Retirement Readiness Ratings and Retirement Savings Shortfalls for Gen Xers : The Impact of Eligibility for Participation in a 401(k) Plan

Measuring retirement security -- or retirement income adequacy -- is an extremely important topic. The May 2012 EBRI Notes article provided updates for the previously published EBRI Retirement Readiness Ratings™ as well as the average Retirement Savings Shortfalls (RSS). This paper provides sensitivity analysis on the Retirement Readiness Ratings™ by giving additional information on the percentage of the at-risk population that is relatively close to having adequate financial resources for retirement income adequacy. It also provides more detailed analysis on the distribution of the RSS. Unlike previous analyses, this paper focuses on the Gen Xer cohort (born between 1965-1974) in an attempt to assess the impact that eligibility for participation in a 401(k) plan has on these values. The dollar value of retirement savings shortfalls for Gen Xers varies considerably with the number of future years of eligibility for 401(k) plans, particularly for those in the highest severity category (simulated to have a shortfall of $200,000 or more): 13 percent of those with no future years of 401(k) eligibility have shortfalls in this range vs. only 3 percent for those with 20 or more years. Future eligibility for 401(k) plans makes a significant difference in reducing the percentage of households with shortfalls of $200,000 or more for all gender/family status combinations, but single females experience the largest absolute reduction in the percentage of those with shortfalls in this range. This paper also provides a comparative analysis of the importance of nursing home and home health care costs on retirement income adequacy. Figures 1-6 in the paper are based on the EBRI Retirement Security Projection Model® (RSPM) which simulates 1,000 alternative retirement paths for each household to explicitly model investment, longevity, and stochastic health care risks (i.e., nursing home and home health care costs). Figure 7 modifies RSPM by completely eliminating the nursing home and home health care risks to illustrate the extent of the errors introduced in models that ignore these risks. The PDF for the above title, published in the June 2012 issue of EBRI Notes, also contains the fulltext of another June 2012 EBRI Notes article abstracted on SSRN: “Use of Health Care Services and Access Issues by Type of Health Plan: Findings from the EBRI/MGA Consumer Engagement in Health Care Survey.”