRI study, last done in 2003, evaluated national retirement income adequacy based on a database of 24 million 401(k) participants. The newest version takes into account many new retirement plan changes, such as auto-enrollment and auto-escalation of contributions in 401(k) plans, as well as updates on the financial market and employee behavior.

Chicago Trib: Calculating how much you need for retirement

2010-07-29T05:17:00.000-07:00

http://www.chicagotribune.com

It's a shocking statistic: About 47 percent of early baby boomers and 44.5 percent of Generation Xers — age 36 to 45 — are on course to run short of money for basic living expenses like food and electricity in retirement, according to the Employee Benefit Research Institute.

Good News and Bad News

2010-07-26T05:18:00.000-07:00

hreonline

The Employee Benefit Research Institute's EBRIRetirement Readiness Rating, released July 13, finds about two-thirds (64 percent) of Americans in the two lowest preretirement income levels will be running short after 10 years in retirement.

Moreover, after 20 years of retirement, one-third (29 percent) of those in the next-to-the-highest income level will run short of money, as will more than 1 in 10 (13 percent) of those in the highest income level.

The findings have created enough alarm in the business community and the media that the study became the subject of a recent NBC Today Show discussion between show host Matt Lauer and Jean Chatzky, NBC's financial editor.

NY Post: Retirement woes

2010-07-25T05:28:00.000-07:00

http://www.nypost.com

Even the seemingly well off may find they are struggling to make ends meet in the so-called golden years.

They could begin their retirement with what appears to be a healthy nest egg, only to run out of money years later, and needing to return to work.

That's one conclusion of a recent report by a Washington-based retirement institute. The Employee Benefits Research Institute (EBRI) warns that millions of Americans who think they are well-prepared for retirement are "likely" to have insufficient assets for all their years in retirement. That's because they didn't save or insure themselves enough or haven't calculated the many ways their retirement plan could fail.

Will You Run Out of Money?

2010-07-23T05:31:00.000-07:00

http://www.secondact.com/2010/07/will-you-run-out-of-money-before-you-run-out-of-years/

A new report by one of the nation's most respected retirement research groups confirms the worst fears of pre-retirement Americans: Many of us are on track to run out of money before we run out of years to live.

That's the top-line finding of the 2010 Retirement Readiness Rating from the Employee Benefit Research Institute (EBRI). The report projects future retirement readiness each year by crunching actual performance data from 24 million actual 401(k) plan participants. EBRI defines "running short of money" as households that won't have enough cash to meet basic expenses or to meet projected uncovered home health care or nursing home expenses.

Moneywatch: Read This and Improve Your Odds of Retiring

2010-07-21T05:33:00.000-07:00

http://moneywatch.bnet.com

A few weeks ago the Employee Benefit Research Institute released a study on retirement preparedness for baby boomers and Gen Xers. Not surprisingly, about half of the people surveyed probably won’t have enough assets to pay for their basic living expenses in retirement.

Retirement will be risky for many Americans, study says

2010-07-21T05:32:00.000-07:00

http://www.stltoday.com

More than 40 percent of Americans are at risk of having too little retirement income, a new study by the Employee Benefit Research Institute says.

What's more, the oldest workers are the least prepared to quit working. The EBRI says that 47% of early Baby Boomers are at risk of running out of money in retirement, compared with 44.5 percent of Generation Xers.

For some people, retirement savings won't last very long at all. Among the lowest-income quarter of the working population, 41 percent will be short of money after a mere 10 years in retirement.

MSNBC: Do This to Make Your Money Last a Lifetime

2010-07-20T05:35:00.000-07:00

http://www.msnbc.msn.com/id/38325349/ns/business-motley_fool/

Marketwatch: Retirement may mean a lifestyle downgrade

2010-07-15T10:41:00.000-07:00

Marketwatch

If you're a baby boomer, the odds are high you'll exhaust your retirement savings after 10 or 20 years of retirement, according to the latest Retirement Readiness Rating report released this week by the Employee Benefit Research Institute.

WP: The scary state of retirement savings

2010-07-15T05:57:00.000-07:00

http://www.washingtonpost.com

The nonpartisan Employee Benefit Research Institute regularly delivers the dreadful news of how unprepared so many Americans are for retirement. The findings give you a chill, much like seeing an image of the iconic black-robed, scythe-carrying personification of death.

