T T T T T T T T T T T T T T T T T T- - - - - - - - - - - - - - - - - -1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 18 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 82 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2,,,,,,,,,,,,,,,,,, E E E E E E E E E E E E E E E E E Em m m m m m m m m m m m m m m m m mp p p p p p p p p p p p p p p p p plo lo lo lo lo lo lo lo lo lo lo lo lo lo lo lo lo loy y y y y y y y y y y y y y y y y ye e e e e e e e e e e e e e e e e ee e e e e e e e e e e e e e e e e e B B B B B B B B B B B B B B B B B Be e e e e e e e e e e e e e e e e en n n n n n n n n n n n n n n n n ne e e e e e e e e e e e e e e e e effffffffffffffffffit it it it it it it it it it it it it it it it it it R R R R R R R R R R R R R R R R R Re e e e e e e e e e e e e e e e e es s s s s s s s s s s s s s s s s se e e e e e e e e e e e e e e e e ea a a a a a a a a a a a a a a a a ar r r r r r r r r r r r r r r r r rc c c c c c c c c c c c c c c c c ch h h h h h h h h h h h h h h h h h IIIIIIIIIIIIIIIIIIn n n n n n n n n n n n n n n n n ns s s s s s s s s s s s s s s s s sttttttttttttttttttiiiiiiiiiiiiiiiiiittttttttttttttttttu u u u u u u u u u u u u u u u u utttttttttttttttttte e e e e e e e e e e e e e e e e e,,,,,,,,,,,,,,,,,, w w w w w w w w w w w w w w w w w ww w w w w w w w w w w w w w w w w ww w w w w w w w w w w w w w w w w w..................e e e e e e e e e e e e e e e e e eb b b b b b b b b b b b b b b b b br r r r r r r r r r r r r r r r r ri. i. i. i. i. i. i. i. i. i. i. i. i. i. i. i. i. i.o o o o o o o o o o o o o o o o o or r r r r r r r r r r r r r r r r rg g g g g g g g g g g g g g g g g g 11 19 18 16 13 14 10 15 17 12 2 7 4 3 9 5 6 8 Figure 15 Figure 1 Figure 5 ® Figure 13 Figure 1 Figure 9 1 Figure 7 v fro App h m Refe The witho EBRI has g alu av o ? ? ? m d e ? e es t el is r The Al The t est n n e u . . . h o d n so f t “ “ “ e o t sh iWhat is c iOr What Re x: m 1 r co in e si J h u o Early s B e 9 m o o ego tire n n n 8 n 2 rtfall p r e u stru e 3 y i0 r a e latio 2 – st m o n 0 tf o 0 2 p 9 Fu Bo Su the pr ent C cte a gr 1 0 s , o a h rts 2 1 when th n sed redu o stain ture r eat 3 re d In m EBRI No o n with a F e n to ers co o eder sul w l o Re ed L p si eng lm o sub er ts v m g ti ary e e al Rese fo y ctio bri ths t o rem m u t o Ad ro ex es w late ea rf the fr t ef u - p n equ article ( y ent Inc h o tin o sur enses in S ield re e o m m rv v e acy J E e $ tir er u o e Ra o was B o 7 n d Su Bridgi cial v em R f 1 fo e el ar o ie t V te I ,m 2 2 R t rv add h an e w r ent inc S 0 E 9 h e T e e ig e 1 9 ecuri e D o n ti y d o Ass 4 ( n f t erh v s m ed t eno r d E p o ir e o ay’s h er r aj RIS men o ess e f C e t ei, Ju ng o n o y m o d m in m m ben r ris all ( W A A o m in d e c n o t ent en o iv at s o o d n ad Sth d k m u id rkers: efits) elin e w e o s t t v M m c equ p r? is u si 2 P u e ared er o al) fo 0 r o eans r g Sh m o re 1 iry dif , incr t acy je Fi G 2 Ho u yo tir ) P C lati n ct.” intro to u ference fo r a o an , as r w e ld m u o easin o p: m 3 A pro r c n jCe n arr Re thi no e 9 es ent inc cil te s o c d .9 rtain ti u s o ied (SCF tire te g p o c s bet f t v ed se jer n d sti n ect ho o ari Mo m ab ly , H cent ). o m $ fo ent Inc m o we o u 4 In o o o v seh u 2 d f e v w n cus o eri t s , ess en t e e. wh 7 y ad h l sty M ( 7 o ty e Al Van 5 ence, e len the o u d h EBRI Edu l fo q n te cat es m ch Will s, increa e u trn D e r sin acy EBRI h o ego erhei, J e Ad f t ativ the NRRI y la sin are arg g equ ries It st RS le e cati sin ce et C v fe P m incl in the ac ersi u o M t w - g o ale n st d h y t n e ate m : y , and e u o o and Re s ears 2 d n in o 0 RSS ed). s d T sul iti 1- el o 4 1 al f o b 8 tf s ) 2 2014 Retirement 2014 Retirement Savings Shortfalls,*by Savings Shortfalls,* Age Cohort, Distribution of 2014 Retirement Savings Shortfalls for Gen Xers, Distribution 2014 Retirement of 2014 Retirement Savings Shortfalls* Savings Shortfalls 2014 Retirement 2014 Retirement Sav Saviings ngs Shortfalls,* Shortfalls,* 2014 ® Retirement Savings Shortfalls,* for those Households ® with a 12 p the in (co $ In an 9 ro tro c d 3 m jec o ,5 t m Fr Rese H n p fu sug d p h o 7 o o tras ro u tio ared at 6 w n d m cti in fo d g jec el ar n u D t est s fo o co t, allo sed b s app h o r ch Fu tio n to sing ap e es m ed o r a $ 2 n e, f p w Elig 0 RSP s f 3 tha ear t y ro le n co 1 sh 8 t si o d 3 xim ,h ib m m 0 m r and E t, o M e 6 il Gen X u o il ales BRI p Ce assu 5 ity ar an ate ld r ari ) in ely t it an f n Re an s h 2 lo t m y o e e b ers. d r o alysis f 0 n tire 9 r fo e in $ d M n 0 P w 8 $ a c 3 an g ar 7 p il n , incl i9 m 1 r b t ticip erce , h are 0 Ret o an 3 ent o partici 4 o par 4 u ,r r k 1 8 u er tdated p atio ir n Securi f 2 M d epl em t - ticip o 1 in o av e r sin f n g m f ace p o ent R er t st in an r sin o an h ag tria o g o y m a D t erspec le f t cha se - e beha P ent d ese l Fu gro o irect le efin with em r sh stic j fe rate ar ect nd ales tiv v ed C ch m ed in h o i. Sep io 2 o u e ealth car al s, st 0 r (n ld CRR) o o es. Sim (co cha o M it f v n t r 4 e an em t o m m b n stm rib 0 . It d e g d 1 o p el. b e s ard ( u r ared e il k) er e ents t im tio fo ar risks - ” h y 2 - p r t il ears en of n EB 0 lan ar t p o to 0 ( P -ar Fig Van RI No li such p 1 lan $ desig v . ticip r o o in ese 7 u f futu the AI H 4 D g re , as erh c te 2 elp n ati n 5 alcu 1 ts s, nu s an 6 , t o ei, Ju r ? t ). M e n n ” h h o la , c rsin This p e EB E e e d .li tio o sav 6 cal av co g n RI N n g ib e (E n erag n tr ho cul il s, and 2 m d ro in ib ity 0 otes, itio g ati p m ra 0 ue s t lo are 9 tio e o n ). ta 2 y r n an al 0 o e end n n used f 1 d the e RSS v o si o d 4 ec . 9 m Ben r h s. asse r reas u o ad lat m efit alu o e ed r e t h es o c ® Marital Status, and by Age Cohort, Gender: Marital Status, and Gender Assumes Pro-rata Reductions See VanDerhe by i, H Number of Future olden, Alons for o, Bas Gen Xers, by s an Years of Eligibility d Pino. (De Years of cember 2014 Future for Participation ) for Eligibility details of t h in e ya ear 401(k) -end 2013 Plan data. (per Individual), by Gender and Family Status: Bajtels ? EBRI’s mit, Vi Ret ckie, irem LeAn enby t d Secur ra Marital Ot by ity te A m P g Status, Gender and ro e Cohort Fo ject ster, ion an M and do An del Relativ na Ra (RSP Relativ pM e p ap ) Longev go rew rt. "Stra e Longev oi u tt y Quartile o te f a giies tm y fo u Quartile lti r- m year itig p atin rojec g tt ht e oris anal k oy fz e Deficit, by Age Cohort, Marital Status, and Gender: How Prepared are Americans for Retirement? are larg to h thresh Ret starting ealth care ha ire Rese (Em all vm e o o er in 2 ld p en co n ca ar lo s o f m t . defi ti ch In o y c 0 Sa o ee r p o 3 n u y sts. v 3 re B o tin cits in stitut u wo enefit 25 g sul n g Ev s Sh % g So when th u er tin en tho ld e, cial o incr Re c g J o rtfa fro u h Securi n so earc e ease u ll e rts. m g s ( 2 ex h r 0RSS t e h 1 p t RSS d h In 3 enses yu ese b ) b stitute ced acce ) : v enefits? b 2 alu ev y– an a ar 1 en es 2 e , S . ts b ig v s epte r s t er n will n oo k ag o en red, c m 4 e 0 o b o o 1 t er u f b (k) o t1 2 e m b 5 bal 0 y ex p p 1 age c ared erce 0 p a ): erienced n ces 1 n 3 o to t – h fo , re 2 o 80 rts, 5 r. tire .9 Ge by p gm n end er all Xe ent - r cent er et rs. b ir an ala ed ho w d h n fam en they ces u f seh ilro y st m o are a ld 4 tus, and s, 01 in o(k) r clu p d lan ed.s, $140,000 in Social Secrurity Retirement Benefits (Starting in 2033) $80,000 Assu for Participation in Defin mes No Nursing Home ed Contribution or Home Health Care Plans Costs 13 Assumes No Nursing Home or Home Health Care Costs ? ? oIn the futur The u. tliv Ap “A B Au in rilg ehavi g 2 r ue 0 et st 1 ec ire 0 2 o ,o 0 t ral m 1 n h2 o en e M m EBRI No m t o ic o w dwe d e ealt el l fo llw - t h r b e as ." P ein s redi articl Fi co g n o m an cf tin p e cial the re le (Van g te E Serv ly m D re tired p perhei, lo ic -p y es ara ee R o Au C m ev po u e ig n lati e te u trib w st riz o 2n 2 u ed w 2 at 0 tio .4 12 (2 n the s ) ith s0 p t1 r o 4 o 3 4 tat 0 v ).1 0 id e (k) 1 ed add le (k) -p v P el. Th lan lan itio d s.” esi e n E N al gm n or e para p v th Ame lo idy en e m e ce et Ben ric ers on aefit nf or $140,000 In c Van on De tras rhe t, i (S the e pRS tem PM be has r 200 b 6) ee . n completely revamped since the original 2003 model to account for the $90,000 20% ex years perienc ?an of fu dWhat is IRA ro ed t ture e o t llthe pr o h lie g vers ib sa ilm it o oy p e rig f e er o in xt r par m atin ent, eaticip sur g t in 4 he eati y o 0 c fo 1 t an n (k h in d e ha ) p thresh lan vefin e s catas m ed oay ld c t ? be o ro O np trib fte in hic fin crease n u tio tim an n es d (D cial t sub C h c ) es p o stantial e lan nsequ thre s. D sholds ar en ly ist ces rib for y u ftio o or t e u n n c h al an o g e m e fu m palysis ture u ptlo ed t y ee o ofs By Jack VanDerhei, Ph.D., research director, Employee Benefit Research Institute (EBRI) $70,000 Ac whet sponso Rese . . tua “ “Al The ar r h l ia er o ch In rs Im l J r N deferrin t ou h p o stitut at ac r thi n had t a n o l g f Au ,e g v ? ado r o An (EB lu et to m ire RI) a p Expan m e ted m atic 5ent t n , nu au d d Enr t ed P to m h o e m o b age M ll er erspec atic m il 1 7 ent b ( -an 0 enro N w in 4 o k tiv M v oe ll e u m 0 m em ld o 1 b ent n pr (er k o R ) ria o et pro P 2 v0 lan l F ire id 0e v 1 u m s isi ). n retir o ent d o n , w n Fu s ( Re eo m tu Van rkin ad ent rein D Re g in es erhei, with t c tire s.” om m EBRI e Ap he e ad nril o t No e ffi Accu 2 qu c 0 tes e acy 10 o m ,). f f n t u o o h la r t . e tio 1g h 1o e n v s v erno :ast A r 14 Fi d E The li ram gg u ib re batic il aselin ity 16 t fo furth rend e r partici versio er s nd oem t n p ed abo o ati o f t o nh n str e iv n m ate e: a o aut s t d defin el us ho e m ed c im ed fo atic po or enro nr tance trib this an ll um ti o o ent f S n al pl y o ( si ci AE) in an s assum al Secu can 4 hav 0 rity es 