What a Sustained Low-Yield Rate Environment Means for Retirement Income Adequacy : Results from the 2013 EBRI Retirement Security Projection Model®

As many retirees and workers have discovered, today's historically low interest rates are crimping their retirement savings. Now a new paper by the nonpartisan Employee Benefit Research Institute (EBRI) quantifies the impact of a sustained low-interest rate environment on America's retirement readiness. EBRI, using its proprietary Retirement Security Projection Model® (RSPM), found that more than a quarter of Baby Boomers and Gen Xers who would have had adequate retirement income under historical averages return assumptions are simulated to end up running short of money in retirement if today's historically low interest rates are assumed to be a permanent condition, if retirement income/wealth is assumed to cover 100 percent of simulated retirement expense. A low-yield-rate environment may have an extremely large impact on retirement-income failure rates when viewed in isolation. However, the impact is muted somewhat when included as part of the entire retirement portfolio (e.g., Social Security benefits, possible defined benefit accruals, and net housing equity). There appears to be a very limited impact of a low-yield-rate environment on retirement income adequacy for those in the lowest- (pre-retirement) income quartile, given the relatively small level of defined contribution and IRA assets and the relatively large contribution of Social Security benefits for this group. However, there is a very significant impact for the top three income quartiles. The PDF for the above title, published in the June 2013 issue of EBRI Notes, also contains the full text of another June 2013 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.”