Who Is Most Retirement Ready?

Nearly half of Generation X households will have enough to cover basic retirement costs and about one-third will fall short, but not by much, the Employee Benefit Research Institute study showed. About 20% are likely to be far off target.

Past analysis using EBRI’s proprietary Retirement Security Projection Model (RSPM) found that roughly 44% of Baby Boomer and Gen X households are projected to be at-risk of running short of money in retirement, assuming they retire at age 65 and retain any net housing equity in retirement until other financial resources are depleted. However, that includes a wide range of personal circumstances, from individuals projected to run short by as little as a dollar to those projected to fall short by tens of thousands of dollars.

EBRI’s new research looks more closely at where different types of people are likely to fall within the range of retirement income adequacy. Looking specifically at Gen X households, EBRI’s RSPM analysis found that:

• Nearly one-half (49.1%) will have substantially more (at least 20% more) than the income threshold deemed adequate to afford basic retirement expenses and uninsured health care costs;
• Approximately one-third (31.4%) will be close to the threshold for retirement adequacy (between 80% and 120% of the financial resources necessary to cover basic retirement expenses and uninsured health care costs); and
• About one in five (19.4%) are projected to be substantially below (less than 80%) of what is needed.

EBRI also found that a worker’s future years of eligibility in a defined contribution (DC) retirement plan make a huge difference in the likelihood of having enough money to cover basic retirement expenses and uninsured health care costs. Among Gen X single females simulated to have no future years of DC plan eligibility, nearly two-fifths (39%) are in the most vulnerable (less than 80%) category, although this shrinks to only 8% for those with 20 or more years of future eligibility in a defined contribution plan.

“One problem with simply classifying a household as ‘at risk’ or not is that some households may be missing the threshold by relatively small amounts,” said Jack VanDerhei, EBRI research director and author of the report. “Using this new classification to analyze the impact of future eligibility in a defined contribution plan on the percentage of households with less than 80% of the necessary resources for sufficiency shows a substantial impact for all family/gender categories, especially single females.”

Full results are published in the November 2012 EBRI Notes.