1(k) e all benefit a sig pla wo n n rker s, ifi auto s by can s re t sim m tir im au e tic platin act at es ag o calati gn e t r h 6edu e 5o , n that t cin of g t hh ey es e The Impact of Longevity on Retirement Savings Shortfalls Copelan $120 d, Craig ,000 , and Jack VanDerhei. “The Declining Role of Private Defined Benefit Pension Plans: Who the R retire with SS m ent valu 30 inco es or is m m to e hre en di ady equ ears scussed. acy of e of t lig T h ib h eil ho is is ityu if c fo seho llash ow ld o ed by . u M ts an aan t yj att o anal b t eu m y rn p sis ts ovo to er f m , hard the i odm el shi pretir act p w o em if n thd ent inco uraw rsinals (and g ho mm e e ad t an equ he d ho acy m e See Figu ad re $ju 70,0 s st 11 a 00fon r dif d 12 ferential of VanDe s in ta rhei (xe Feb s pre ruary and 2014) pofs o t rre mtire ore d me en tat il.as well as age and work-related 18% United States Senate Special Committee on Aging Si (Em o m m f Or aj u p o latio l $ o rity ego 80,0 yee o n 0 n 0 B Stud , f Baby set enefit o y Ba uBo t Re in the la sed os m earc ers on h P an te In lan 1 dstitute Ge D 99esig 0 ns X t, N n ers. o M s o ev o e e dif thi m ifib ca er s tio situa 20 n1 s 2 o tio ): f L 1n arg 1 c –o 2 e u 3P ld . lan be Sp ev oalu nso ars. ted ” f EB orRI Iss the s utat e B e. rief, The no. $120,000 co co sav imu n m in trib nedi te gs rfa u ate sh tictual situ o oln rtfall ys, and begi s. 20 nFi t % dra ah g tio e ure wing n in w cr 3 h ease p benefits fr ere rovd id So u es cial tili inf z Securi ati o om ro m S nati o o ty cial f T o b n D S enefit o Fs, ecuri n tw hs w e h ty et av and o h erag u er ld defin thr be e in oc u d o ed ben g im v hid Q plete u D al retir IA efit ls y o pla elim r t em h nin ro s ( ent ate u if an g inco h d partici in 2 y), m an 0 e1 deficit d p 5, t . Th an ot - the e s by ? Is Aff A co . “The ect mp Chan ed, and letelyg up in Ho g d Face at w.” ed v In oersi f R P o riv b oert n ate ofL Re t . Clar he tir natio e k m an ent n dal O P m li lan vo ia d s.” el M EB iw tchell, eds., as pro RI Issu d eu Br ced f Reo ief,o r n r ien o the . 2 ting 3M 2 ( Re ay Em 2 tir p 0eme l1 o 0 y E ee n BRI t Benefi Ris Po k lict y h either ig 15ealtacco h care ex nm op re c p enses. an o thi sts ys in risk an gH susp d o lo o we r n ension m v ger, e ake vity it th o is oe e n f c assu xt RSS ore ntrib . Co m mel p u n ti y ti clu dif o on n t si ficu s) h oat an nlt, if s ar all d pla ho e no o n u ff t l im seh ered in oan p oo defau ld ssib s pu the fina le, lts rch to w ase have ere l s lo ect sub n any ig o-n s te tant .m rm ean ial car ly in e g redu fu insur l ced an o ce r at In an attem $6p 0,00 t to 0 assess the impact of longevity on Retirement Savings Shortfalls, relative longevity VanDerhei (February 2014) and Bajtelsmit, Foster, and Rappaport (2013). 3resul 41 (Etin mp gl anal oye 16 e y %sis Benefit (VanD Res erh earch In ei and Co stitut pelan e, Ap d, Sept ril 20 em 10). be r 2001) focused primarily on simulated the nu ex d ad irecte te ditio nt t m n dh al sa in b at er v the s o est vf in futur m gu ents. s re m e o qf y u ear thei ired sr e fo elixpens r G giben X le f es oers r c an o wo d v un erag uld ine sur vary ined a d fr m o efin edi m $ ed c cal 46 e ,o 2xpens 7 n6 trib (per in u es tio ex n d r c ividu ee etir dem t al h) e ent plan fo pr ro m je arr cte fo ied dr Gen , afterXe -tax rs. $100,000 ? Rese M Fo The a . ru “ nIn a ar Sep m $ g creasin ch In 60,0 eme an tem 00 dn stitut u t. b g sed in er N Dew efaul 2 e, 01 Ap t Yo 2 ht ril e EBRI rD k: J efe u 2 O ly 0xfo N 0 rr 2 1 otes al Rat 0 ). rd 1 0 Uni arti EBRI Is es vcle ersi in Au sue B (Van tyt P ore m D rief erh ss f ati c (ei, S o Van Enr r th epte D o e erhei llP m ension R m ent ban er 4d 0 2 Co 1 0(k) ese 12 p ) elan P aan lan rch alyzed d s C :, 2 The ou 0n 1 t 0 c Im h il ).e , 2 pim a 0ct 1 p 0 o ac : n 1 t 2 o 2 f –136. retire elim ment. in $70,0 at ed 00 . modifications for risk aversion. Introduction 16 quartiles are established based on family status, gender, and age cohort. It should be noted that this retire ment wealth with a comparison to ad hoc thresholds for retirement expenditures. $100,000 an The h M o Se o n ud u seho e d e al in Va efici lin n g ld D co t D s, e v m rh i incr alu ffe e ei (F es r fr e easin o n e fm b c oe ru r t t sh g ar h o to o yse 201 se $so assum 74) f 5 u ,2 rces o 1r 6d ed t , fe o ita m r sin o il m s hav .edi gle ate e m no al ly futur es begi ann e d t y $ o ears 1 withd 23,5 o2 f e raw 5 li fg o ib r m sin ilo ity n ge ( le fe y as if fro m t m ale h t eh y seir in . Assu were dm ividu nev ing er all S al ocial Ret in . creasin “ ire Fa m llin en g gt Sto tSa h 14 e v % cks in defaul g :s Su Wh tc at -c ces o Will ns in P trib Hap utio lan pn en s rat With Au to e Re for tiree aut tom o s' atic m In aco tic Escalatio m enro es? T llm h ne .ent ” W EB o 4RI No rker 01(k) P te ers ps, lan p nect s owi . 9 iv th au ( e,” P Emp to rlo ese m ye ati n e tc ation $50,000 Van H an o ? alysis w ld D en, Sar The erhei, no e Jack, Sarah u ah w ld m , n an o 1 od d t el Jac m w at k as Ho te Va used t r las m d nen, L Derhei. u och if u anal is Al “ all re The y o zn e so In htire o ,flu w Ste m ence H elig v ent ea en ib rin inco o Ba ilf it g Au ss yo f m an to n oe r :m partici d was atic Ann take Enr M par ati o n ill e o in the f m n P in a defin ent, ino. Cat “ o 4 r0 m ch 1 (k) o ed -f an an Up P clan o , and ntrib As n IRA u set u ittio y (n ei pla ther n 15% H Si o n w ce m vu ery ch d fe iff w eh rence ouseho mig ldh s ann t this uitiz mak e e? all H (o or e lden and ven mo Va st) no Df erhei their in (20 d0 ividu 5) dal a emo cc no strat unts in retir ed the lar em ge ent, a positiv e $60,000 A rece 17 n $ t 80,0 rele 00ase suggests that the nation’s Retirement Income Deficit (RID) has increased 17 percent in acco Fi Secur sim g ? u u re u lated One o ity n6 ts pr r ( et $ t d o 50,0 fo ir efin t v be em h id 0e 0es ed m ent ben em taj co hp o eln av r fin otrib yed i efit era d uin tio g s w ng e ts i n h 2 er and e 0 ne 1 e fu 4 eli ach ture RSS (p cm ash b o in by f t at er h ala ed in an ein last n o ce drg 2 ividu an p fi 0lan 1 viz e 5al ann , a s, as the av ) tio by n u gend we t al retire h erag a llt as er pe ro IRAs). If and m RSS vid ent inc fa es (f acc o m r B there ilo y e o m s ss t o tat e m iad s suffi o ers u t s sim eq ho an u scient acy e d il Ge ar plan st to n m u s) X Fig d oer ie n ise u s by s) y re to 1 ; ? fo Benefit The esc r T ala h Ap e ti Ec Rese ril on 2 o n o 0arch o f 0m 1 co ic EBRI n In Crisis trib stitut Is usue B tio oe, f n2 s. Sep 0 r ief 08 te :(Van W mb her a D t erhei Will 2012 Hap and ): 12 p Co – en 2p 2 tela . o Re nd tir , Ap eeril s’ Inc 200 o1 m ) hig es? h 2li 0 g 0 h 9 te Ad P P the c AM Fall hang es in In this analysis, Early Boomers are defined as those born between 1948 and 1954; Late Boomers as born There are a numb 12 er % of possible explanations for the huge difference 14 s between EBRI’s deficit estimates as a Co Al real im lo n p cati trib ann acts u ou re tio nity , Acc tir n such sem o on u ent inc 4 n as 0 t 1 B S (ala k) ocial on Ac m c Securi es, cum e adeq an ulati dtu L yacy o o oan n r a n s at in S Ac o Re tiv epte miin tir tyal a m e in m bn 2 er ent 0 n 2 1 u.” 3 ity 0.” 1 EB such 0 EBRI Issu ( RI Iss Van as D uerh e a Br pri e Brief ei, Sept ie vf a , te n , no o -se .e 2 m . cto 8 4b 3 0 er r d 8 a, and n2 efin d0 ICI 10 ed ben ICI P ), and e R rspec ese w efit ar tive. as ch $80,000 impact AE would likely have on employees eligible to participate in 401(k) plans, especially at the lower- replacement rate focus would overlook the potential longevity risk. Also, one of the biggest obstacles the last five years from $6.6 trillion to $7.7 trillion. The RID is defined as “the gap between what h p $ wo 7 o ay 8 we u ,2 ex ld EBRI w v 9 incre p er, 7enses per ind in thi as ase t with s h b ividu at case y o t 9u h 0al. t p e all tapp r T erce et nu hire ain rsin t nm shor t. g into e gn ho t tfall d in t m h co e e t m ecr an ax ed adeq ease - h qu oali m su sub e fied acy heal sta ind pro th nividu c tiall sp oect st yal acc s in re f s f or t or G h otire o uen X se nts, m with ent ers tho are o we se ne ba r– e as n lan ap sume inp e ces ro years d xi are m toate o dis assu f futur lap y m the ped t ear e o o r 9 Co private nferen pce ension pl (Novem an b par er 2tici 009 p). atio n for defined benefit (DB) and defined contribution (DC) plans and between 1955 and 1964; and Gen Xers as born between 1965 and 1974. $50,000 and the on $4 e 0,p 00r 0oduced by CRR: p lan ? P J); u The later used erspe ho ly . “Is 2 we N 0Wo o 0 cti v v 5er, e v . rm e ki to , g b n Vo i c er g v t en o 2 l. o m 0 Ag 2 that p 1 0 u 2 , no e t e EB 7 oR 0 . n RI et 1 ly Really 0 N irem a ( otes v Dery ec ent Sa t em h arti sm e An b cle all er vswe in percen 2 (Van g 0s Sh 1 r fo 4D ).o erh r tag R rtfall et ei, N e ire s o f fm defin o ov r Bab ent em In ed c by er co B2 o m o0 o n e 1 m trib Ad 2er ) re u equ s and ti clas on ac a Ge sifi yn ?d ” ed n IRA b EB e ratio the R RI No ala n RRs Xe tes nces rs in ,t o n ar o. e 8 income quartiles. VanDerhei (September 2007) used the PPA auto-enrollment safe harbors to show how $60,000 10% $40,000 American households have actually saved today and what they should have saved today to maintain b at in elig e t leas in er ibsam v m iles t ity s b te o e , t e f as d b o m in o $ ain Bab rn 5 a2 e n tain ,1 y b o 1 y n B 3 an - o in ta and o gm o x re -th ad ers. Ho e ti er v v rem en fur an entit taged ent inc we y th . C ver, er a oo cco m tr m o ece p e $ u ari 3 n ad n 2 t n t w ,9 st equ g Fig 3 h u 7 er d ac fo u ies e re yr th f t by o 6 h e r ho t o in o o se t Fig vh e u with er st su eho m re org ent inc 1 1 ld 0 an pr – s w 1 iz o 9 ati h v y oid o m ears o es m n es sug is ig a h o v ta t f f iv o x g u id ed as therwis es ture e illu t Gen X stratio oli rd e gib in h eav rs w il ary n ity e o. f h in ilGen lc fare o ow m e. used the model to quantify how much the importance of individual-account plans was expected to 18 10% cur Sta rently (Em n p Oct d ro . T ar p v o est d lid b an o & er y e im n ee P add u 2 o o B itiz 0 o n 1 r’ enefit y itio 0 s ed . J 500 I (Van o n (in al in an Re t n D d D d t erhei, f s O e o earc h x L r at in m /SEC cre a an h tio Oct In as increasi P n stitute e u o d o b b 31.3 n li er c th H 2, Au n o 0 earin p g se 1 e p 0 rc g a). sub erce e u g n st o t stantial 2 in n n0 ta 201 Ta 1g 2 rg e ): 3. et o 1 ly f d 0 D ab –efin ate 2 o 1 v. s e ed ben Fu the n t ds. h efi resh Ht ow W ac ocru ld; o clo als are uld s T e a to relig g the t etib -D le f h ar te esho or a Fun ld d;s Conclusion $ 60,000 much larger balances in AE 401(k) plans would likely be for eligible employees as a result of automatic their living standards in retirement.” Although there is no description of the methodology in the release Xe In im d rs f p ividu om Bri ro tant u rtun al acco ch w d $ th 40,0 ging ato e e 0rs 0 c u en o e n rrec o ts than th u ar gt h e Ga e assu t the B tra o h cke m av p o p o e : d ti m a un o Ho t ers. nlea stil are w Prep st Un the p . 