Will Boomer and Gen X Women be Able to Afford
Retirement at Age 65?
Evidence from the 2012 EBRI Retirement Security
Projection Model®
Jack VanDerhei
Research Director
Employee Benefit Research Institute
February 7, 2012
vanderhei@ebri.org
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© Employee Benefit Research Institute 2012
Key points from today’s presentation
•
“At-risk” ratings have improved since 2003
•
•
•
Eligibility in qualified retirement plans matters a great deal
•
•
•
For single female Gen Xers, at risk rating drops from 74 percent to only 25 percent depending on
just future years of eligibility in a 401(k) plan
Impact still very significant after controlling for “income” quartile
How much would it take for a single female to reduce retirement deficits to zero
•
•
•
Average of 4 percentage points for both single male and single female
However, single females have an at-risk rating approximately 80 percent higher than single
males
• 26 percentage points
Average of $104,000 to 133,000 (2010 dollars)
Importance of nursing home costs
Some retirees will run “short” of funds within a relatively short period of time if
they retire at age 65
•
41 percent of the lowest income quartile for ALL early boomers will run short within ten years
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© Employee Benefit Research Institute 2012
Modeling Innovations in the EBRI Retirement
Security Projection Model®
• Pension plan parameters coded from a time series of
several hundred plans.
• 401(k) asset allocation and contribution behavior based on
individual administrative records
o Annual linked records dating back to 1996
o 2010: More than 24 million employees in 60,000 plans.
• Stochastic modeling of nursing facility care and home
based health care.
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© Employee Benefit Research Institute 2012
Retirement Income
• Limited to income produced by
• Public and private retirement plans (including IRAs)
• Social Security
• Housing equity
• Assumes used as LSD when the retiree runs “short” of money
• Baseline scenario assumes retirement income commences
at age 65
• See appendix for results of deferring retirement age
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© Employee Benefit Research Institute 2012
Retirement Expense Assumptions
•
Decomposed total expenditures for retirees into:
o Those that are deterministic:
 Food, apparel and services, transportation,
entertainment, reading and education, housing, and
basic health expenditures.
o Those that are stochastic:
 Home health care and nursing home care.
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© Employee Benefit Research Institute 2012
Figure 1: Improvement
of at-risk* ratings from
2003-2012 by age cohort
and gender
70%
Employees Currently Ages 25–29:
Median 401(k) Accumulation Multiples
for 401(k) "Accumulations" as a
Function of Salary Quartile by Type of
Plan (Assumes 31-40 Years of
Eligibility)
9.00
60%
8.00
50%
7.00
40%
6.00
Post-2009
401(k)
"Accumulations"
as a
Multiple of Final
Earnings
30%
5.00
4.00
20%
3.00
10%
0%
2.00
1.00
single single single single single single
male female male female male female
early
late boomers
gen xers
boomers
2003 lsd 39%
65%
35%
62%
38%
64%
2012 lsd 36%
62%
32%
60%
32%
57%
Voluntary enrollment
Automatic enrollment
Low
est
1.17
7.68
2.00
3.00
2.37
8.01
3.71
8.34
High
est
6.04
8.53
*Definition of terms are provided on the last page of the slide set.
Sources: EBRI Retirement Security Projection Model,® Version 120201 and Jack VanDerhei, (April 2010). “The Impact of Automatic
Enrollment in 401(k) Plans on Future Retirement Accumulations: A Simulation Study Based on Plan Design Modifications of Large Plan
Sponsors”. EBRI Issue Brief.
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© Employee Benefit Research Institute 2012
Figure 2: Impact of future years of 401(k) eligibility on 2012 atrisk* ratings for Gen Xers by gender
80%
70%
60%
50%
40%
30%
20%
10%
0%
0
1-9
10-19
20 or more
22%
40%
13%
25%
3
single male
single female
47%
74%
32%
54%
*Definition of terms are provided on the last page of the slide set.
Source: EBRI Retirement Security Projection Model,® Version 120201. For additional detail see: Jack VanDerhei and Craig Copeland
(July 2010). The EBRI Retirement Readiness Rating:™ Retirement Income Preparation and Future Prospects. EBRI Issue Brief.
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© Employee Benefit Research Institute 2012
Figure 3: Impact of future years of 401(k) eligibility and
"income" quartile on at-risk* ratings for Gen Xers by gender
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
20 or
more
lowest "income" quartile
69%
54%
50%
52%
88%
79%
75%
66%
0
single male
single female
1-9
10-19
0
1-9
48%
63%
41%
58%
10-19
20 or
more
0
1-9
30%
43%
24%
33%
35%
46%
30%
42%
2
10-19
20 or
more
15%
24%
9%
16%
3
20 or
more
highest "income" quartile
22%
18%
7%
3%
35%
29%
16%
9%
0
1-9
10-19
*Definition of terms are provided on the last page of the slide set.
Source: EBRI Retirement Security Projection Model,® Version 120201. For additional detail see: Jack VanDerhei and Craig Copeland
(July 2010). The EBRI Retirement Readiness Rating:™ Retirement Income Preparation and Future Prospects. EBRI Issue Brief.
