FINISH LINE July 9, 2018 At At a Gla a Glanc nce e At a Glance Average Retirement Savings Shortfalls for Households Headed by Individuals Ages 35–39 with I A m bp oo urt R tan Sc Pe o M f the Current In RSPM, a household is consid- For all of the assumptions around Assessing How Well Workers are Doing in Their Race to Retirement Long-term Care Costs Included E DB C S RI l ya su te nm ched a major project to ered to “run short of money,” RSPM and this analysis, see the Retirement Savings Shortfall Is there a retirement crisis in Assumptions Matter RSPM finds that: p RS ro Pv M d ide r em eto irn es m tre an te t in s tc ho e im me por- or to experience a retirement Issue Brief: EBRI Retirement America and what can be done Two key a 0 ssump $88, tio 332 ns for under- • 57.4% of households currently a ta d n e cq e o uaf a cy m cce es as t su o a rem n ent in the savings shortfall, if its resources in Security Projection Model® about it? EBRI’s RSPM® (Retirement standing America’s potential ages 35–64 are simulated to not l em ate 1 plo 9y 9er 0s t -sp o s on imul sore ad te h reo tir uem seh en oltd s retirement are not sufficient (RSPM)—Analyzing Policy and 1–4 $62,520 Security Projection Model) shows retirement deficit are the amount run short of money in retirement. t p hro lan in r ugh r ea ec tir he in m g t en ht a e rg ee tir , t ea m kin en g in t to to meet average deterministic Design Proposals, June 2018, #451. i the importance of getting the of expenditures covered in However, if long-term care fin acc is o h l un in t S e. F oco ial S r wo er ck u e rrit s a y, D ge C s retirement expenditures plus 5–9 $52,969 assumptions correct as policy- retirement and whether or not costs are taken out of the equa- 3 b5 al–a 3n 9 t ce h sa , I t h RA b ave n ala o f nc u e ts u, d re e efin lige ib dility uncovered long-term care makers evaluate the current system long-term care costs are tion, that rises to three quarters. 10–14 $40,270 b in a d enefi et a finnnui ed cto ie ns a trib nu dt/io or l n ( uD m C p) - sum expenses from nursing homes and and propose ways to improve it. included in the equation. For • Further, if retirement expendi- d pils at n r, t ibh ue a tion ve s, n rag ee r t he otu ir se in m g e enq t d uie ty fi.cit home health care. 15–19 $32,825 In other words, it shows how example, assuming individuals tures are reduced to 80% of the is approximately $88,000 per well workers are doing in their race seek to cover 100% of the average, most (82.1%) are simu- individual. That drops to $20,000 20+ $20,497 to retirement security, and how average costs experienced by lated to not run short. That rises for individuals with 20 or more iv Retirement Expenditures are defined as a combination of deterministic Universal DC Scenario is a scenario that assumes all employers not currently policies and scenarios could help retirees and long-term care costs to more than 90% if long-term expenses from the Consumer Expenditure Survey (as a function of income) offering DB and/or DC plans start sponsoring a DC plan immediately. years of eligibility. In other words, and some health insurance and out-of-pocket, health-related expenses, Rather than simplistically presuming a single stylized defined contribution get them over the finish line. are included in the analysis, care costs are excluded from the longer workers have to plus stochastic expenses from nursing-home and home-health care (at least plan for employers regardless of size, this analysis assumes employers Percentage Reductions in Retirement Savings Shortfalls for Households Headed by the analysis. save in a DC plan, the closer they until the point such expenses are covered by Medicaid). The Retirement will choose a type of plan and a set of generosity parameters similar to Individuals Ages 35–39 expenditure thresholds are the percentage of the average deterministic employers in their size range. may get to the retirement security Retirement Readiness and Retirement Savings Shortfalls for Households Headed by Auto IRA (assumes no opt-out) expenses assumed to be spent in retirement. Assumed Impact on Retirement Individuals Ages 35–64 finish line. 10.6% Deficit is Significant RETIREMENT EXPENDITURE THRESHOLDS Retirement Savings Shortfalls are equal to the present value of simulated 100% 90% 80% retirement deficits at retirement age. Changes in the assumptions have Evaluating Reform Proposals ARPA (assumes no opt-out) Percentage of Simulated Lifepaths That Will Not Run Short of Money in Retirement a significant impact on the Using RSPM iii ARPA is a proposal under which all but the smallest employers would be 23.4% 91% simulated retirement deficit or the required to offer plans. Generally, all employees who have attained age There have been a number of 83% 21 would be required to be covered by the plan, including new, part-time Universal de?ned-contribution scenario (empirical contribution and opt-out hurdle workerra s f tes a )ce in pursuing proposals to reform the retire- 76% workers. The plans would be required to incorporate the following 82% retirement security. ment system. RSPM can be used to 28.2% provisions, provided that certain existing plans would be grandfathered: • Assuming 100% of the average automatic enrollment at 6%; automatic enrollment triennially at 6%; model how such proposals and 68% automatic contribution escalation at 1% per year up to 10%, i.e., 6% to 7% to retiree costs are covered and scenarios m 57% ight reduce retirement 8% to 9% to 10%. long-term care costs are factored savings shortfalls under various Automatic Retirement Plan Act of do so. Rather than simplistically With long-term care costs included Without long-term care costs included iii in, the 43% of Americans who scenarios. It shows which has the 2017 (ARPA) : This proposal presuming a single stylized defined are simulated to run short of greatest potential for getting would auto enroll people at 6% of contribution. plan for employers Retirement Savings Shortfalls with Long-Term Care Costs Included, by Expenditure Thresholds money in retirement equate to an (Trillions of Dollars) workers closest to the retirement pay, with automatic escalation regardless of size, this analysis aggregate retirement savings security finish line. at 1% per year up to 10% of pay. assumes employers will choose a ii $4.13 shortfall of $4.13 trillion. RSPM projects a 23.4% reduction in type of plan and a set of generosity • If the retirement expenditure Auto IRA: The Obama Budget retirement deficits for those parameters similar to employers threshold is reduced to 80% of proposed an auto IRA solution with currently ages 35–39 under in their size range. Under such the average, the simulated $2.09 employees enrolled at a 3% this plan. a plan, the simulated retirement $0.70 retirement saving shortfall drops deferral rate. RSPM projects that deficits for those currently ages iv to less than $1 trillion. under this plan, those currently Universal DC System : This scenario 35–39 would be reduced by 28.2%. getting them that much closer to assumes all employers not the finish line. currently offering a DC plan would EBRI R EBRI R EBRI R etirement Security P etir etirement Security P ement Security P rojection Model® (RSPM)—Analyzing P r rojection Model® (RSPM)—Analyzing P ojection Model® (RSPM)—Analyzing P olicy and Design P olicy and Design P olicy and Design P roposals, r roposals, oposals, June 2018, June 2018, June 2018, #451 #451 #451 Future years of eligibility for a defined-contribution plan ii i