2fo F 0o r o y r tun ea in ex t rs ate a a at m o red w p f fut lyle, h , thes ic a with u hre t re e helig st ey n Americ u u a ib rsin d re ies app ility d gepl ho in t et m ear ans for hed. e o and s t e At op be ho r t o h g p a m ram Ret lag t e po u h s ha in ed by ealth car iremen t, any ve ei their a ther ne et ex h t? v p oerag ense u sine g s VanDerhei, Jack, and Lori Lucas. “The Impact of Auto-enrollment and Automatic Contribution Escalation suffici in ent fina crease b ncial ecause 8% reso o u f rthes ces at e c retir hanem ges. ent age is the risk of long-term care costs for a prolonged 1. How the models account for expected retirement benefits from participation in a DB plan. Pang, Gao $3 b0o ,00 and 0 Sylvester J. Schieber, “Why American Workers’ Retirement Income Security Prospects lump Lan ikely -sum d sub Id mpa is stantial trib ct Fu th utio tur ly n) b e the el 4o 0w pro 1(k) thspec Ac e thresh cu t mula of o “o ld tion u. t -lis? vin (T g” -1 thi 60s po ), June rtio 2 n0 o 0f t 9. h eir retirement wealth is a very real 19 $40,000 escalation $ o 30,0 f e 00 mployee contributions. VanDerhei and Copeland (2008) used a version of the RSPM to for the 15 March 12 hearing held by the U.S. Senate Special Committee on Aging, the calculation was m equ short T o ? h d ity o e eled, sin In e fal follo n xpl . is Re “ Oct l a Re assu icitly tire w t o tire re in bg g mat m m er tire ig le m ent ed t m n tent est m oale e In rin ent o rial Re im be co gEarl re o futur ad fm ir ad ns d y in e y t bef u Ad d a ess Bo ced t ed to retir e p c p e o o e o Ra q r m ar e n u oers tin e trib acy o the S dn in gar l u .” s and y em tio Van e enate $ EBRI Is 1 p n ent s 6 De ro s t Re ,7 jrh o Health, ect 8tire sue B defin 2 a ev .ied t in (m Fe gent r b s i ed c o ief, ru Edu n h Sav ar t av n o h yca o n e e 2015). . 3 t in an tio rib fo g 4 rm s Sh a n u 9, tio ( v o L er Eab o m n fag r a pla tfalls f p oe llu ro and p n y m res ee s or po - P B ent sum r G faili ensions enefit en vd a nistrib Xe lu g Re t e rs: o C o search In o acco f fin T u m tio hm ean n u Im it ( n te cial n t p o f e stitu ac o t sho o r a t n the o “Th te f rtfall , e The EBRI Retirement Readiness Rating™ was developed in 2003 to provide an assessment of national perio Lo do . k In So t Bl he eak real : A R wo ev rld iew fe w of retir Recent ees Asses have lo sm nents, g-ter” m J o care urnal o insur f R an etce ire po ment, Su licies tha mm t w er o 2 u0 ld 1 co 4, Vo ver l.the 2, No. 6% $30,000 risk fo ? With the r man $40,0 y Bab assistan 00 y Boo ce mo er f t s and he Kansas In Gen Xers. sur ance Department, EBRI was able to create the EBRI model the impact of automatic enrollment and automatic escalation of employee contributions for all attrib 2.u te H d o t w o ( the C or if) enter the mfo od r Re els acc tirem ou ent R nt foese r thar e re ch an cent c d is sa han id ge ts in m o be b an asy ed defin on pro ed c je octio ntrib ns uo tio f r n et (D ire C) m p ent lans o rev f $ er 3rece 3 se ,7an 7n 8t n in retir u cha ityn m ges e om rtgag in ent. O me an (RAM) n y de the fin ). If oed co ther han all the ntrib re d, if utir ti t o em h nes pla ent e n e sav xpenses ar s toin in gco s ar rp e o e e ra ig xhau te no au red, th ste tod m and ati e a c v if the S enr erag oe llm d or ent f cial ops t Se eat ocur o un res ity ly 20 ? Elig N Wo The o . v “ ib e The bM m il bily ty arch b E er Sto fo xpe 2 2 r0 o P cte 0 5% 1 l: a 13 0 Re rticip )d ; and EBRI No I tire mati p m D ao ct ent CII nte i o A Rese ( n fs Au In a articl )se 4 to 0cur 1 m ae ( rch k) a(ity tic Van P Re in A lan ED scalati p.” o erhei m rt EBRI No ( erica, N oan o nv o d e ”f 4 m t Ad te h b s, 0 e er am 1 m n (k) o 2 o s, . 0 Co d 6 1 M el ( 0n arch Em )was . trib p lu 2 o u tio 0 y s ed t 1 ee 3 n ) s Benefit u o o sed anal n Ret a y ire Rese m z eo t m d h en ifi ar e ed v ch In rel t In ativ co ersio stitut m e e.” n o e, f retirem ent income prospects and w TM as updated in 2010 to incorporate several significant enhancements, $20,000 1: pp. 35–5 Di po Social ste trn ib tiall uSe tio y cu c nrity o atast f R Ad e rm ti op r in e h imen s ic fin tratio tan S na (2013) cial vin im gs S . p h ac ot rtfa of t llh sis fo erxp Go es nu X re. Co ers nsequently, any attempt to incorporate this $20,000 Retire $20,0 men 00t Readiness Rating (RRR) based on a full stochastic, decumulation model that took into ® workers (whether or not they were currently 401(k) participants or eligible nonparticipants). 4% income an to inc d we orp alth or f ate or A auto merican matic w en oro rkers llment fe ages 3 atur 0-60 es , u (in sin clu g data fro ding auto mm the atic 20 esc 13ala Sutio rvey n o o f fco Co nn trib sum uti er o ns). $ an 1d 0,2 defin J EBR u RSPM im (in 1 n0 p e clu I N . Si o 2 ed ben rd 0 otes tance m in 1 to 2 il gar r a ) auto , : ssess n 9 efit o o – esults f 2 . 9 em pay m 1 t . (E atic h pm e m are lop p e y esc r lo er n pro ots y b - ala e p a are n e r d b o tio u il Benefi v ity ced f id no t ed o t h f c suf o re at t r sin o R re tir fici n ese trib sp em g ent le arch o u ent ben fe n ti to d o m In ent h n pa ale s) stitut . The y e efits and ou xp e, s eho enses, Au m an Sep arr g d ld u So tst s i em ed t wo cial 2 hb 0 e Earl u er 1 in Se ld 4d 2 y n EBRI cur i0 v B o 0 id o t 7 io u ty ru )N :m al ( 2 n o er Van – is desig tes sh 8 s.o D ar O rt er v t o icle erall h n f ei, O ate m (Van o , ig d nct a ey ns hav o D o in b rin erhei, erg in g $20,000 including the impacts of defined benefit plan freezes, automatic enrollment provisions for 401(k) plans, Figure 11 depicts Retirement Savings Shortfalls by age cohort and relative longevity quartile for both 21 Yakoboski, Paul and Jack VanDerhei. “Contribution Rates and Plan Features: An Analysis of Large 401(k) into a acco repl uace n $20,0 t the h m 00ent orat useh e thr old esho ’s lon ld g ev neity eds t risk, o be po c sarefu t-retir llem y ass enesse t invd es agai tment ris nst actual k, an id m e pxp licati osur on e s. to long-term Thursday, March 12, 2015 10:30 AM Pensi It sho on u Righ ld be n ts oC ted enter that , “ th Ne a re tio an re 's R alterna etiretiv me en mod t Inif co icat me ion Ds eficit N possible ow th$ at 7 wou .7 Tril ldli ro en su ,” lt M in t arch he sam 12, 2 e a0 ggre 15 gate Fi Fin gu an re ces 4 pr (SCF ovid ). es Al a tho mo ure gh t dh et e ail SCF ed is way an o ex f l co ellent s oking at ou trc he e earli of data er result on Am s by erican shos wing ’ wealth the , it distrib prov u id tie os n of RSS n ru un rsin sho Au g ho g rt uo st m f 2 m e0 and o 1n 4ey ) ho an at alyzed m that e health car p to hin e t. li kee ly cio m sts pac (o t ro assu f this merro ing ano r anther d con entit clud yed tha pays t t h ig es ne orin costs) g fu decre ture ases the 2 retire 010b m ).ent if they did, in fact, accumulate the amount they said would be required in the 2013 2% as well as the crises in the financial and housing markets from 2007–2009® . New versions of the model $10,000 Baby Boom $- ers and Gen Xers. The additional savings required for those on the verge of retirement (early $10,000 The P p lan ro . . “ “ ject M Re Da easuri tire ita on .” m o ent EB f futu ngRI Iss Re Inre tire co w u m e m o Br e ent rker Ad ie In f equ . and N co o acy m . 1 ee m fo 7 Ad 4 p r lo ( Bo E equ y m er o pacy m c lo o ers yn : e Ca tri e aBen b n lcu u dtio Ge latin efn it Re n s t X go Re er sD earch In s: ali C pl Ev sti id an c enc In s is sti co e parti tute, m fre om R cul Jepl u tn h arl e e ace 1 y 29 i 0 m m 9 16 2 ent p ). E o rt BRI Rate ant, s.” nursing-home and home-health-care risks. The first state-level RSPM results were presented to the finan 3. cial s H itu ow atthe ion for mo th dels pr e Social ojec Secu t fu rity t5 u Tru 6 re 3 D e sm t irFu kse plo nd n y b ee Su enate and t wou e O ld m h ffi p av c lo e e y d Bu er co ifil fe d rin e nn trib g t dis utrib tion us t tioo n al DC pl cons an eq s. u ences (e.g., $10,000 Single Male Single Female Family http://www.p 0% ensionrights.org/newsroom/releases/nations-retirement-income-deficit-now-77- (per individual) for Gen Xers by gender and family status. For example, 68.5 percent of simulated information only at a single point in time. Therefore, simple projections based on historical trends of RSS by co Ret an nire trib am vu erag en tio t nC e s e o o n f xagg fid 74ence pe erat rcent. Su es rtv h ey e p . ercentage of Gen-X workers simulated to run short of money in Shortfall Amount ® have been generated on an ann 0 ual basis since then t 1 91 o include update0s f 19or financial and re 20al e + state Boomers) vary from $7,188 (per individual) for those in the quartile with the earliest relative longevity to Earliest TM The especiall ? EBRI Iss Ret EBRI The ire y Re N m a om u tire v en e e o Br m t n m Secur g b i ent S ef, 0% er yo 2 u nn 0 it o ecuri 1 g y . 