Study: Re­tire­ment stock­pile likely to run dry for many

Most low-in­come work­ers face de­ple­tion 10 years af­ter re­tir­ing

Austin American-Statesman - - BUSINESS & PERSONAL FINANCE - By David Pitt

A third of mid­dle-in­come work­ers will prob­a­bly run out of money af­ter 20 years of re­tire­ment, and sig­nif­i­cantly more lower-in­come work­ers will de­plete their sav­ings af­ter a decade, ac­cord­ing to a study re­leased Tues­day.

The Em­ployee Ben­e­fit Re­search In­sti­tute, a non­par­ti­san re­search group based in Washington, said its re­tire­ment readi­ness study found that liv­ing longer, sav­ing too lit­tle and in­ad­e­quate plan­ning for health care costs will leave many re­tirees short of money to pay ba­sic liv­ing ex­penses.

The study finds that 64 per­cent of work­ers earn­ing less than $30,000 a year will run out of money within 10 years of re­tir­ing. About a third of work­ers mak­ing be­tween $30,000 and $70,000 will run out of money af­ter 20 years of re­tire­ment. One in 10 work­ers mak­ing

more than $70,000 won’t have enough money.

“Early” baby boomers, mean­ing peo­ple who now are age 56 to 62, have a 47 per­cent chance of not hav­ing enough money to pay ba­sic re­tire­ment costs and unin­sured med­i­cal ex­penses, the study con­cluded.

“Late” boomers aged 46 to 55, as well as Gen­er­a­tion X work­ers aged 36 to 45, have about a 45 per­cent chance of run­ning short on cash.

The study should wake up work­ers to the re­al­ity of to­day’s re­tire­ment chal­lenges, said Jack VanDer­hei, re­search di­rec­tor for EBRI and author of the study.

“Stop deceiving your­self that you are go­ing to have enough money for re­tire­ment,” he said. “If you be­lieve that there is a chance you’re go­ing to be at risk, you must start do­ing some fi­nan­cial plan­ning and do it now.”

Some work­ers, par­tic­u­larly those in lower in­come groups, will likely be forced to con­tinue work­ing into re­tire­ment. The same is true for those near re­tire­ment and be­hind on sav­ing.

Young and mid­dle-age work­ers still have a chance to im­prove their re­tire­ment life­style by sav­ing more.

If work­ers aged 46 to 55 mak­ing be­tween $30,000 and $70,000 saved an ad­di­tional 4 per­cent of their pay, they would have a 90 per­cent prob­a­bil­ity of hav­ing enough money.

Older work­ers and those in lower in­come groups would have to save un­re­al­is­ti­cally high per­cent­ages of their in­come — about 25 per­cent or more — to get there, VanDer­hei said.

Al­though the re­sults ap­pear grim, they do show there has been some im­prove­ment since a sim­i­lar study in 2003.

The early baby boomers group had a 60 per­cent change of run­ning short of cash seven years ago, but that fig­ure fell to 47 per­cent in the lat­est study. Sim­i­lar im­prove­ments were seen in other age groups.

The rea­son can be at­trib­uted largely to the wide­spread use of au­to­matic en­roll­ment and au­to­matic es­ca­la­tion of con­tri­bu­tions in 401(k) plans, VanDer­hei said.

Auto en­roll­ment, which has grown rapidly in the past few years, is now used by more than 57 per­cent of large com­pa­nies, ac­cord­ing to a re­cent sur­vey by busi­ness con­sul­tant Tow­ers Wat­son.

Un­der auto en­roll­ment, com­pa­nies place a new worker in the 401(k) plan un­less the worker chooses to with­draw. The prac­tice is cred­ited with sig­nif­i­cantly in­creas­ing the num­ber of re­tire­ment savers be­cause most peo­ple won’t bother to opt out. Auto es­ca­la­tion in­creases a worker’s re­tire­ment sav­ings level as pay in­creases.

The up­dated EBRI study fac­tors in re­tire­ment plan changes, such as the au­to­matic fea­tures, fi­nan­cial mar­ket per­for­mance and em­ployee be­hav­ior. It is based on a data­base of 24 mil­lion 401(k) par­tic­i­pants.

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