July 21, 2010

With Americans living longer in retirement, results of an analysis released last week show dramatically high percentages of Americans --- even in the upper-income categories --- are likely to run short of money after 10 or 20 years of retirement.

The new analysis -- the 2010 EBRI Retirement Readiness Rating™  by the nonpartisan Employee Benefit Research Institute (EBRI) -- finds that almost two-thirds (64 percent) of Americans in the two lowest preretirement income levels will be running short after 10 years in retirement.

However, the EBRI study also finds that after 20 years of retirement, almost a third (29 percent) of those in the next-to-highest income level will run short of money, as will more than 1 in 10 (13 percent) of those in the highest-income level. Not surprisingly, those with the highest income are at the lowest risk of running short of money --- but many in the highest income category still face significant risks of not being able to pay basic expenses and uninsured medical expenses for the remainder of their lives.

According to EBRI, this is the first time a national retirement model has been able to project when different cohorts of Americans, based on age and income, are likely to exhaust their retirement savings. For instance, it finds that nearly half of early Baby Boomers --- those on the verge of retirement, currently ages 56 to 62 --- are at risk of not having sufficient income to pay for basic retirement expenditures and uninsured medical expenses, and nearly the same fraction of "Generation Xers" are in a similar position.

Among other things, EBRI says the analysis provides the most detailed estimates yet published of how age, relative level of preretirement income, and eligibility for participation in a defined contribution plan (principally a 401(k) plan) affect the prospects of running short of money in retirement. It also shows how long early boomers' resources are likely to last in retirement.

Results appear in the July 2010 EBRI Issue Brief, written by EBRI Research Director Jack VanDerhei and senior research associate Craig Copelan available at http://www.ebri.org.  EBRI is a private, nonprofit research institute based in Washington, DC, that focuses on health, savings, retirement, and economic security issues. EBRI does not lobby and does not take policy positions.

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