2 er 0 P 9 EB r wo o 7 ty jec ( RI I E rk P m tio ro ss ers pju n lo ect e B who M ye io o r e ief d n have Ben el. M ex o ” efit p dEBRI N lo an el® n R d g ese (detai ed up ero p ar tes articip ch I o led ,n n earli n in the n ostitute . 5 atio ( er E n m wo w , S ex pin lo r epte t k d y sec b o ey e ws, m E ti Ben o b BRI n er an ) efit 2 u d to s 0 fe pro 0 o R s a 6 r w es ).v fu earch In h id o ll e m st th ( op e cha arti stitut firs st cul tic re e, arl sul y ts adding a new bend point in the Primary Insurance Amount (PIA) formula that would result in a larger reduction for Kansas’ L $- ong-Term Care $4,40 Se 2 rvices Task Force July 11 $9 , ,85 20 302 (VanDerhei and Cope$4 la,14 nd 0, July 2002), and Shortfall Amount The trill EBRI io Re n tire ment Readiness Ratings by age cohort for 2014 show a slight improvement from $1 $50,000 16.4% Single Male 9.0% Single Female 6.5% Family 3.9% p retire oint m inent t Qu im ar path e tile data s fo dr sin ating g b leack E m arly ale B fo oom r decad Gen ers Xers d es (in o n so ot m ge en cases e Lrate ate Bp oo d ri mefi o err t scits. H o the osub wev stantia er, of t l h ev e Gen o 3lu Xe 1.5 ti rsop n e o rcent f privat of e retirement by roughly 10 to 12 percentage points among all but the lowest-income group. ® m Enark dnet otes perf o $- rmance, employee demographics, and real-world behavior of 401(k) participants (based on $- $- $81,81 161 for those in the quartile with the latest relative longevity. Overall, the RSS for those in the latest In th v osiew e with of a th la e rge cor m ap ve le ra xities ge in— dean xed d mon uncert thly ain earn ty— ings asso valu cia e). te d with estimating future DB pension streams in t ?h M eir in o The ay f a $1 $50,001 ? 2 J n itial $50,000 u 0 ew n 1 e 2 $100,000 sa si ): 2 2 0 m v1 in – u 3 1 lati g 4 EBRI Is s . y o ears n m Esue B a ) o rlthes d y 10 B el .2% oom r that e 9. e ief er 8% c s o (Van ns trib tim Du erhei atio ted n s , Ju the i c 6o .8n % ne m sti 2 L p tute a 0 act te B 13 o 17 a o o a m ) .9% f chan er u sig ssed nifi g RS can in 5 P g .1M t 4 %p 0 erc 1 to (k) entag p pla rovid ne d e Go en es a 6 f dir Xe t .5 ig % h rn s 2 eir a ect . v 8%ari co cc ab m oles and u p n ari t son the re Ea S rli ee csul s ond t Qu ta s rtio lef the Mas E E $1 sach a ar r9,1 lly y B B $7 6oom oom 9 ,18 uset 8er ers s ts study were presL Lente a a$ t te B e B 3$5 6,2 o o ,82 23 o o d m m 3 D er ers sec. 1, 2002 (VanDerhei G G$6 $1 en en,31 an 6,5 Xe Xe 9 2 r rd s s 4 Copeland, simulation procedure for both the pre-retirement and post-retirement periods to determine the L 2o 0o 1kin 3. g The only pa rit m th ary ose dif situa feren tio ces ns be where tween the shortfalls are values p thi ro s y jec ear te and d, Fig tu hre ose 7 sh froo m w 2 s t 0h 1at 3 re when n flect the ursin chg an hg oes me in simulated retirement paths for single male Gen Xers that generate deficits, approximately 1 in 3 retire m . “ ent Defin pla ed B ns fr enefit om defi Plan ned ben Freezes efit : W toh defin o's Affe ed c cte on dt, Ho ribuw tio M n u an ch, d and certain Rep ly laci prin og r L to o st rec Ac ent c cruals. han ”g EBRI es in a databS $50,001 ase ingle Ma o ?f $100,000 le 24 million 401$4 (k) 6,4 partici 47 3.8% pants) and IRA acco $36u ,2 15 n 10 .7% t holders (based on a datab $29,0 1.87 % ase 7 of 20 million Social Se S S S $101,000 iie ng ng Th cur cond le le ird Ma Ma ity le le $200,000 Administrati $5o 9,6 $3 $3 n 2 $2 0 3,7 3,9 1 , B .4,4 5 3% 7 48 7 8 o 7ard of Trustees. 14 .3% The 2 $0 $ $ 9 $3 3 4 2 1 1 3 ,2 3,3 ,0 3 ,7 18 42 19 An 96 nual R9epo .9% rt of the Boa $2 $3 $4 $2 7,7 2,7 8,0 r 6,0 d 6 7 6 of T 4 2 5 52 5.2%rustees of relative longevity quartile average 14.8 times those in the earliest relative longevity quartile. and the positive impact these can have on retirement income adequacy, the treatment of DB accruals is growt o assu h f t . h m e likel p ti o n y s ben o n re efits tir e um n d ent er inc specifi o mc e t ad ypequ es o acy f D. C Un antil d D re B cently retire h m oent plan wever, there s. was ex tremely limited December 2002). an the perce d m ho n arke m tage e t h o v eal alu f tth care ie mo es f defin ho eu xp se ee d h n c o ses ld on s are trib are ig usim tin oo n u red, and late t d IRA as h t e ov NO alu se T e run ts, s fo as r sho early wert ll o a Bo s t f m o hm o en increas ers ey decr in re e ea tir in se em ho tent ( o u sin $34 g i. v e., ,2alu 9 a 9 ( ep s du er ring Single Female $57,639 $53,224 $61,219 g m enerate an Issue B y 4 . “ 0 S S Mo Th $101,000 iiM 1 ng ng RSS o ird La re ( le le o T k) tes r F F d ief he e a tp ifyin ? ma ma n$200,000 $2 , n lan f le le less 00, o g s fr . 2 000 the Fed 9 o than 1 m ( E v o m $eral Tax l5 u p0 n 1 lo 3 ,tary 0 .y 20 % ee 0. 06% . This e Be Tn re rn o at efi ll repr m m t ent ent Re es search In ents to of 8 4 au .6 0 % 1 to 10 (k) m .3 stit perc atic Plan ute 5. e 2% Co ent , nM ro n arch o ll trib m f all si ent aft u 42 .9 tio 0 %m 0 n 6 u s). er :lat P enactm r ed r ojecte etire d ent 0. I m 3% m ent o 2 p .3 f t act % path he on P ension s for $6 $6 $6 2,7 3,4 3,0 3 74 0 10 $ $ $6 6 65 8 6,0 ,2 ,745 77 23 $8 $7 $74,1 4,2 9,39 4 56 1 6 uniqthe Fed ue individu eral Old als). -Ag e an $8 d 6,0 S5u 5rvivors Insurance and Fed $125, er 177 al Disability Insurance Tru $3 st 5,1 Fu 63 nds. particularly problematic if the model simply assumes that a survey respondent has an informed estimate evid FaQu mi enc ly artile e on the impact of automatic contribution escalation (VanDerhei and Lucas, 2010). More Than $200,000 $34,299 0.0% $32,4 0. 79 0% ® $35,0 0.0% 13 1 Ma Ma Lates r rr riie e ® t Q d d uartile $1 $1 $8 9,3 9,1 1,8 0 20 4 11 $ $ $2 1 89 0 9,5 ,7 ,166 01 62 $1 $2 $2 15, 7,0 1,3 029 2 75 9 in that peri dividual) fro od. The m t RRRs he $7 incre 1,29ase 9 valu bye 1wh .6 p en the ercentag y we e re po inc ints lu(fr ded fo om 5 r 5 m .1 arr perce ied ho nt t uo seh 56 o.7 lds. Si perc m ent) ilar fv o alu r th es e for “ sin succe gle m ssfu ale l”Gen retir X em ers. An ent) o at sh w er ell a 6.2s t perc he t ent otal of t valu his gr e of ot u h p e generate deficits sim s RSS ula be ted tw to e b en $ e p5 ro 0,d 0u 0ced du 0–$100 rin ,0g 0 0 the , Pro ?te PThe articip ctioJ n u Ac n an e t t 2 in Acc 01 23 0 o 0 EBRI No u6 n)t nee Bald an tes tc o es.” article ( be car EBRI No ® eful Van ly D te in erh s, t egra n ei, Ju o. 3 te ( n d E e w m 2p ith 0lo 13 a yb ee m ) u B icr senefit ed RS o-sim PRes u M lati earch In to on sh m o o w dst t el t h itu at o te pr 2, 5M o –v 2 arch id 7 pe e 2 rcent 012): Pens ? RSPM ion Righ was ts Ce en xpan ter (2015 ded t ) o a national model—the first national, micro-simulation, retirement-income- LookingSource: EBR only at I R th etirement Security ose situatio Projection ns where Model, ve shor rsion 2162. T tfalls re he percentages sult, in Fi each gure column 12 do sh not add to 100 percent ows that the because valu indiv es iduals for without Early Howe htt ver p:/ , / m wo ww st p .ss ub a.g licly ov/ ao vact ailab /tr/ le data s 2013/tr2 ets ha 013.p ved o f n ly limited information on current employee o f hi s o . r her “Proj futur ection e s b o enefit. f Futu re Retire ®ment Income Security: Impact of Long Term Care Insurance.” 2005 Source: EBRI Retirement Security Projection Model, version 2162. Note the percentages in each column do not add to 100 percent because individuals without The Retire shortfalls ment are not display Savined. gs Sh For exo ample, 39.9 percent rtfalls show of G that en Xe fo rs wir th t no future y hose o ears of n th eligibility e verge for participation of ret in ire a 401(k) plan ment ( are simulated Early Bo to o hav m e no ers), the Early early B Bo oo om mers, ers d 1r.0 op percen to $46t,ag 44e 7 ( pfr oin om ts $ (fr 9o 3,5 m7 5 6 7 ).5 fop r sing ercent t le m oal 5e 8s and .5 perc $5 ent) 7,63 f9 o ( r fr Lat om e $ Bo 1o 0m 4,8 ers 21 , and ) for by sing 0le .5 ® assess whil ? 2 e In o –1 f Bab m 1 Febru 0 8 ents .4 . perc y B o ary o f t ent hav oo 2 m d 0er a 1y 1 s and ’s , e the re RS ti Ge m rem S b o n et d ent s Xe el w wee rs as c who n enar used t $1 0 w io 0o ,s 0 u ( o 0 ld as anal 0 have –o $p 2 y p 0 zo 0 e had s ,0 the i ed to asse 00 a . Onl d m equ pact y 4 ate ss . o 6 m f re perc the ents tire 2 ent m b 0a 0 ent sed 8 o– f all 2 inco 0 o0 n sim 9 histo m cr e u isi lat urical s in the fina ned re der data t re tire turn m hn ent a cial t is 2 Sources: EBRI Retirement Security Projection Model ® ®version 2163. retire Boom ad Source: EBR m shortfalls ers equ ent vary peri acy are not display I R fro e tirement Security m od o m fo d ed. el, bu $r2 a For ex 9,h 8 Projection o il ample, 85.8 percent 0t u 0seho in (p p er Mart f odel® ld ind ( v ro d e ividu of singl rsion 2163. efin ® m ad ed as t e al) f males min o are simulated r t istra hh e o p tiv se ree to hav sent in4 t 0 e h 1 no shortfalls. e v (k) alu qu data. Th artil e in Th e 2 is number w 01ith e 5 do in is 61. the itial ll2 ars percent for earl results at iest ag single e w re 6er females and l5 ativ )e . p e res lon ented a gevity t Sources: Sources: shortfalls. EBR EBR This increases I I R Re etirement Security tirement Security to 61.2 percent Projection M Projection M for those odel odelwith v ve ersion rsion one to nine y 2166. 2163. ears of future eligibility and 73.7 percent for those with 10 19 years. For those with 20 or contribuSource: EBR tions to I R D etirement Security C plans, an Projection M d emp odel loyv e er c rsion 2163. ontribution information (if available at all) typically is not A bAme rief ch rican rono So logy ci o et fy RSPM on Ag isin pg ro /N vid atio ed in nal Ap Co pe un n d cil ix A. on Aging Joint Conference, 17 March 2005. 