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Oops! Retirees Short
$45 Billion for Basic Expenses by 2030
Middle
Income Retirees May Have a Chance, Low Income Women None
Dec. 4, 2003 - If current patterns
continue, there will be an annual shortfall of at least $45 billion by
2030 between the amount retired Americans need to cover basic expenses
and what they have.
This is from a new study on retirement
planning by the Employee
Benefit Research Institute in collaboration with the Milbank Memorial
Fund. The report suggests that while many middle-income Americans could
provide for their own future by saving 5 percent of compensation
annually in addition to the retirement benefits they are already
expected to receive, this remedy won't work for many in the lower income
brackets.
Most at risk are low-income single
women, who typically lack the resources to save enough for retirement.
In most cases, they would have to save 25 percent or more of their pay
annually to adequately fund basic living expenses in retirement
(including nursing home or home health care costs), according to the
study. As a general rule, couples and those with higher income fared
best.
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, eliminates the projected shortfall in
retirement income adequacy for all individuals.
Results of the analysis on retirement
planning are published in
the November EBRI Issue Brief, "Can America Afford Tomorrow's Retirees:
Results From the EBRI-ERF Retirement Security Projection Model," and are
the subject of a daylong policy forum being held today in Washington,
DC, by the EBRI Education and Research Fund (EBRI- ERF).
The path-breaking study provides
analysis based on age, marital status and income, calculating the odds
that a member of any such group will have adequate resources for a basic
retirement. The analysis is based on the EBRI Retirement Security
Projection Model, which for the first time quantifies national
retirement income adequacy. It follows previous studies using similar
methodology for the states Kansas, Massachusetts, and Oregon conducted
by EBRI and Milbank in collaboration with officials from those states.
The study provides analysis of how
different demographic groups are likely to fare, broken down by income
quartile for single men, single women, and married couples. The model
provides estimates of the shortfall between the amount required for the
elderly to afford basic expenditures for the remainder of their life and
the income and benefits they are actually projected to have (Social
Security, Medicare, Medicaid, employment-based pension and retirement
plans such as 401(k)s, and individual retirement accounts).
For example:
-- 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.
While the published data are not
specific enough to provide guidance for individual personal retirement
planning, it does provide a projection of potential demand on public and
private resources.
The national aggregate projected
shortfall presupposes no change in current savings behavior and could be
reduced if those who are able to increase their savings do so. But the
shortfall in retirement income adequacy could not be entirely eliminated
because many people simply won't earn enough to make such savings
possible. The shortfall is currently in the $28 billion -- $35 billion
range, depending on whether housing equity is liquidated. For the decade
ending 2030, the aggregate shortfall would reach at least $400 billion
-- a figure of significance to many financially stressed state budgets.
The full analysis is available at EBRI's
Web site,
http://www.ebri.org
EBRI is a private, nonprofit 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.
The Milbank Memorial Fund is an endowed
national foundation that engages in nonpartisan analysis, study,
research and communication on significant issues in health policy. Its
Web site is
http://www.milbank.org
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