EBRI Issue Brief

Americans' Future Retirement Security: Implications of the EBRI-ERF Retirement Security Projection Model

Feb 1, 2004 16  pages


  • The United States faces the growing societal problem of a dramatic increase in the proportion of retirees relative to workers, and how to finance their care, due to such well-documented demographic trends as the largest generation (the baby-boomers) nearing retirement, longer average lifespans, and far greater time spent in retirement.
  • According to a recent EBRI analysis done in collaboration with the Milbank Memorial Fund, the total annual national retirement income shortfall will grow to as much as $57 billion by 2030, an increase of approximately $25 billion from its projected level in 2005. During the decade ending in 2030, the aggregate retiree income shortfall could exceed $500 billion.
  • The results show that for the median individual in birth cohorts on the verge of retirement there is little possibility of them saving enough to supplement the simulated retirement wealth to provide adequate retirement income to meet basic needs. However, younger-birth cohorts would benefit from the increased years of contributions and would have savings targets that are feasible for most groups. However, there are some notable exceptions: Single females in the lowest income quartile are predicted to need in excess of 25 percent of compensation per year to have sufficient retirement wealth regardless of birth cohort—an improbably high goal.
  • This Issue Brief briefly summarizes the initial results from the national version of the Retirement Security Projection Model (reported in greater detail in the November 2003 EBRI Issue Brief), and provides analysis and comments on the implications of these findings from numerous professionals with policy expertise on the issues involved.
  • An important issue in retirement security is large unanticipated health care costs—particularly if retirees need extended nursing home care or extended home health care. Furthermore, fewer retirees are going to have health insurance from a former employer and Medicare is projected to be severely underfunded once the baby boom generation starts retiring. All of this indicates more insecurity for future retirees about their ability to cover health expenditures in retirement.
  • Besides the personal implications for individual Americans who are likely to outlive their assets, the increasing national retirement income gap is expected to put heavy stress on state programs—particularly Medicaid—that finance long-term care for indigent retirees. However, because of budget difficulties, states are cutting spending on such programs rather than expanding them.