91.4 percent * The Retirement for families. Savings Shortfalls (RSS) are determined as a present value of retirement deficits at age 65. * The Retirement Savings Shortfalls (RSS) are determined as a present value of retirement deficits at age 65. d Van eficits Derhei, * * T T more y v * he he T ary he R Re e Jack. ears of future eligibility R tirement Sav tirement Sav fro etirement Sav m Ret $ iings Shortfalls (R ngs Shortfalls (R 1 ings Shortfalls (R 9 ir ,3 em 0 , 85.9 percent 4e ( n p t SS) SS) er Sa SS) are are in v hav are in determined determined d e determined ividu g no simulated s Shal) f as a as a or astfalls: present present a deficits. o present r m v v E a a arr lue of retirement lue of retirement va v lue of retirement id ied en h ce ou fro deficits deficits seho deficits mat age 65. at age 65. EBRI’s ld at age 65. s, increasi Retire nm g en to $ t Secur 33,77it 8y f o Pr sin roject gle ion fem perce aln es. tage points (from 57.2 percent to 57.7 percent) for Generation Xers. Given that the primary paths for single male Gen Xers produce RSS greater than $200,000. not repr assu andese re mp al es nti ta otiv n tat s based e e o m f curr arke on ets n his t oretir n to retire rical em a ent plan m verag ent inco es s we an md e re un ad sim ab equ u le t lated t acy o acc (Van oo e u D n n erhei, d t up for run the fac Febru ning ary t sho th 2 at 0 rt 1 a o 1 sig f ). m no ifi ncan ey in t the EBRI December 2003 Policy Forum (VanDerhei and Copeland, 2003). to $132,201 for those in the quartile with the latest relative longevity. The National Retirement Risk Index (NRRI) model from the Center for Retirement Research at Boston divided into matching vs. nonelective contributions. Moreover, the matching formulas that provide 3 . “Tax Reform Options: Promoting Retirement Security.” EBRI Issue Brief, no. 3618 4 (Employee ® males and $62,734 for single females. The Staa temen veragt es fo (i rn t 2 he 0 R 14 e do cor lld ars ) are slightly larger for Gen Xers: IndM ivid ou dals el® b F oebru rn beary twe 2 e0 n 1 15 9 48 EBR –19 I Issu 54. e Brief #410 change in RRRs from 2013 to 2014 is the above-average return in the equity markets, it is not . Testimony. U.S. Congress. Senate Special Committee on Aging. Retirement Planning: Do W 11 e Have EB perce RI retire Reti ntage re m o men ent f cu if t t rren Se ocd u tay’ w rito y s hist rk Pr ers oo je r will n c ical tioly no Mo lt o liv w d e in e un lteres til re t rat tire es mwe ent re ag assu e). med to be a permanent condition. ® College relies on data from the Survey of Consumer Finances (SCF) in which the survey respondents incentives for employees to contribute to at least a particular point are not generally available. ? Benefit An April Rese 201arch 1 article Institut intr e, od N uo ced a vemb n er ew 20 m 1et 1). h od of analyzing the results from RSPM (VanDerhei, Fig ? u re The 8 pr basic ovidm eso inf del owas rmati sub ons o en q t uh ently e aver mag od e ifi in ed fo dividu r tal retire estimonm y f ent inc or the o Sen me at de efi Sp ciecia ts by l Co the nu mmitte mber e oo nf 4 $ Co 21 m ,3 p7 ari 9 n (per in g the d results f ividual) fo or Gen X r marr eir sin ed ho gle f useho emal ldes s, incr with e sing asing le m to $ al 3es 8,0 in 6 Fig 5 fo u r sin re 4g s le ho m ws ales that f and em $7al 4es ,25ar 6 e for surprising that the older age cohorts with larger defined contribution and IRA account balances show Figua re Cr 1isis 3 depi in A cts me Re ric tir a? e m Res en u t lt Sa s Fr vin om gs Sh the o EB rtfalls b RI-ERF R y gen etir dem er, ent S familecu y stat rity us and Projectio relati n M ve old oel ng (T ev -ity 14 qu 1), artil Jan. e 27, Individuals born between 1955–1964. ® . “Contributory ’Negligence?’” The Impact of Future Contributions to Defined Contribution Plans independently assess what their eventual DB payouts will be. Park (2011) analyzed the SCF respondents’ Unfortunately, this combination of circumstances typically leaves those constructing retirement income One o ? The Ap f t ril hAu e 2 basi 0 g1 u1 st ). c Rat 2 o0 b1 jec h 3 er EBRI Is tiv tes han of sue si RS m Br P pM ly ief is co (to Van m p sim u D tin erhei, Au ug la an te to hv e erall gp uerce st 2 p0 erce n 1tage 3) n utage sed of t RSP o he f t p M h oe p sim u to lati anal uo lat n at y ez d e ri lithe fe sk -o p Obam f n aths ot in h a a a ving future y Agin ears g toelig quib an le fo tify t r c he ov berag enefe icia in a l im defin pact ed c of a on m trib and uat tio on ry re ctire ontrib ment uti pla on o nf 5 fo perc r Gen ent Xers of c when n ompensati ursin o gn . sin mog rle fe e likely males to e xperience a retirement defici Jack V t (5a 7n .4 Derh percent ei, Ph o.f t D.h e simulated lifepaths for single females In contrast, the Employee Benefit Research Institute (EBRI) launched a major project to provide this type larger improvements. fo r bo 2 0th Bab . T 04est . im y B on oy o. U.S mers and . Cong Ge ress. Senat n Xers. Te he Fiad nan diti ce oC no al s mm avitt inee gs r . equ Tax ired Refo fro m r sin Optio gle n m s:ales Pro v moting ary fro m $4,402 5 self-o repo n Re rtire ted, m ex ent pec In te co dm be e Ad nefits equ fr acy om fo defin r Geed ben n Xers,” efit EBRI pen N sio otes, n pla no n. 8 s and (Em fo pu lo n yd ee th Be at n the a efit Re verag search e annual adequacy models with a limited number of options. p ad articu ministrati lar coo hn o’s fis rt thcal at w year ould (FY) not 2h 0a 1v 4e bu suf dg fiet cient r prop et oire sal m to ent incl inco ude m a ecap to pay on t fo axr- t dh ef eerred re simulated tirement retire Indivm idu ent als inco bornm be e twe adequ en 1a 9te 65 t –o 19 c74. over average expenses and uninsured health care costs (including long- home (Van and D ho erhei, me Jan health uary car 20 e 0ex 4). p enses are ignored. The deficit values for those assumed to have no Employee Benefit Research Institute (EBRI) o vs. the f assess 31 m .5 ent perce in the la nt forte sin 19 gle m 90s o al n es) beha , bulf t t oh f s e ev coeral st nditioate nal li s c ke oli nh cerned ood of having as to wh larg ethe er RSS their r is esse esiden ntiall ts y the Figure 6 for tRetir hosee in the qu ment Secu arr tile ity (T wit -1 h 7 t 0h ), Sept. e earliest 15 r , 2 elati 011v . e Figure 10 lFigure 16 ongevity to $86,055 for those in the quartile with the Figure 14 Figure 12 Figure 4 Figure 8 Figure 2 ® Of co In u stitute rse, these , Au v gu alu st 2 es are 014): based o 10 19 –26. n results for all households in a particular cohort, regardless of benefit accrual rates in 2004 and 2007 were estimated at 2.06 percent and 2.48 percent of final pay, VanDerhei, Jack, and Nevin Adams. “A Little Help: The Impact of On-line Calculators and Financial 6 termex sav -care pin enses g co s t sh ts) , t at h w a et new o ag uld e 6 m lim 5et o it r hth o od ld e c er a o m m thr o p u u o n te u ts gd acc h o the per uu t re mu tir lated in centag ement e in sp specifi of ho ecific u ed re seho TM inco tire lds t m m h e ent at an wo acc d age gro uo ld u n m ts e et u to p t t in h ha g at t s. RSPM fu Reti ture y remen ears t S o af e vin lig gs ib S ilh ito yr ( tf aa s if t lls h ey were never simulated to be employed in the future by an sam e as f2014 or sinRetirement gle m Distribution ales. Fo Sav r exa iof 2014 Retirement ngs Shortfalls,*by mple, 15 percent o A f t Sav g he Cohort, e isim ngs ula Shortfalls teMarital d retirefor Gen Xers, m Status, ent paths fo and Gender: r single males would have suffici 2014 ent inc Retirement Sav om Distribution e, or when ings they of 2014 Retirement Shortfalls,* for might become Those Households fin Sav ani cial ngs ly ind Shortfalls igent, o With nce the a y reached The 2014 version o 2014 f R2014 SPM Retirement Sav pRetirement Sav roduced an EBRI Re ings ings Shortfalls,* for tirem Shortfalls,* for ent Readines Those Households s Ra Those Households ting (RRR) of 56.With 7 perce a nt for Early latest relative 2014 longev Retirement 2014 ity. Retirement Sav Savings Shortfalls* ings Shortfalls,* for for Gen Xers, by Those Households Years of Future ? The model was enhanced to allow an analysis of the impact of annuitizing defined contribution and CRR’s NRRI relies on wealth-to-income patterns dating back to 1983 (a time period in which DC plans whether they work for an employer that sponsors a qualified retirement plan or not. The deficit values respectively. These rates were higher than the average annual accrual rate of 1.59 percent reported by Ad . v“iso The rs Im onp S oet rtan tinc ge Ad ofequ Defin ate ed B Retenefit iremen Pt lan -Sa sv fo inr g R s T et arg ireet ms: ent Ev In idco ence me Ad from equ th ac e y 2.” 01 EBRI No 3 Retirete ms, ent no . 8 n requ eceirem ssary ent to pr mo ore vidthan e the a s mp axim ecified p um ann ercu entag ity per e o m f itt tim ed es foin r a th tax e si -q m uu ali latio fied n DB . plan under current law. also provides informatio Assu n omes n the distrib No Nursing Home ution of the lik or ely Home Health Care number of years b Costs efore those at risk run short organization that pr by Deficit, by Number of Future ovides A acce ge ss Cohort, Marital to t Years of Eligibilit hose plans)Status, and is now y $ for 21,Participation 6 Gender: 37 (comp A ar ssu ed t in a 401(k) mes o $7Pro-rata 8,297 Plan: when these . “The Impact of Leakag (per Indiv es on 401idual (k) Ac)cum , by u Gender lations at and Marital Retirement Ag Status e,” ERISA Advisory Council, that pro Boo retire me m rs ent ,d 58.5 uc age. Af e d pe efici rce Deficit, by tn ts er With a t fh c oa o r v n La e dtan u Deficit, by ecting Bo Marital RSS v om st ealu rs ud Status, Gender and , a ies f e A n great g de 57.7 or Cohort Or er pego e than rce n and Relativ n, t $ Kansas, an f2 o0 r 0 G ,0 Relativ en 0 Xer 0. e The d s . Longev e M S e Longev s assach e am Vae niD v tu y alu e is t rh Quartile et ye e ts Quartile i (F fo , E r sin eBRI d brug ar le fe y e 2014) f vel m oales ped a or is m 1 o8 re Eligibility W ifor Participation th a Deficit, by Ag in Defined e Cohort, Marital Contribution Status, and Plans: A Gender ssumes No h Wh avil e e in ev kn do ividu o lv wing ed fr al retire t oh m e a perc m seco en ent t nacc d ag ary e ou o sa n f ho t vin (IRA u gseh s pla ) b o ala ld n t s t n oce t hh a s at t e pri will re m tir bary e eat m re ent ris tir k e ag fm oe r in ent plan (Van adequ Derh in ate ei and m re an tirem y C cas op ent inc es, elan an dd , o 2 4 m 0 00 e 14 (k) is ). for Gen Xers assumed to have no future years of eligibility (as if they were never simulated to be the U.S. Department of Labor’s 2005 National Compensation Survey (NCS), which is based on official Co (Em nfid ploence yee B Su enefit rvey Re ,” EBRI searc N h otes, Institute no. 3 , Au (Em gu pst lo 2 ye 0e 11 Ben ): 7e – fit Re 20. search Institute, March 2013): 2–15. 