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© Employee Benefit Research Institute 2012
Figure 4: 2012 unconditional Retirement Savings Shortfall*
numbers by age cohort and gender
$80,000
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$single male
single female
early boomers
$33,704
$64,749
late boomers
$33,420
$67,057
gen xers
$41,529
$75,827
*Definition of terms are provided on the last page of the slide set.
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Source: EBRI Retirement Security Projection Model® versions 100920f1 and 100922f1. For additional detail,
see: Jack VanDerhei, Retirement Savings Shortfalls for Today’s Workers, October 2010, Vol. 31, No. 10, EBRI
Notes
© Employee Benefit Research Institute 2012
Figure 5: 2012 conditional Retirement Savings Shortfall*
numbers by age cohort and gender
$160,000
$140,000
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$0
single male
single female
early boomers
$94,509
$104,799
late boomers
$103,918
$112,120
gen xers
$129,398
$133,349
*Definition of terms are provided on the last page of the slide set.
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Source: EBRI Retirement Security Projection Model® versions 100920f1 and 100922f1. For additional detail,
see: Jack VanDerhei, Retirement Savings Shortfalls for Today’s Workers, October 2010, Vol. 31, No. 10, EBRI
Notes
© Employee Benefit Research Institute 2012
Figure 6: Average 2010 Retirement Savings Shortfalls,* by Gender,
Marital Status and Age Cohort: With and Without Stochastic Health
$80,000
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0
without stochastic health
with stochastic health
Early Boomers
$24,110
$63,438
Late Boomers
Single Female
$19,254
$63,510
Gen Xers
Early Boomers
$19,796
$75,488
$9,890
$36,254
Late Boomers
Single Male
$5,374
$35,896
Gen Xers
$2,876
$43,290
*Definition of terms are provided on the last page of the slide set.
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Source: EBRI Retirement Security Projection Model® versions 100920f1 and 100922f1. For additional detail,
see: Jack VanDerhei, Retirement Savings Shortfalls for Today’s Workers, October 2010, Vol. 31, No. 10, EBRI
Notes
© Employee Benefit Research Institute 2012
Figure 7: 2010 RSPM Estimate of Years in Retirement Before Early
Boomers Run Out of Money,* by Preretirement Income Quartile
70%
Income Quartile
Lowest
2
3
Highest
Cumulative Probability
60%
50%
40%
30%
20%
10%
0%
0
.
5
10
15
20
25
30
Years in Retirement (Assuming retirement at age 65)
35
40
45
*Definition of terms are provided on the last page of the slide set.
Source: Jack VanDerhei and Craig Copeland (July 2010). The EBRI Retirement Readiness Rating:™ Retirement Income Preparation and
Future Prospects. EBRI Issue Brief.
12
© Employee Benefit Research Institute 2012
Definition of terms
Figures 1- 3 : An individual is considered to be at‐risk in this version of the model if their aggregate resources in retirement are not sufficient to meet
aggregate minimum retirement expenditures defined as a combination of deterministic expenses from the Consumer Expenditure Survey (as a
function of income) and some health insurance and out‐of‐pocket health‐related expenses, plus stochastic expenses from nursing home and
home health care expenses (at least until the point they are picked up by Medicaid). The resources in retirement will consist of Social Security
(either status quo or one of the specified reform alternatives), account balances from defined contribution plans, IRAs and/or cash balance
plans, annuities from defined benefit plans (unless the lump‐sum distribution scenario is chosen), and net housing equity ( in the form of a
lump‐sum distribution). This version of the model is constructed to simulate "basic" retirement income adequacy; however, alternative versions
of the model allow similar analysis for replacement rates, standard‐of‐living and other thresholds.
Figures 4-6: The Retirement Savings Shortfalls (RSS) are determined as a present value of retirement deficits at age 65.
Figures 7- 11: An individual is considered to be at‐risk in this version of the model if their aggregate resources in retirement are not sufficient to meet
aggregate minimum retirement expenditures defined as a combination of deterministic expenses from the Consumer Expenditure Survey (as a
function of income) and some health insurance and out‐of‐pocket health‐related expenses, plus stochastic expenses from nursing home and
home health care expenses (at least until the point they are picked up by Medicaid). The resources in retirement will consist of Social Security
(either status quo or one of the specified reform alternatives), account balances from defined contribution plans, IRAs and/or cash balance
plans, annuities from defined benefit plans (unless the lump‐sum distribution scenario is chosen). Net housing equity is not considered in this
run. This version of the model is constructed to simulate "basic" retirement income adequacy; however, alternative versions of the model allow
similar analysis for replacement rates, standard‐of‐living and other thresholds.