But that chill is needed. Washington-based EBRI continues to be at the forefront of sounding the alarm that we ought to be more aggressive in preventing people from falling into poverty in their senior years.

In 2003, the institute developed its trademark "Retirement Readiness Rating" to assess retirement-income prospects for American workers. The 2010 findings, released this week, show that a large percentage of people, including high earners, are likely to run out of money 10 to 20 years into retirement.

Even Wealthy Face Retirement Shortfall

2010-07-15T05:54:00.000-07:00

http://www.thestreet.com

For those stressed out by the prospect they may not have enough money saved for retirement, a study released this week by the Employee Benefit Research Institute will be of little comfort.

The study, based on an analysis of 24 million participants in 401(k) plans, is touted as the first time a national retirement model has projected when different groups, based on age and income, are likely to exhaust their retirement savings. The conclusion: "Dramatically high percentages of Americans -- even in the upper-income categories -- are likely to run short of money after 10 or 20 years of retirement."

"Policy makers need to understand what percentage of the population is likely to fail to achieve retirement security under current conditions," says Jack VanDerhei, principal author of the study. "Even more important is to identify which of those households still have time to modify their behavior to achieve retirement security, and how they need to proceed."

Money/CNN: 47% of early boomers could run shy of cash

2010-07-14T06:38:00.000-07:00

money.cnn.com

Many early baby boomers may have a hard time making ends meet in retirement, according to a new study.

The Employee Benefit Research Institute estimates that 47% of boomers between the ages of 56 and 62 are likely to run shy of the cash they'll need to pay for basic expenses and uninsured health costs in retirement.

On the bright side, that's down from the estimate seven years ago. In 2003, 59% of early boomers ran the risk of running short of money in retirement. What's the difference between now and then? Much broader use of policies governing work-based retirement plans, such as automatic enrollment in 401(k) plans and automatic increases to 401(k) contributions.

"This makes a huge difference, especially for low-income workers," said the study's coauthor, Jack Vanderhei, who is EBRI's research director.

USA Today: Many workers' retirement savings will run out too soon

2010-07-14T06:37:00.000-07:00

www.usatoday.com

A third of middle-income workers will likely run out of money after 20 years of retirement, and significantly more lower-income workers will deplete their savings after 10 years, according to a study released Tuesday.

The Employee Benefit Research Institute, a non-partisan research group based in Washington, said its retirement-readiness study found that living longer, saving too little and inadequate planning for health care costs will leave many retirees short of money to pay basic living expenses.

CNBC: Lowering Your Tax Hit from a Roth IRA

2010-07-14T06:18:00.000-07:00

http://www.cnbc.com/id/38228284

USNEWS: Automatic 401(k)s Aid Retirement Readiness

2010-07-14T06:17:00.000-07:00

http://money.usnews.com

People are more prepared for retirement than they were seven years ago, according to a recent study by the Employee Benefits Research Institute (EBRI), one of the major think tanks in the retirement space. EBRI compared its 2010 Retirement Readiness Rating with a similar rating it did in 2003. While anywhere from 43 to 47 percent of adults aged 36 to 62 are at risk of not having enough money for retirement, the comparable percentages in 2003 ranged from nearly 55 to 59 percent. The main cause of the improvement, EBRI said, was the 2006 Pension Protection Act, which requires the automatic enrollment of employees in 401(k) plans unless they opt out of the programs.

Study: Americans better prepared for retirement

2010-07-14T06:11:00.000-07:00

http://weblogs.baltimoresun.com

The latest "retirement readiness" study from the Employee Benefit Research Institute got a lot of coverage yesterday, The bad news justifiably got most of the press. Many, many Americans aren't saving enough for retirement. But there was some (relative) good news buried in the report. The portion of boomers and GenXers "at risk" of using up their retirement resources is generally lower than it was in 2003, when EBRI did a previous study.

Reuters: Many Americans will run short in retirement: study

2010-07-14T05:59:00.000-07:00

http://www.reuters.com

No matter their income level, a significant number of U.S. workers are likely to struggle to meet basic expenses during retirement, a new study of baby boomers and "generation Xers" released on Tuesday shows.

Over 40 percent of people with the lowest incomes face prospects of depleted savings within 10 years after retirement, with that number climbing toward 60 percent after another decade, according to Washington-based Employee Benefit Research Institute (EBRI).