25% ® of money, $3 as w 0,000ell as Reductions the Assu percentag in Social Secrurity mes No e oNursing Home f preretirem Reti ent rement Benefits (Starting or coHome Health Care mpensation they will Costs need in in 2033) terms of expenses are not ignored) per individual. That shortfall decreas ® es substantially for tho ® se with one–nine L do eta okin U.S il. g. D on epar ly at tm then ose t o situa f Lab tio or. n s Hwhere earing sho on: L rtfalls are ifetime P p artici rojec pte atio d, Fig n Inu P re lan 14 s, Ju sho nws e 1t 7h , 2 at 0the 14bv . alues for percent. Nursing Home or Home Health Care Costs natio $ n180 al ,000 model in 2003—EBRI’s Retirement Security Projection Model (RSPM). EBRI’s RSPM was $ $ 160 200 ,000 ,000 ? ? As ex The Dp ece lored in mber t 2 h0 e 1J3 u n EBRI N e 201otes 1 EBRI Is article sue B (Van rief, Derh RSP ei, MD e all cem owed ret ber 20ir 1e 3m ) used RS ent inco P m M e adeq to exu pacy and to th be e important for public policy analysis, perhaps equally important is knowing just how large the plans have changed for many eligible participants from voluntary enrollment to automatic enrollment). employed in the future by an organization that provides access to those plans) is $78,297 per individual. plan documents. T 20% his suggests that the 2004 and 2007 SCF respondents overestimated their expected $140,000 ? Additional refinements were introduced to evaluate the impact of purchasing long-term care additional savings in order to have a 50, 75, or 90 percent probability of retirement income adequacy. years of future eligibility, to $6,498 (compared to $52,113) and even further to $3,607 (compared to sin 7 gle m $2 al 5es ,000vary from $32,198 for those in the quartile with the earliest relative longevity to $153,300 updated in 2010 to incorporate the impact of simulating several significant environmental changes, Van D erhei, . “Cap Jack, and ping Tax- C Pref raig er Co red Ret pelanir de . “ m The ent ICo mp nact trib o ufti D oefe ns: P rri rn elim g Ret inir ar em y Eent videnc Age e o on f t Re he tire Imm pact ento In f the come an assesse alysis in th d at ret e J ire un m e en 20t 1ag 3 Ie ss late sue Br r ithan ef. Rath 65 ( er Van than Derhei tryin an g td o Co reflec pelan t the d, Ju re n al e -2 wo 01 rld 1). v ariation in DB Whi accum This le t nu u h m lat is ap bed defici er is p rso oach me ts w ind are hat ire s lik m cely tly alle t t ra o th ke b an e. s into t he $4.3 acco trillion unt th re ep fu oture c rted ino Va ntrib nDe u rh tio ei (Ma n acti y 201 vity 2); on h a om we acr ver oth lev e 2012 el, it . “’Short’ Falls: Who’s Most Likely to Come up Short in Retirement, and When?” EBRI Notes, no. 6 That sho $160,000 rtfall decreases substantially for those with one–nine years of future eligibility, to $52,113 and pension benefi $180,000 ts at retirement, unless they had more generous accrual formulas than plan participants The d in istrib suran uti ce on o o n 18 r f% RSS etirem valu ent in es per com ine diad vid equ ual fo acy r (Van marrD ieerhe d hoi, 2 useho 005ld ). s in Figure 4 appears to be quite $32,937) for those with 10–19 years of future eligibility. Gen Xers fortunate enough to have at least 20 for those $ in the qu 140,000 artile with the latest relative longevity. inclu Ad N datio in equ g de nacy al C fin .” o ed ben m EBRI Is missio efit sue B n (o D n B) r Fi ief p scal Re ,lan no fr . 3 ee sp 58 z o ( es, n Esib m aut p illity o o ym e and e ati Bc enefi Re enro fot rm ll Res m Re ent pro earch In comm vend isi sti o tute, n ati s f o o n Ju rs.” 4 n 0 e E 1BRI N 2 (k 0) 1p 1lan ). otes, s, and no. t7 h e numbaccru er was g $2 als, th 5,00 en 0era e t p e re d p vio rior usto b t ase heli tn im e e an thalysis us e stochas ed the tic rate m oedi f rean turn acc asru sum al rat ptioe nsin for thRSP e sa M mw pe le ( re r 1e .5 se per t incent 2013 of ® does (Em not pla o tt ye ee m B penefit t to perf Re osrearc m th he In ty stitute pe of m , Jicr uno e si 20 m 1u 4la a): tio 2n –s r 18eflect . ing eligibility, participation, even further to $32,937 for those with 10–19 years of future eligibility. Gen Xers fortunate enough to Van in th D e erhei an 2005 NCS d Co . 20 p % elan d (2 0 1 0 ) d es crib e h o w households are tracked through retirement age and how ? In a $ Ju 120 ly ,000 2011 EBRI Notes article (VanD2erhei, July 2011), RSPM was used to provide preliminary different from that of single males and single females, but that is to be expected given the implicit years $o 140 f fu ,000 ture eligibility in those programs would have their average shortfall at retirement reduced to $160,000 Fi crises in gure 1 depi the fina cts n R 16 cial et %ire and men ht oSa usin vin gg m s Sh arke ortfall ts. EBRI s by age has u co ph do ate rt, as d RSP we M ll as onm an an arital nu sta al basi tus and s since gend th er, en t fo o r (see Va (Em nDe plo rh yee ei J B un enefit e 2013a fo Researc r moh re In dstitute etail). Bot , Ju hl t y 2 he 0 2012 11): 2 an –6 d. 2014 a ggregate deficits are smaller than the $4.6 ? fin The al co mom del pensati was used t on per o y ev ea ar o luate f par thticip e imati pao ct TM n) oas f Dthe s B fret e yzli es zed v on par alue ticip for t an hts e baselin by simu e latin coun g t te hrfac e tual contribution activity, asset allocation, and cashout behavior at job change like RSPM does. have at least 20 years of future eligibility in those program TMs c ould find their average shortfall at their re . “ tire The m E ent inc BRI Ret om irem e/w eealth is si nt Readinm ess ulat Rat ed fo ing:r t h Ret e fo irem llowing ent Inc com om po en P ents repa : ration and Future The Iev mpa idenc ct o e f Mo of th de if im icap tia o ct nso if t n S ho e c“i2 a0 l S /2 e0 cu crap ity s o ” o nn R pr eto irjec emen ted ret t Sair vi em ngs ent ac Shortfa cum lls u lations proposed by the $120,000 diversification existing in a two-person household. In this case, 73.7 percent of simulated retirement o n ly $ 8 . “ 8 $2 What 30 ( ,00 co 0 m Causes pared t Eo BRI $1Ret 6,78 ire 2). m ent Readiness Ratings to Vary: Results from the 2014 Retirement trillion reported in VanDerhei (October 2010b); however, the baseline assumptions used in the 2010 analysis did in bo co th Bab rpora yte B o cha om ner ges s and in fin Ge an ncial Xers. and The real RSS est pr at oe vid me ark ine fo t rm con atio diti n o o nn s, a av s w erag ell as un e indivi dd erlying ual retire dem mo ent grap inco hicm e m sim $120 inu ,000 im lati um on em s. The plo y n er ew -c re ons tri ea brch utio cn o rate mpu t te hd at t w he oa uctual fi ld be nn ee ald -av ed t erag o fin e D an Bcial acc ly ru ind al tha emt nw ify othe uld be employees In contras $ t, 140 RS ,000 PM 14 bases % the DB accruals on a time series of DB plan-type and generosity parameters retirement reduced to only $16 ®,782. P ro . “ sp Re ect tire s.m ” E ent BRI Issu Incom e B e rAd iefequ , noacy . 34 :4 Alt (Eerna mplo tiv ye e e Th Benefi resho t ld Res s and earch In the Isti mp tute, ortan Ju ce ly o 2f Fu 010ture ). Eligibility in Natio $ $2 100 nal C 0,,000 000ommission on Fiscal Responsibility and Reform. paths for families h® ave no deficits. Focusing on families with RSS values in excess of $200,000, only 3.4 Security Projection Model, ” EBRI Issue Brief, no. 396 (Employee Benefit Research Institute, February not provide for the utilization of net housing equity to ensure retirement income adequacy. When the 2012 d cha eficits. T nges an hese d ch nu anm ges bers in 4 ar 0e 1(k) prese partici nt vp alu an es t b (in ehavi 201 o4 r. d o ll ars) a t ag e 6 5 , and r epre sent the additional The In cob naselin trast, e EB RSP RI’s RS M ru PM ns as is ab sume le to that futu draw fro rm e So para cial m Sec eters urity esre tim tire ate m dent fro benefits m admin u isn trativ der cur e drent la ata coll w ect will ed fo requ r th ired e redu to pro ctiov n id in e their e an equxpect al amed ou re nt tir of re emtire ent inc ment om inco e un m de er at vari age o 6 us rat 5 as e w -of ou -ld ret be urn p assum roduced pti by onthe s coded fr ? So om cial , a Se mo cur ngity other t . hings, summary plan description-type information on more than 1,000 large- Figure 9 shows th 15 e %distribution of RSS (per individual) for Gen Xers by gender and family status when $100,000 Defined Contrib 12% ution Retirement Plans.” EBRI Notes, no. 4 (Employee Benefit Research Institute, $100,000 $120,000 ® percent of simulated retirement paths with a deficit (or 0.9 percent of all family simulated retirement analy 2s0 is 1 is 4 r ).e peated with the same assumptions as used in 2010, the aggregate deficit actually increases to $4.8 The results also demonstrate the extreme importance of longevity risk and nursing home and home . “The Impact of PPA on Retirement Savings for 401(k) Participants.” EBRI Issue Brief, no. 318 am fro ? m o u The a nt wide ran that Aug ind ust g ividu 2 e0 o 1f 1als wil rec EBRI No ord l ha kee tv ee s p er articl tos ( sav in e s e (Van o bm y age e Dcases erhei, 65 t al Au o l the elim gust in w2 at ay 0e 1 b 1 their a )ck ust ed e oxp 1 RSP 9 ect 96 M ed defici ). T t h o e anal mo ts d yin el ze c rthe et urren ire im m tl p ent y a has ct of not be