Retirement Savings Shortfalls : Evidence from EBRI's Retirement Security Projection Model®

EBRI previously published extensive analysis that focused on the EBRI Retirement Readiness Ratings™ -- the probability that households will not run short of money in retirement. This paper expands the earlier analysis by providing similar analysis of the EBRI Retirement Savings Shortfalls (RSS) -- the size of the deficits that households are simulated to generate in retirement. The Retirement Savings Shortfalls show that for those on the verge of retirement (Early Baby Boomers), the deficits vary from $19,304 (per individual) for married households, increasing to $33,778 for single males and $62,734 for single females. While these RSS values may appear to be relatively small considering they represent the sum of present values that may include decades of deficits, it is important to remember that less than half of the simulated lifepaths modeled are considered to be “at risk.” Looking only at those situations where shortfalls are projected shows that the values for Early Boomers vary from $71,299 (per individual) for married households, increasing to $93,576 for single males and $104,821 for single females. RSS values are much smaller for Gen Xers with significant years of future eligibility for defined contribution plan participation. The deficit values for Gen Xers assumed to have no future years of eligibility (as if they were never simulated to be employed in the future by an organization that provides access to those plans) is $78,297 per individual. That shortfall decreases substantially (to $52,113) for those with one to nine years of future eligibility, and even further to $32,937 for those with 10-19 years of future eligibility. The results also demonstrate the extreme importance of longevity risk and nursing home and home health care costs in simulating Retirement Savings Shortfalls. Ignoring nursing home and home health care costs (or assuming another entity pays these costs) decreases the RSS by an average of 74 percent whereas the RSS for those in the latest relative longevity quartile average 14.8 times those in the earliest relative longevity quartile. The impact of Social Security retirement benefits on RSS was demonstrated in two ways. A pro rata decrease of between 22 and 27 percent starting in 2033 would increase RSS by an average of 15 percent for Gen Xers. If all Social Security retirement benefits were eliminated in 2015, the average RSS (for Boomers and Gen Xers) would increase by 90 percent. The aggregate national retirement deficit number is currently estimated to be $4.13 trillion for all U.S. households where the head of the household is between 25 and 64, inclusive