For many workers, having savings in a 401(k) plan or similar retirement vehicle can make the difference between security and struggle in retirement.

"How long you've been in a 401(k) plan is the number one thing showing if you'll have enough retirement income," Jack VanDerhei, EBRI's research director, told Reuters.

Jean Chatzky: Are you ready to retire? Make sure you've saved enough

2010-07-14T05:53:00.000-07:00

By Jean Chatzky

Will you run out of money in retirement? New research from the Employee Benefits Research Institute shows that even for well-earning Baby Boomers and Generation Xers, there's nearly a 50% chance that will happen.

According to the research, 41% of people in the lowest 25% of American earners ($0 -- $11,700 a year) were likely to run short of money after 10 years in retirement, and 57% after 20 years. Those percentages continued to shrink as earnings increased, but 5% of the highest 25% of American earners ($72,000 and up) are likely to run short of money after 10 years in retirement and 13% after 20 years. That seems especially troubling on a day that Willard Scott wished happy birthday to a 114-year old and 110-year old in succession.

And it means that nearly half of Boomers and Xers are not going to have enough money during their retirement to pay for the basics, let alone the added health care expenses that can run six figures or more, explains EBRI's Jack VanDerhei.

If there's a solution it lies elsewhere in the research. Automatically enrolling workers into 401(k) and other defined contribution plans seems to be one way to get them to save more. The passage of the Pension Protection Act in 2006, brought down the barriers for those employers who wanted to auto-enroll people into their retirement plans, says VanDerhei. It's been hugely successful. In companies that have automatic enrollment, 80% to 90% of people are in the company retirement plan. In companies that don't have it, half that many people are in. And 401(k) participation reduces the risk of running out of money to 20%. That, says VanDerhei, is significant.

WSJ: Retirement Security Brighter

2010-07-13T06:35:00.000-07:00

http://online.wsj.com

Retirement plans are doing a better job of providing a secure retirement for workers than a decade ago, according to a study to be released Tuesday by a nonpartisan research group. Many workers, however, may still come up short.

That news of improved security may seem counterintuitive—or just plain wrong—to workers who saw their retirement accounts shrink during the recent market downturn.

The improvement is thanks largely to a recent increase in automatic employee enrollment in 401(k) retirement plans, says Jack VanDerhei, lead researcher on the report.

"Things are getting better" since the EBRI's first study about retirement risk, published in 2003, Mr. VanDerhei said. "But there is still a very large percentage of households and workers who are likely to be at risk for retirement income" insecurity.

Nearly half—47.2%—of households whose oldest members are age 56 to 62 are at risk of not having enough retirement income to pay for basic expenditures and uninsured health-care costs in retirement, according to the study. That is better than the 59.2% of households who were projected to run short on retirement income in EBRI's 2003 study.

Chicago Trib: Nearly half of those nearing retirement lack adequate savings

2010-07-13T06:16:00.000-07:00

http://www.chicagotribune.com

The people in the best shape with savings tend to have 401(k) plans, said VanDerhei. With such plans, people save regularly, while people who must go on their own to a broker or mutual fund company to start an IRA tend to procrastinate.

Changes in government regulations during the last few years have been encouraging employers to enroll employees in 401(k) plans automatically without asking for permission, and that has prepared people better for their future, said VanDerhei.

CS Monitor: Report sounds alarm bell over Americans' retirement plan

2010-07-13T06:15:00.000-07:00

http://www.csmonitor.com

The study was conducted by the nonpartisan Employee Benefit Research Institute (EBRI) in Washington. Although the detailed study suggests a significant financial challenge lies ahead, the findings are not entirely grim.

Many workers still have time to bolster their financial position. The study estimates that for a middle-income Gen Xer, saving about 5 percent more of income could make the difference between falling short and being secure in retirement

Lots of early boomers will go bust in retirement

2010-07-13T06:14:00.000-07:00

http://www.investmentnews.com

The EBRI Retirement Readiness Rating:™ Retirement Income Preparation and Future Prospects

2010-07-13T05:22:00.000-07:00

Download pdf

Executive Summary

MODELING RETIREMENT INCOME ADEQUACY: The EBRI Retirement Readiness Rating™ was developed in 2003 to provide assessment of national retirement income prospects. The 2010 update uses the most recent data and considers retirement plan changes (e.g., automatic enrollment, auto escalation of contributions, and diversified default investments resulting from the Pension Protection Act of 2006) as well as updates for financial market performance and employee behavior (based on a database of 24 million 401(k) participants).