modified. However, the current Social Security Trustees Report projects that the funds for Old- (Van annuD itiz erhei, ed v M alu ar e ch 2 of th 0e 06 p). ro jected sum of the 401(k) and IRA rollover balances. salar nursin ied g ho DB pl mean and s per hom year. e health car e expenses are ignored. For example, 68.5 percent of simulated April 2011): 10–19. $80,000 trillion paths) genera . te a value this large. However, given that these are per-individu 20 al RSS values, a $200,00012 Through $1 o5 u ,00 t,0 EBRI h 10%as evaluated the retirement income adequacy for various demographic cohorts, health care costs in simulating Retirement Savings Shortfalls. Ignoring nursing home and home health (Employee Benefit Research Institute, June 2008). (which ? $ , depen 80,0 DC bal 0 $ 0100,000 an din ce gs. on the simulated lifepath, could be a relatively short period or could last decades). d Ag et e, ail DB Su ed c rv piv lan oo nrs trib s in a and uti chi D on isab ev inf ino il gr it r m y et In ati ire sur om n an ent once 2 inco 6. (OAS 4 m mD e il adeq li I)o w n ind ill b uacy e ivid ex fo u ha r au l pa Bab ste rticip y d B bo yan o 2 m 0 ts er 33 fs and ro . m Whi m Ge o le t re n X h than is w ers. 7 ou 2ld ,0 n 00 o pla t result ns. $15,000 . “The Role of Social Security, Defined Benefits, and Private Retirement Ac ®counts in the Face of the retirement $80,0 path 00 s for single male Gen Xers do not generate deficits when these expenses are included 3 4 5 ? ? The Later Jan thu at ary year, 201 an 4 EBRI No updatet d es v ersi articl on e o (f t Van he Dm erhei odel w , Jan as u ary dev2 el 0o 1p 4ed t ) used RS o enhP an M ce tthe o mEBRI in odel thte e li ra kctiv elihe ood 8 n fam otabl ily sho y the ag rtfall w e co oh uo ld r inv ts oo f lEarly ve a su Bo m o o mfers, at least Late $B 4o 0o 0m ,00 ers, 0 bet an w d ee Ge n n the t Xers, wo fa the latt mily m er bein ember g t s.h e first care costs (or assuming another entity pays these costs) decreases the RSS by an average of 74 percent The c o. m “The plex Im ion p and act o cf oM mo pd oifyin sitiog n t o hfe re Etir xclusi ement plan on of Em d pesig loyee ns hav Contrib e un ud tiergone ons for R co et nsid irem erab ent Sa le ch vin an gg s P e o lan ver s The Thead EBRI RSP ditional M sav mo 8% in de gl ca s requ n als ired o be fo us r etho d do s illu e on stra thte h e verge ow im op f re orta tire nt m thent e cu ( rre Earl nt y Social Boom Se ecu rs) v rityar re ytire fro m m e $ nt 19,304 in Social Security10 re %tirement benefits being eliminated, left unaddressed it might well require a (Figu Ret re ire 4) m bu en t tt hCri is nu sis, m ”®b Eer BRI juN m o p tes s to , n 8 o 5 . 1 .8 ( perc Emp ent loye whe e Ben n tefi hey t a Res re earch In ignored. sti C tute, omp Jan arinu gary the 2resul 014):t 8 s fo –2r Gen 1. $ . 60,0 “ERISA 00 $80,0 A 00t 30: The Decline of Private-Sector Defined Benefit Promises and Annuity Payments: ? In September of that year, it was used to support testimony before the Senate Finance Committee $60,000 Bal that 4 lpark E 01(k) $ par timate ticip b an y pro ts cur vid rently ing Mag on es te 2 Carl 5–2o 9 si w m ou ulati ld h o av ns o e suf f the re ficient pla 4ce 01m (kent ) accu rate mu s nee latiod ned f s tho ar t, ? IRA balances. g An eneratio other di nff al erence cohort bet to hav weee n t a ful he l two m workin od gels care foer cusses in a d o efin n th ed e -p co on sttrib -retir uti e o m n- ent ri centri sks c retir of inve ement plan stment, whereas the RSS for those in the latest relative longevity quartile average 14.8 times those in the beneFr fito sm are T t axabl o ove e ra In ll r co em tire: em Res ent u in lts fro comem ad the equacy 201 . 1 In Ret Vair ne De m rh ent C ei (Fe ob nru fid ar ence y 2015) a Surv co eyu .” n terf EBRI No actual tes sc, e n nar o. io 3 in (per in the past dividu 30 yal) f ears owith a r married we ho ll-chr useh ono icled lds, incre declin asin e in g t th oe $ n 3u 3m ,7b 7er 8 fo an r sing d gene le ro males sity pr an o d v $ is6 io 2n ,7 s o 34 f fo DB r sing pensi le on reduction $ in b 60,00enefits 0 for at least some cohorts of retirees. Figure 8 in VanDerhei (February 2014) shows Xer single females 6% in Figure 9 with those in Figure 4 shows that females are more likely to experience a What Will It Mean?” EBRI Issue Brief, no. 269 (Employee Benefit Research Institute, May 2004). Figure 5 provides the distribution of RSS for Gen Xers categorized by the number of future years of (VanDerhei, September 2011) in an 13 alyzing the potential impact of various types of tax-reform specifi when c $1c 0o ,00 p m r 0o bb in ab ed il w ities itho Sf r ocial etirem Securi ent inc ty benefit ome ad s, c equ ouac ld re y up nlace 6 der alterna 0, 70 o tir v 8 e0 -ris perc k-m ent anao gf t em heir ent . “ $1 H0o ,00 w 0 Much Would it Take? Achieving Retirement Income Equivalency between Final-Average- environment. One of the major findings in each of the annual studies since 2010 was that the overall which $ Social 40,000 $S 60,0 ecu 00rity retirement benefits are assumed to be eliminated in 2015 is modeled with the result that the earli longev est ity re and lativ le o lo ngn -te gerv m it y ca qre uartil costs. e. One of the inherent problems arising from not explicitly modelling plan(Em s in the pri ployee B vate enefit sec Re tors earc and t hh In e stitute rapid e , xpan March sio 2 n0 o 1f 1D ):C 2o –fferin 10. gs, notably the 401(k) plan. Moreover, females. Even though the present values are defined in constant dollars, the RSS values are largest for the pro rata reductions applied to Social Security retirement benefits for the sensitivity analysis in which retirement deficit when these expenses are included (57.4 percent of the simulated lifepaths for single eligibo ? il p ity D tio B ann f $ n o 40,0 s r par o 0n 0 u r ities ticip etir and em atin ent inc / go in a 4 r lum o0 m p1 -e. sum (k) This wa pd lan istrib . Ap s e u p ti xpan ro on xim s. d ed ate in t ly 4h 0e perc Novent emb oer f G 2 en X 011 e EBRI I rs with ss n ue Br o futur ief e years of The views expresse 4%d in this statement are solely those of Jack VanDerhei and should not be attributed treat preret m ire ent m s ( ent inc VanDo erhei, me o Se n ap nte inf mlatio ber 2 n0 -ad 06ju ). ste d basis. Pay Defined Benefit Plan Accruals and Voluntary Enrollment 401(k) Plans in the Private Sector.” EBRI retire aggregm atent e de inco ficit m incr e e ad asequ es ba ycy 88 p pre o rce spect nt to s f $7.8 or Gen 7 tril X lion ers . were approximately the same as Early Boomers and . “Can $40,0 A 0m 0 erica Afford Tomorrow's Retirees: Results From the EBRI-ERF Retirement Security fo Gen X llowing ers, larg enact elm y du ent 5% e o to f t th h e e P assu ensim on p tio Pro nte th cat tioh nealth c Act of are 200 -relat 6 (PP ed c A), there osts will in has be cre en a drama ase faster tic than in cr the ease in n thes o futur e poe stfu -rn et dire ing m e en nh t an risks cem is ents that are the al inco te rp rn o ati rat ved an e obje dctiv agg erega is ofte te sh n just ortfall to s m are eetc s o o nm ve e rted in type otf a o a pro rata $20,000 $40,000 fem The al im es pact vs. the of S 3 ocial 8.8 S pecuri ercen ty t re when tirem they ent are benefit ignos red). on R T SS he w das de istribm utio onn strat of RSS ed in valu twe os per ind ways. Inividu the firs al ft, or a . “A Post6-Crisis Assessment of Retirement Income Adequacy for Baby Boomers and Gen Xers.” 401(k) eligibility are si .® mulated to have no shortfalls, but 13.2 percent of this group is simulated to have to the E (Van mD perhei, loyee No Benefit vemb Re er search In 2011). stitute (EBRI), the EBRI Education and Research Fund, any of its Notes, ®no. 12 (Employee Benefit Research Institute, December 2013): 11–23. 9 Late Boomers. Projection Mo 2% del ” EBRI Issue Brief, no. 263 (Employee Benefit Research Institute, November 2003). the adoption of so-called “automatic” plan designs, notably automatic enrollment, contribution-rate general in ? ? The RSPM Feb fla was ti ru oary n rat sig 2 n e. 0 ifi 1 4 can EB tl RI Iss y enh uan e Br ced fo ief (Van r the Derhei, F May 20ebru 08 Eary BRI P 20 o1 li4 cy ) fo Fo cus rum ed bo yn all ho owi w n th ge auto prob m ab atic ility of redu For ctio an in n d f e $5 o pr all ,e 000 nd re ent tir ass ee es s o sm ne an an nt of tn hu e t al b woasis. mod T eh lsis , se wo e P u ald ng a ren sul d Sch t inie a bredu er (20 cti 14 o)n of 21.9 percent in 2033 and “repl ? ac em Netent ra housin teg ” w equ here ity.b y the employee’s projected ratio of post-retirement income to pre- married households in Figure 4 vs. Figure 9 provide similar results: 73.7 percent of simulated retirement pro rata decrease of between 22 and 27 percent starting in 2033 would increase RSS by an average of 15 EBRI Issue Brief, no. 354 (Employee Benefit Research Institute, February 2011). shortfalls $ o20,0 f m 00 ore than $200,000. In contrast, approximately 86 percent of those with 20 or more years programs $- , o $20,0 fficers, 00 trustees, sponsors, or other staff. The Employee Benefit Research Institute is a $5,000 $20,000 21 ? A March 2012 EBRI S No ingle Ma tes le article (VanDerhei, M sarch ingle fem 2a0 le12) used new survey resul Familts y to update the accelera not tio run nn , and ing sho the rt ad ov f m eno t n oe f qu y in re alified tire defau ment v lt in aries ves wi tm th en respect t alterna to tiv lo es ng(ev QD itIA y, in s),v specifical estment re ly t tur hen , and wo 10 uld enro even llm tual ent ly o0% r f each a l 401(k) p eartic vel oip f 2 an 7.ts 0 perc with ent in the po 2te 09 n0 tial . fo r automatic escalation of contributions to be . “The Impact of a Retirement Savings Account Cap,” EBRI Issue Brief, no. 389, (Employee Benefit p p erce aths fo n . t “r f f Kansas oam r Gen X ilies Fuers h ture av . e Un Ret no d e id rem r t eficits he ent Inc co when the unte om rfa e ctual si Ass exp ess enses m men ula are t tio Prn o in je