Summary
Measuring retirement security — or retirement income adequacy — is an extremely important topic. The Employee Benefit Research Institute (EBRI) launched a major project to provide this type of measurement in the late 1990s for several states concerned whether their residents would have sufficient income when they reached retirement age. A national model — the EBRI Retirement Security Projection Model® (RSPM) — was developed in 2003 and has been updated repeatedly for changes in legislation and for a better understanding of the behavior within the retirement system. This study provides a new baseline from updated data and shows the impact of specific provisions from the Setting Every Community Up for Retirement Enhancement (SECURE) Act 1.0 and the SECURE 2.0 Act.
Key findings include:
- New Baseline: Using the latest data for the cohort of individuals being simulated (those ages 35–64), new baseline metrics are established and compared with the latest metrics from 2019. The Retirement Readiness Rating™ (RRR), the share of individuals projected to not run short of money in retirement, increased from 59.4 percent in 2019 to 59.9 percent. In addition, the aggregate savings shortfalls (RSS-), the average amount of money by which individuals run short of covering the projected expenses in retirement, decreased from $3.83 trillion in 2019 to $3.48 trillion in 2022 dollars.
- Emergency Withdrawals: The SECURE 2.0 Act provides an exception to the 10 percent tax for early distributions for emergency expenses, which are “unforeseeable or immediate financial needs relating to personal or family emergencies.” One distribution of up to $1,000 is permissible per year. This provision has a minimal impact on retirement security, as with it, the RRR slightly declines from 59.9 percent to 59.8 percent.
- Catch-up Contribution Changes: The catch-up contribution limit in employer plans will be raised for individuals who will attain ages 60–63 in 2025, and catch-up contributions of those making more than $145,000 must be made on a Roth basis starting in 2026. Furthermore, the catch-up contribution amount on individual retirement accounts (IRAs) will be indexed to inflation like regular contributions. None of these provisions were shown to have an impact on the metrics used in RSPM.
- Automatic Enrollment and the Saver’s Match: For 401(k) plans and 403(b) plans started after December 31, 2024 (with some exceptions), automatic enrollment is required. The Saver’s Match will replace the current Saver’s Credit by matching low-income workers’ contributions to employer plans and IRAs. The match is 50 percent of the contributions up to $2,000 per individual, with the match being directly deposited into the individual’s IRA or employment-based retirement plan. With the addition of these provisions, the RRR increases by 1.6 percentage points to 61.5 percent. Furthermore, the aggregate RSS- would be reduced by $213 billion and the aggregate Retirement Savings Surpluses (RSS+) would be increased by $295 billion.
- All Modeled Provisions: Modeling all of the provisions described above together shows an increase in the RRR of 1.6 percentage points, from 59.9 percent to 61.5 percent. The reduction in the savings shortfalls was $210 billion, and the increase in the savings surpluses was $280 billion. The youngest cohorts have the most improvement due to the compounding of any additional contributions and more time to be exposed to the effects of the SECURE provisions. The improvement in the percentage of individuals not running short of money in retirement was 4.7 percentage points among those ages 35–39 and 2.7 percentage points among those ages 40–44.