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© Employee Benefit Research Institute 2012
Appendices
•
•
•
•
•
Brief chronology of RSPM
Impact of reducing Social Security benefits by 24 percent starting in
2037
Impact of deferring retirement age past 65
Impact of lowering the stochastic rate of return assumptions
Impact of the crisis in the financial and real estate markets in 2008/9
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© Employee Benefit Research Institute 2012
Appendix: Brief Chronology of the EBRI/ERF
Retirement Security Projection Model®
•
•
•
•
•
•
•
•
2001, Oregon
o
Simulated retirement wealth vs. ad hoc thresholds
for retirement expenses
2002, Kansas and Massachusetts
o
Full stochastic retiree model: Investment and
Longevity risk, Nursing home and home health care
costs
o
Net housing equity
2003, National model
o
Expanded to full national sample
2004, Senate Aging testimony
o
Impact of everyone saving another 5 percent of
compensation
2004, EBRI Policy forum
o
Impact of annuitizing defined contribution/IRA
balances
2006, EBRI Issue Brief
o
Evaluation of defined benefit freezes on participants
2006, EBRI Issue Brief
o
Converted into a streamlined individual version for
the ballpark estimate Monte Carlo
2008, EBRI policy forum
o
Impact of converting 401(k) plans to automatic
enrollment
•
•
o
o
o
2009, Pension Research Council
o
Winners/losers analysis of defined benefit
freezes and enhanced defined contribution
employer contributions provided as a quid
pro quo
2010, EBRI Issue Brief (April)
o
Impact of modification of employer
contributions when they convert to automatic
enrollment for 401(k) plans
2010, EBRI Issue Brief (July)
o
Updated model to 2010, included automatic
enrollment for 401(k) plans
2010, EBRI Notes (Sept and Oct)
o
Analyzes how eligibility for participation in a
DC plan impacts retirement income
adequacy
o
Computes Retirement Savings Shortfalls for
Boomers and Gen Xers
2010, Senate HELP testimony
o
Analyzes the relative importance of
employer-provided retirement benefits and
Social Security
© Employee Benefit Research Institute 2012
Appendix (continued)
o
2011, EBRI Issue Brief (February)
o
o
2011, EBRI policy forum
o
o
Analyzes the impact of the 20/20 limit
recommended by the National
Commission on Fiscal Responsibility and
Reform
2011, August Notes article
o
o
Analyzes impact of deferring retirement
age
2011, July Notes article
o
o
Analyzes the impact of the 2008/9 crisis
in the financial and real estate markets
on retirement income adequacy
Analyzes value of defined benefit plans
2011, Senate Finance Hearing
o
Analyzes the impact of modifying tax
incentives for defined contribution plans
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© Employee Benefit Research Institute 2012
Figure 8: Percentage of Baby boom and Gen X Households
Simulated to Have Adequate* Retirement Income for at Least
50 Percent of Simulated Life Paths After Retirement Age by
Pre-Retirement Income Quartiles
100%
90%
Percentage of Households
80%
70%
60%
lowest
50%
2
3
40%
highest
30%
.
20%
10%
0%
65
67
69
71
73
75
Retirement Age
77
79
81
83
85
*Definition of terms are provided on the last page of the slide set.
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Source: EBRI Retirement Security Projection Model® versions110410i. For more detail see: Jack
VanDerhei and Craig Copeland, (June 2011). The Impact of Deferring Retirement Age on Retirement
Income Adequacy. EBRI Issue Brief.
© Employee Benefit Research Institute 2012
Figure 9: 2010 RSPM: Impact of reducing Social Security
benefits by 24 percent starting in 2037
Percentage of population “at risk” for inadequate
retirement income, by age cohort
60%
50%
40%
Baseline
30%
Reduced Social
Security benefits
20%
10%
0%
early boomers late boomers
gen xers
*Definition of terms are provided on the last page of the slide set.
Source: Jack VanDerhei and Craig Copeland (July 2010). The EBRI Retirement Readiness Rating:™ Retirement Income Preparation and
Future Prospects. EBRI Issue Brief.
© Employee Benefit Research Institute 2012
Figure 10: 2010 RSPM: Impact of lowering the stochastic rate
of return assumptions from a mean of 8.9% equity and 6.3%
fixed income, to 4.45% equity and 3.8% fixed income
Percentage of population “at risk” for inadequate
retirement income, by age cohort
60%
50%
40%
Baseline
lower ror
30%
20%
10%
0%
early boomers
late boomers
gen xers
*Definition of terms are provided on the last page of the slide set.
Source: Jack VanDerhei and Craig Copeland (July 2010). The EBRI Retirement Readiness Rating:™ Retirement Income Preparation and
Future Prospects. EBRI Issue Brief.
© Employee Benefit Research Institute 2012
Figure 11: Baseline 2010 EBRI Retirement Readiness RatingTM (RRR) vs.
Baseline With 1/1/08 Market Values and Home Equity
[This analysis is limited to households that had positive values for all of the following
on 1/1/08: Defined contribution plan balance, IRA balance and housing equity]
Percentage of population “at risk” for inadequate retirement income, by age cohort.
25%
20%
15%
10%
5%
0%
Early Boomers
Late Boomers
EBRI RRR Baseline 2010
Gen Xers
EBRI RRR With 2008 Values
Source: VanDerhei, Jack, A Post-Crisis Assessment of Retirement Income Adequacy for Baby Boomers and Gen Xers,
February 2011, EBRI Issue Brief #354
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