Study: U.S. Retiree Income in 2030 Will be $45B Short of Need; But Saving Added 5 Pct. of Income Could Protect Future Retirees 12/4/2003
From: Jim Jaffe of the the Employee Benefit Research Institute, 202-775-6353; e-mail: jaffe@ebri.org; Jack VanDerhei, 610-525-6139; e-mail: jack@vanderhei.com WASHINGTON, Dec. 4 -- If current patterns continue, there will be an annual shortfall of at least $45 billion by 2030 between the amount retired Americans need to cover basic expenses and what they have. A new study by the Employee Benefit Research Institute in collaboration with the Milbank Memorial Fund suggests that while many middle-income Americans could provide for their own future by saving 5 percent of compensation annually in addition to the retirement benefits they are already expected to receive, this remedy won't work for many in the lower income brackets. Most at risk are low-income single women, who typically lack the resources to save enough for retirement. In most cases, they would have to save 25 percent or more of their pay annually to adequately fund basic living expenses in retirement (including nursing home or home health care costs), according to the study. As a general rule, couples and those with higher income fared best. Despite growing interest in mechanisms that allow retirees to turn their housing equity into income, neither annuitizing the value of their residence, nor selling it when required to provide added income, eliminates the projected shortfall in retirement income adequacy for all individuals. Results of the analysis are published in the November EBRI Issue Brief, "Can America Afford Tomorrow's Retirees: Results From the EBRI-ERF Retirement Security Projection Model," and are the subject of a daylong policy forum being held today in Washington, DC, by the EBRI Education and Research Fund (EBRI- ERF). The path-breaking study provides analysis based on age, marital status and income, calculating the odds that a member of any such group will have adequate resources for a basic retirement. The analysis is based on the EBRI Retirement Security Projection Model, which for the first time quantifies national retirement income adequacy. It follows previous studies using similar methodology for the states Kansas, Massachusetts, and Oregon conducted by EBRI and Milbank in collaboration with officials from those states. The study provides analysis of how different demographic groups are likely to fare, broken down by income quartile for single men, single women, and married couples. The model provides estimates of the shortfall between the amount required for the elderly to afford basic expenditures for the remainder of their life and the income and benefits they are actually projected to have (Social Security, Medicare, Medicaid, employment-based pension and retirement plans such as 401(k)s, and individual retirement accounts). For example: -- Some future retirees could avert a personal shortfall by increasing their savings rate. In some instances, saving an additional 5 percent of compensation for the remainder of one's career would be adequate to achieve this result. But this is a virtual impossibility for the majority of older, low-income single women, where needed additional savings would exceed 25 percent of compensation. -- Achieving a 90 percent confidence level for sufficient retirement income would require added savings of no more than 10 percent for median couples above the lowest income quartile born since 1945. Added savings of no more than 5 percent would assure a 75 percent certainty for these groups. -- The odds of having sufficient income to afford basic expenditures throughout retirement with an additional savings of 5 percent of compensation are significantly higher for those in the youngest cohorts. This ranges from a low of approximately 30 percent for those in the lowest income quartiles that are on the verge of retirement to more than 85 percent. While the published data are not specific enough to provide guidance for individual personal retirement planning, it does provide a projection of potential demand on public and private resources. The national aggregate projected shortfall presupposes no change in current savings behavior and could be reduced if those who are able to increase their savings do so. But the shortfall in retirement income adequacy could not be entirely eliminated because many people simply won't earn enough to make such savings possible. The shortfall is currently in the $28 billion -- $35 billion range, depending on whether housing equity is liquidated. For the decade ending 2030, the aggregate shortfall would reach at least $400 billion -- a figure of significance to many financially stressed state budgets. The full analysis is available at EBRI's Web site, http://www.ebri.org EBRI is a private, nonprofit public policy research organization based in Washington, DC. Founded in 1978, its mission is to contribute to, to encourage, and to enhance the development of sound employee benefit programs and sound public policy through objective research and education. EBRI does not lobby and does not take positions on legislative proposals. EBRI receives funding from individuals, employers of all types, unions, foundations, and government. The Milbank Memorial Fund is an endowed national foundation that engages in nonpartisan analysis, study, research and communication on significant issues in health policy. Its Web site is http://www.milbank.org |