oclu f assu ct.” ded bu A proj mint gect all S thi o s nu o f t cial h m e b S EBRI Edu er ecuri increas ty re cati es tiro t em o n and 9 ent 1.4 retirem Shor ent tfall inco Amount me is compared to some specified threshold. Unfortunately, this procedure (used by of futu At year re- e en lid g 2012, ibility are more si tm han ulated t 50 0 perce o hav nt o e f la no rg defici e Van 1ts, ? gu91 ar whil d plan e osn h ly ad 2 a .3 n a perce0 u ?to 19m n at t hav ic en e ro shor llmetfalls nt f20 eat +ou f r$ e2 , 00,000 The nonp ag ro gfit, rega no te np dartisan eficit n,u e m db uer catio com n and puted by resear the E ch oBRI R rganiz SPM atio n m e os d tabl el, taking ished in int Wash o accin ou gn to t n cur , Dren C, in t So 19 cial 78. Earliest 10 While the RSS values in Figure 1 may appear to be relatively small considering they represent the sum of . Testimony0% . U.S. C$3 on 2,1 g9ress. Senat 8 e Health, Educ $atio 29,885 n, Labor and Pensions Co $3 m 8,7 m 33ittee. The Wobbly u A h tilio zu atio p an seh oalysis te n o n o ld tial f t is o $- lo arg f t co n h et n g esid - po -td erm ate er te ed n health fun tial i tod run s ( mp care TD sh act Fs). oo c rt o f v sts o ari f m in re o o u n s e tire ty y in th pm esent o is m f t (ax e. og -d refo ., n el if u r agg rsin m og rega p ho tiom n te s o e re c n o s re o sts) utir rces . emin ent inco retirem m en e. t are in Shor clu tfall dAm ed (Van ount Derhei and Copeland, 2008). Rese $1 Qu ar ?ar $50,000 tch In ile stitute, August 17.2% S2 ing 0le 1 Ma 3). le 7.7% Single Female 4.8% Family 1.3% perce Rese nt when th arch Fun e de and xpense the s are EM arlyil Bb oom ig an n er k o sM red. em orial Fund. Ju La ly te B 1o6 o, m2 er0 s 02. Gen Xers comp benefits aredwe with re a eb lio m uin t 40 p ated e in rce 2 nt 0in 15 2007 (U , the av tk erag us ae nd RSS You (n fo g, r 2014) Boom ers and Gen Xers) would increase by 90 o N Secur r RRI) moity r in e. tro r etd ir u $- $- em ces en a nu t ben mb efit er o s and f pro tb hle e m ass: sumpti on that net housing equity is utilized “as needed,” is EBRI does no $- t take policy positions, nor does it lobby, advocate specific policy recommendations, or present $1 $50,001 Sv e c alu $50,000 ondes ?$100,000 that may in $7E E 5,0 clu a ar rll1 y y 15 1 B B d .0% oom oom e 10 d er er .3% ecades s s of deficit 4.7 s, it % $ L L is 7 a a5 t te B e B ,5im 16 o o1 o op 6 m m .o 1% er errtan s s t to 2 re .6%member that less $6 G Gen en 6,3 10 Xe Xe 4.0% 4r rs s0. t 6% han half of FiguS re tool 15: depi Retir cts em Re ent (In) tiremsecu ent Sa rity in Ame vings Sho rr ic tfalls b a (T-1y 6 age 6), 7 c Oct oho ort, ber a s w 201 ell as 0b. marital status and gender, for not suffici Earlient t est Quao rti le meet aver Eag arly$2 e B 9,8 oom retir 00 ersement expenditures, Late B $d 28 o efin ,6 om 11 ers ed as a combination o G $3 en f de 6,0 Xe 58 rte s rministic p 11ercent. ? ? The The M Jun ay e 2 20 01 12 4 EBRI EBRI No Not tes es a article ( rticle (Van VanD Derh erhei, M ei, Juay ne 2 20 01 12 4) a) p pro rovid vid ed ed 2 0 n1 e2 w up red sul ate ts s f show or th in eg pre hov w iom usl an y y S S Th iing ng ird le le Ma Male le $128,208 $9 $92,2 3,59 76 4 $137, $ $1 1380 00, 02,287 710 $7 $1 $1 9,1 29, 18, 8265 861 5 cur rece ?rently iAd ve S $101,000 $50,001 d fiederal fu ng itio est le $- Ma n im ? $100,000 al m le $200,000 ated t n od din ifi og cati be . $ on 4s .13 5.w 6% ere trill 6.2%ad ion d ed f for all U.S or a P1. ension . h 2%ouseho Re 1search C ld 0.7% s where ou 0. t 5% n hcil p e head o resentati f the ho o 9. n 2% tu h 0.s at 1% eho inv ld o is lved a . “ Se Reali cond ty Checks: A Co $m 1 $6 0,6,9 p 21ara 0 58 tive Analysis of Future $ $6 5, 9Benefi 1 ,5 778 5 ts from Private-Sect $8 $o 2, 5,2 r, 63 26 9 Voluntary- For example, one would expect that employees would generally contribute a larger percentage of their the s In t h e i m . m “ uid M lated li st assach of tfh epath u ese sett dra s s Fu m m o tatic shifts, d ueled are re Retire t co m hent Inc n e sid trea ered t tm om ent e o b Ao ss e f D essmen “at C-ris plan k.” t desig PIn ro o jec ther nt.” (especiall A wo pro rds ject , t y h 4 o e 0f 1 av the E (k) erag pla B e n RI Edu RSS s) vari vcati alu es es on both Baby Boomers and Gen Xers assuming pro rata reductions in Social Security retirement benefits 0 1–9 10–19 20+ expenses from the Consumer Expenditure Survey (as a function of age and income) and some health Figure 10 provides the distribution of RSS for Gen Xers categorized by the number of future years of S SLa iing ng tes le le F F t e ema male le $1 $105, 04, 7 044 821 $1 $113, 12,212 651 $1 $133, 27,790 239 The Impa Mo $101,000 rc et Th o a f n$200,000 $2 N00, ur000 sing Home a 0.0% n1d 0. Ho 4% me Health C 0.a 0% re Costs 20 o .5% n Retire 0. men 0% t Savings Sh 6o .2% rtfa 0.0% lls . “ S Th iRe ng ird letire Fema m leent Savings Sh $2 $1 5,7 15, o 7070 rtfall 9 s for Today’s Workers.” $1 $223, 1,6079 81 EBRI Notes, no. 10 (Em $1 $2 p 46, 0,6 lo 436 4 y 7ee Benefit ?y p ears in ub What is lished to RR retir the pr Rs em as o ent Bab w p $1 er ell 53,m as 300 ea y R sur SS Bo. o e m of er th an e d n G um en X eraer to$1 ho r? 63, F u 196 o sr e ehx oam lds p we le, h re o si w m sho ulat ued t ld o $9 o n 0,5 e ru 0co 2n sho nvert rt 4 o0 f 1 m (k) onan eyd , betwe “winn en 25 ers and /lo sers 64, incl ” anal usiy vsis e. o U f n DB der fr the eezes sce and nari t o h ( e d e es ncrib haned later ced emp in thi loyers cto est ntrib imo un tio y) n in s pro which vid pro ed t ra o ta Enrollm Tota ent l 401(k) P $2lan 1,63s v 7 s. Stylized, Final $6, -4 Av 98erage-Pay Defined $3, Be 607 nefit and Cash Bal $88 an 3 ce Plans,” compensation if the employer matched 50 percent on the first six percent of compensation as opposed to 100 dram an aticall dQu Re artsear iy le am ch Fu ong t n h d e and retirem the M ent inc ilbano k m M e ead mo equ rial Fu acy n m do . D dels. Fo ec. 1, 2 r e 00 x2 am . ple, the NRRI model projects represented in Figure 1 are redu ced by the inclusion of simulated retirement lifepaths that will not run startingFa Fa Mo in 2 m m reiily ly Th 0 a3 n $2 3. Th 00,000 e additio$7 $6 nal sa 1,2 8,39 39 0 4.6% vings required for Gen X $ $7 71 6,4 ,2 ers 10 60 22 .1% (the cohort most imp$8 $8 act 2,0 0,7 0.9 ed by 8 0 % 3 9 the insuranMa La ce tes rrian e t Q d u d a o rtile ut-of-pocket$3 $1 , h ,51 32, eal 1 201th-related expenses, plu $1 $2 45, ,66 s st 121 4 ochastic expenses fro $1 m $2 73, nu ,05 069 6 rsing-home and eligibility for participating in a 401(k) plan when nursing home and home health care expenses are th Research Institute, October 2010®a): 2-9. by prere Source: EBR tire I Rem tirement Security ent inco m Projection e quM artil odel, e. ve rsion 2162. The percentages in each column do not add to 100 percent because individuals without IRA account balances to retirement income? redu percectio d nefin t on ns t ed co h to e So firs nci trib t al Secu thre utio e pn e rit pla rce y re n n t s ti oat f re co m the m ent b ptim ensenefits at e ion the . DB For are p ear lan aly ssume s rw esere ults d o to frfo begi tz h en ( is p n h C in 2 e on p o elan m 03 e3 nd , a, and t h se e eag V Yak an grega oD berhei, oste ki deficit an 2 d0 10 ). EBRI Issue Brief, no. 387 (Employee Benefit Research Institute, June 2013a). EBRI • 1100 13 St. NW #800 • Washington, DC 20005 • (202) 659-0670 • www.ebri.org short financial of m asse oney ts in 4 . Loo 0kin 1(k) g o pl n an ly s and at tho o ®sth e situa er acc tio ou nn s ts wher base ed shor on tfalls ar wealth- e to p-ro injcect om ed, F e paig ttu erns re 2 b sh y age gr ows th o at up the propoSource: EBR sed chan I Reg tirement Security e) vary fro Projection m $27 Model, ,025 ve ( rsion per 2162. N indoite the percentages vidual) for in each marr column ied h do not add to ouseho 100 percent lds (cobecause mpared individuals to $ w2 ithout 1,379 shortfalls are not displayed. For example, 62.3 percent of Gen Xers with no future years of eligibility for participation in a 401(k) plan are simulated to have no home-health care (at least until the p ® oint such expenses are covered by Medicaid). This version of the ignored. Sources: App EBR ro Ixi Retirement mately Security 62 Projection per-cent Modelo ® vf G ersion en X 2164.ers with no future years of 401(k) eligibility are simulated to ® ® 8 Source: EBRI Retirement Security Projection Model version 2163. Sources: Sources: EBR EBRI I R Re etirement Security tirement Security Projection M Projection Model odel ®v ve ersion rsion 2166. 2163. shortfalls are not displayed. For example, 68.5 percent of single males are simulated to have no shortfalls. This number is 42.6 percent for single females and VanDerh Sources: Source: EBR ei (1996 EBRI I R ). R e e tirement Security tirement Security Projection M Projection M odel odel® v ersion version 2163. 2163. increase shortfalls. s by 6 Th perc is increases ent to 86.4 percent to $4.38 for tthose rillio win th . one to nine y ears of future eligibility and 92.1 percent for those with 10 ?19 years. For those with 20 or * The Retirement Savings Shortfalls (RSS) are determined as a present value of retirement deficits at age 65. * The Retirement Savings Shortfalls (RSS) are determined as a present value of retirement deficits at age 65. * * T The he R Re etirement Sav tirement Saviings Shortfalls (R ngs Shortfalls (RSS) SS) are are determined determined as a as a present present v va alue of retirement lue of retirement deficits deficits at age 65. at age 65. 73.7 percent for families. * * T more y T he he RR eears of future eligibility tirement etirement Sav Savings ings Shortfalls (R Shortfalls , 97.9 percent (RSS) SS) are determined are hav determined e no simulated as a as a present deficits. present v alue of retirement value of retirement deficits deficits at age 65. at age 65. 1

Volume T-182

Pages 27

EBRI Testimony

March 12, 2015

Jack VanDerhei

Financial Wellbeing Retirement