“AT RISK” LEVELS, BY AGE AND INCOME: The baseline 2010 Retirement Readiness Rating™ finds that nearly one-half (47.2 percent) of the oldest cohort (Early Baby Boomers) are simulated to be “at risk” of not having sufficient retirement resources to pay for “basic” retirement expenditures and uninsured health care costs. The percentage “at risk” drops for the Late Boomers (to 43.7 percent) but then increases slightly for Generation Xers to 44.5 percent. Households in the lowest one-third when ranked by preretirement income are simulated to be “at risk” 70.3 percent of the time, while the middle-income group has an “at-risk” level of 41.6 percent. This figure drops to 23.3 percent for the highest-income group. These numbers are generally much more optimistic than those simulated for the same groups seven years earlier. In 2003, 59.2 percent of the Early Boomers were simulated to be “at risk,” as well as 54.7 percent of the Late Boomers and 57.4 percent of the Generation Xers. When analyzed by preretirement income in 2003, households were simulated to be “at risk” 79.5 percent of the time for the lowest one-third, 57.3 percent for the middle-income group, and 39.6 percent for the highest-income group.

FUTURE ELIGIBILITY IN A DEFINED CONTRIBUTION PLAN: When the simulation results are classified by future eligibility in a defined contribution plan, the differences in the “at-risk” percentages are quite large. For example, Gen Xers with no future years of eligibility have an “at-risk” level of 60 percent, compared with only 20 percent for those with 20 or more years of future eligibility.

RUNNING SHORT OF MONEY: The model simulates a distribution of how long retirement money will cover the expenses for Early Boomers (assuming retirement at age 65). A household is considered to “run short of money” if their resources in retirement are not sufficient to meet minimum retirement expenditures plus uncovered expenses from nursing home and home health care expenses. After 10 years of retirement, 41 percent of those in the lowest (preretirement) income quartile are assumed to have run short of money, but only 23 percent of the next-lowest quartile, 13 percent of the third quartile, and less than 5 percent of the highest-income quartile.

ADDITIONAL SAVINGS NEEDED: While knowing the percentage of households that are “at risk” is obviously valuable, it does nothing to inform one of how much additional savings is required to achieve the desired probability of success. Therefore, this analysis also models how much additional savings would need to be contributed from 2010 until age 65 to achieve adequate retirement income 50, 70, and 90 percent of the time for each household. While this concept may be difficult to comprehend at first, it is important to understand that a retirement target based on averages (such as average life expectancy, average investment experience, and average health care expenditures in retirement) provides, in essence, a retirement planning target that has approximately a 50 percent “failure” rate. Adding the 70 and 90 percent probabilities allows more realistic modeling of a worker’s risk aversion.

An Evaluation of the Adequacy and Structure of Current U.S. Voluntary Retirement Plans, with Special Emphasis on 401(K) Plans

2009-09-17T09:59:00.000-07:00

This paper reviews the results of many empirical and simulation studies EBRI has undertaken to determine whether future cohorts of retirees in the US are likely to have retirement income adequacy and the extent to which the voluntary retirement system is contributing to this objective in its current form as well as possible modifications that may increase its efficiency.

The Declining Role of Private Defined Benefit Pension Plans: Who is Affected, and How

2009-09-01T10:08:00.000-07:00

This chapter analyzes the impact of future freezes among corporate defined benefit (DB) pension plans. We simulate the impact on expected future pension wealth by assuming all existing private DB plans immediately freeze accruals for new employees. While this indicates the potential reduction in retirement wealth attributable to such plans, it does not recognize that sponsors freezing accruals may increase employer contributions to existing defined contribution (DC) plans or establish new DC plans. Using an empirical distribution of enhanced contributions to DC plans from sponsors freezing their DB plans, we simulate the nominal annuity that could be purchased at retirement age from these enhanced contributions. We then back out the net pension loss experienced by employees in the future.

How Would Target-Date Funds Likely Impact Future 401(K) Accumulations?

