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Baby
Boomers
to
Face
Financial
Challenges
in
Retirement
WASHINGTON,
April
30,
2001
--
Baby
boomers'
retirement
income
will
be
less
certain
and
have
fewer
guarantees
than
that
of
many
earlier
retirees
because
of
the
shift
away
from
``traditional''
defined
benefit
pensions,
according
to
a
new
research
report
by
the
nonpartisan
Employee
Benefit
Research
Institute
(EBRI).
The
April
EBRI
Issue
Brief
features
original
research
on
the
long-term
implications
of
the
growth
of
defined
contribution
plans
(such
as
401(k)
plans)
and
the
decline
of
defined
benefit
plans
for
future
retirees.
It
focuses
on
the
expected
increase
in
retirees'
reliance
on
income
from
sources
that
are
not
guaranteed
for
life
--
a
change
that
puts
many
Americans
at
increased
risk
of
outliving
their
resources
if
they
do
not
plan
wisely
and
save
for
retirement.
``This
report
quantifies
and
projects
the
sources
of
retirement
income
that
Americans
are
likely
to
depend
on,
how
those
sources
are
changing,
and
the
very
real
risk
that
many
Americans
face
of
outliving
their
money,''
Salisbury
said.
The
report
presents
results
from
EBRI's
Retirement
Income
Projection
Model
that
quantify
how
much
the
importance
of
individual
account
plans
(such
as
401(k)s)
is
expected
to
increase
because
of
these
changes
in
private
retirement
plan
patterns.
For
example,
EBRI's
model
shows
that:
*
For
today's
retirees
with
either
defined
benefit,
defined
contribution
and/or
IRAs,
approximately
39
percent
of
pension
wealth
for
males
would
be
available
from
defined
benefit
plans
and
49.7
percent
for
females;
defined
contribution
and
cash
balance
plans
would
provide
33.2
percent
for
men
and
32.5
percent
for
women;
and
IRA's
would
provide
27.8
percent
for
men
and
17.8
percent
for
women.
*
For
the
youngest
baby
boom
males
(born
in
1964)
the
analysis
finds
that
26.4
percent
of
their
pension
wealth
will
be
provided
through
defined
benefit
plans,
a
decline
of
32.4
percent
compared
with
today's
retirees,
while
their
female
counterparts
will
see
their
defined
benefit
pension
wealth
fall
to
37.2
percent,
a
decline
of
25
percent.
Defined
contribution
plans
will
provide
33.7
percent
of
the
retirement
wealth
for
men
in
this
birth
cohort,
and
31.9
percent
for
women,
the
analysis
found.
IRAs
will
expand
their
role
the
most,
reaching
39.9
percent
for
men
and
30.9
percent
for
women.
The
EBRI
analysis
noted
that
the
shift
to
defined
contribution
plans
was
due
to
changes
in
the
work
force
and
business
environment.
For
employees,
defined
contribution
plans
benefits
are
less
age-sensitive,
in
that
benefits
payable
upon
job
termination
to
younger
workers
are
usually
higher
under
defined
contribution
plans
than
under
traditional
defined
benefit
plans.
Also,
years
of
service
under
defined
benefit
plans
with
age
and
service
requirements
are
not
usually
transferable
from
employer
to
employer.
Some
of
the
report's
other
main
findings:
*
A
reason
for
public
policy
concern
about
income
adequacy
for
future
retirees
is
that
Social
Security's
age
for
payment
of
full-retirement
benefits
is
rising,
and
projected
long-term
financial
shortfall
could
result
in
a
reduction
in
the
current-law
benefit
promises
made
to
future
generations
of
retirees.
Another
reason
is
that
fewer
baby
boomers
will
be
retiring
with
"traditional"
pension
annuities
that
historically
have
been
the
predominant
source
of
pension-provided
retirement
income.
This
raises
the
question
of
whether
individual
decisions
on
"spending
or
saving"
pension
distributions
will
lead
to
retirement
income.
*
Results
from
the
EBRI
Retirement
Income
Projection
Model
show,
for
both
men
and
women,
an
appreciable
drop
in
the
percentage
of
private
retirement
income
that
will
be
paid
as
an
annuity.
Consequently,
there
is
a
clear
increase
in
the
proportion
of
retirement
assets
that
retirees
--
rather
than
pension
plan
managers
--
will
have
to
manage.
This
shift
in
responsibility
involves
the
individual
(rather
than
the
pension
plan)
bearing
the
risk
of
investment
losses.
*
Since
most
retirees'
non-Social
Security
retirement
income
will
be
withdrawn
as
a
lump
sum
or
in
self-initiated
periodic
payments,
rather
than
as
a
monthly
paycheck
for
life
arriving
from
the
pension
plan,
retirees
will
need
either
to
purchase
an
annuity
from
an
insurance
company
or
carefully
manage
their
individual
rate
of
spending
in
order
to
make
their
assets
last
throughout
their
retirement
years.
``The
dramatic
growth
of
401(k)-type
retirement
plans
that
pay
in
lump-sum
distributions
rather
than
annuities,
and
the
increasing
payment
of
lump
sums
from
defined
benefit
pension
plans,
means
that
individuals
are
increasingly
responsible
for
decisions
that
will
determine
their
future
retirement:
Whether
to
spend
it
immediately
--
or
whether
to
roll
over
and
save
the
lump
sum,
how
to
invest
it,
and
how
fast
they
can
spend
it
in
retirement
and
not
outlive
the
money,''
said
EBRI
President
and
CEO
Dallas
Salisbury.
``More
workers
than
ever
will
have
the
opportunity
for
pension-provided
income
to
supplement
Social
Security
--
and
they
will
also
have
the
opportunity
to
have
it
disappear
by
personal
decision
long
before
they
die.''
Salisbury
added:
``This
report
serves
to
underline
the
tremendous
importance
of
expanding
financial
literacy
education,
beginning
at
the
earliest
possible
ages,
and
extending
it
to
today's
worker
and
retirees.
The
shift
to
a
personal
responsibility
retirement
model
will
only
be
successful
if
financial
literacy
rises.''
EBRI
Issue
Briefs
are
monthly
topical
periodicals
providing
expert
evaluations
of
employee
benefit
issues
and
trends,
including
critical
analyses
of
employee
benefit
policies
and
proposals.
EBRI
is
a
private,
nonprofit,
nonpartisan
public
policy
research
organization
based
in
Washington,
DC.
Founded
in
1978,
its
mission
is
to
contribute
to,
to
encourage,
and
to
enhance
the
development
of
sound
employee
benefit
programs
and
sound
public
policy
through
objective
research
and
education.
EBRI
does
not
lobby
and
does
not
take
positions
on
legislative
proposals.
EBRI
receives
funding
from
individuals,
employers
of
all
types,
unions,
foundations,
and
government.
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