American retirees will have at least $45 billion less in retirement income in 2030 than what they will need to cover basic expenditures and any expense associated with an episode of care in a nursing home or from a home health care provider. The aggregate deficit in retiree income during the decade ending 2030 will be at least $400 billion. These findings are from a new analysis by the Employee Benefit Research Institute (EBRI) in collaboration with the Milbank Memorial Fund, known as the EBRI-ERF Retirement Security Projection Model, contained in this EBRI Issue Brief.
Some future retirees could avert a personal shortfall by increasing their savings rate. In some instances, saving an additional 5 percent of compensation for the remainder of one's career would be adequate to achieve this result. But this is a virtual impossibility for the majority of older, low-income single women, where needed additional savings would exceed 25 percent of compensation.
Achieving a 90 percent confidence level for sufficient retirement income would require added savings of no more than 10 percent for median couples above the lowest income quartile born since 1945. Added savings of no more than 5 percent would assure a 75 percent certainty for these groups.
The odds of having sufficient income to afford basic expenditures throughout retirement with an additional savings of 5 percent of compensation are significantly higher for those in the youngest cohorts. This ranges from a low of approximately 30 percent for those in the lowest income quartiles that are on the verge of retirement to more than 85 percent for those with above median income in the 1961-1965 birth cohort.
The President's Commission on Pension Policy recommended a mandatory savings plan in 1981. The President's Commission on Social Security Reform recommended individual accounts for Social Security in 2002. Although the analysis presented here did not explicitly model reform proposals for mandatory individual accounts, the results illustrate how Social Security reforms that would cut current law benefits would interact with a mandatory additional savings of 5 percent of compensation.
Despite growing interest in mechanisms that allow retirees to turn their housing equity into income, neither annuitizing the value of their residence, nor selling it when required to provide added income, significantly moderates the projected problem.
When other parameters are held constant, couples fare best and single women worst.