2009-07-24T09:58:00.000-07:00

As part of EBRI’s 2008 analysis of the likely impact of the Pension Protection Act’s safe harbor automatic enrollment and automatic escalation provisions, we developed a stochastic simulation model to project future 401(k) balances as a function of various plan design variables as well as assumptions with respect to various employee behavioral responses. In this paper I report on the results I obtained using the EBRI simulation model to determine how target-date funds (TDFs) would likely impact 401(k) participants assumed to be automatically enrolled. I realize that TDF use in 401(k) plans is not limited to those automatically enrolled; however, based on our simulation results, it appears that this 401(k) auto-enrollment will represent the majority of TDF use in the future and hence I will concentrate my analysis on those results. Results are reported both at the time of retirement as well as at the time of job change for those who are assumed to cash out. Several scenarios are presented in terms of alternative rates of return as well as several different types of target date funds.

The Impact of PPA on Retirement Savings for 401(K) Participants

2008-06-01T09:57:00.000-07:00

This paper simulates (under several assumptions) the likely impact of 401(k) plan sponsors switching from voluntary enrollment systems to automatic enrollment designs with automatic escalation of contributions for a significant portion of workers (not just current 401(k) participants or those eligible to participate). This analysis indicates that even under the most conservative assumptions for auto-escalation of contributions, switching 401(k) plans to auto-enrollment is likely to have a very significant positive impact in generating additional retirement savings for many workers, especially for low-income workers. When results are aggregated across all income categories, the increase in the value of 401(k) accumulations at age 65 as a multiple of final earnings for those currently ages 25-29 would be approximately 2.4 to 2.6 times final salary by switching from voluntary enrollment to automatic enrollment. Although the aggregate results favor automatic enrollment, distributional analysis of the differences between the two systems indicates that the higher paid are not likely to benefit as much from such a change.

The median 401(k) accumulations for the lowest-income quartile of these workers (assuming all 401(k) plans were voluntary enrollment) would only be 0.1 times final earnings at age 65 (this is largely due to the fact that 41 percent of workers - as opposed to participants - were assumed to have zero balances at age 65). However, if all 401(k) plans are assumed to be using the auto-enrollment provisions under PPA, the median 401(k) accumulations for the lowest-income quartile jumps to 2.5 times final earnings under the most conservative assumptions and 4.5 times final earnings under the most beneficial assumptions. Even for the top 25 percent of these workers (when ranked by 401(k) accumulations as a multiple of final earnings), there are large increases: the multiple under a voluntary enrollment scenario is 1.8 times final earnings, whereas auto-enrollment provides multiples ranging from 6.5 to 10.4, depending on auto-escalation of contributions. Comparing income replacement targets generated in previous EBRI work with these simulated 401(k) accumulations shows that, even with the large increases that can be expected for many workers under the safe harbor auto-enrollment plans introduced by PPA, and with current-law Social Security benefits, additional resources will still be needed for some of them.

Retirement Income Adequacy After PPA and FAS 158: Part One--Plan Sponsors' Reactions

2007-07-01T09:56:00.000-07:00

This paper provides an overview of the major provisions of the Pension Protection Act of 2006 and the pension accounting changes for single-employer defined benefit plans, as well as an explanation of the expected impact of each on plan sponsors. The results of the recent EBRI/Mercer Survey of Retirement Program Changes After PPA and New Accounting Rules are then summarized with a focus on those results that will be most important for determining retirement income adequacy in the post-PPA/FAS 158 era. In a forthcoming paper, EBRI will use these results to modify its retirement security modeling programs to simulate the impact of PPA and FASB on retirement income adequacy under a number of alternative scenarios. This will allow policymakers, retirement professionals, and the news media the opportunity to analyze these results in a timely fashion before most of the workers affected by these changes reach retirement age.

Measuring Retirement Income Adequacy: Calculating Realistic Income Replacement Rates

2006-09-01T09:54:00.000-07:00

A key weakness of many retirement income models is that they use average estimates for life expectancy, and, consequently, provide workers with only a 50 percent chance of having adequate income in retirement. The Employee Benefit Research Institute (EBRI) has developed a new model - the EBRI/ERF Retirement Security Projection Model® (RSPM) - that incorporates a wide range of data in order to produce a far more inclusive and refined projection of likely retirement income. In projecting retirement income needs, the new EBRI model incorporates three of the most critically important, but difficult-to-model, retirement risks: investment risk, or how individuals' assets will perform during retirement; longevity risk, or how long an individual expects to live; and catastrophic health care costs, which have the potential to wipe out retirement savings. The EBRI model finds that the amount of money Americans will need for an adequate retirement varies widely based on individual factors and often is substantially higher than previously estimated. This paper presents the results obtained by utilizing the concepts already adopted by RSPM for the entire population of certain age cohorts and applying them to stylized examples. These results will provide useful information for individuals attempting to include such crucial factors as longevity, investment, and health care risk into their retirement planning process.

Defined Benefit Plan Freezes: Who's Affected, How Much, and Replacing Lost Accruals

2006-03-01T09:52:00.000-08:00

This paper quantifies how workers are likely to be affected by pension freezes, and how much they would have to save in a 401(k) plan - whether provided by their employer and/or saved by themselves - to offset the loss of accrued benefits from the pension freeze. The analysis notes that how an individual worker might be affected by a pension freeze varies widely, based on the unique nature of each pension plan and the terms of each plan that is frozen; the variation in workers' age, and tenure; and future investment results. The analysis presents its findings in terms of additional compensation (in a 401(k) plan, whether provided by an employer or worker) needed to cover the accruals lost to a pension freeze. In some cases, the pension plan sponsor offsets the pension freeze by increasing its match in the workers' 401(k) plan, but each case is different, and in some cases the lost pension benefit is not replaced.

Taxed Beyond Relief, Rising taxes, shrinking nest eggs and other surprises force some to make hard choices

2005-10-04T04:55:00.000-07:00

Philadelphia Inquirer

A computer study by Temple University professor Jack VanDerhei found that six out of 10 people will not have enough money for retirement

ERISA At 30: The Decline of Private-Sector Defined Benefit Promises and Annuity Payments? What Will It Mean?

2004-05-01T09:50:00.000-07:00

This paper begins with an overview of the private defined benefit plan system, with an emphasis on the various types of retirement income risk that exist and whether they are addressed (and if so, how effectively) by various plan designs. The focus then turns to issues concerning sponsoring, funding, and providing benefits to participants under the private defined benefit system. Pension accounting and its potential impact on the plan sponsor's income statement is described first, followed by the minimum funding requirements for qualified defined benefit plans. Cash balance plans are treated next and the available empirical evidence regarding their potential impact on plan participants is reviewed. Finally, the paper uses variants of the EBRI-ERF Retirement Income Projection Model (RIPM) and Retirement Security Projection Model (RSPM) to provide quantitative assessments of the future financial security implications of various types of moves away from defined benefit promises and from annuity payments ("traditional" employer-provided pensions) - a long-term trend that has been well-documented since the enactment of the Employee Retirement Income Security Act (ERISA) in 1974, and which has been accelerating in recent years for a variety of reasons. This analysis provides preliminary results on the impact of benefit accrual freezes for pension plans, modifications to cash balance plans, lump-sum distributions of retirement benefits, and payment of retirement accumulations as life annuities. Decisions are needed on the status of cash balance pension plans, permanent funding rules, and interest rates to be used in plan calculations, accounting treatment related to using smoothing versus mark-to-market for investment returns and interest rates, and rules and premiums under Title IV of ERISA and the Pension Benefit Guaranty Corporation. Until these kinds of policy decisions are made, further erosion of the defined benefit system can be expected to continue.

Retirement Planning: Do We Have a Crisis in America?

2004-01-07T09:30:00.000-08:00

Statement for the Senate Special Committee on Aging Hearing on Retirement Planning: Do We Have a Crisis in America?
Results From the EBRI-ERF Retirement Security Projection Model

Jan. 27, 2004

Can America Afford Tomorrow's Retirees: Results from the EBRI-ERF Retirement Security Projection Model

2003-12-10T09:20:00.000-08:00

American retirees will have at least $45 billion less in retirement income in 2030 than what they will need to cover basic expenditures and any expense associated with an episode of care in a nursing home or from a home health care provider. The aggregate deficit in retiree income during the decade ending 2030 will be at least $400 billion. These findings are from an analysis by the Employee Benefit Research Institute (EBRI) in collaboration with the Milbank Memorial Fund, known as the EBRI-ERF Retirement Security Projection Model.