Around 43 percent of Americans will likely run out of money in retirement, according to a recent assessment from EBRI.
This translates to a retirement saving shortfall of $4.13 billion.
Using its Retirement Security Projection Model (RSPM), researchers from the Employee Benefit Research Institute (EBRI) calculated the current U.S. retirement deficit in order to call attention to the ways in which proposed policy changes could influence retirement outcomes.
The RSPM tool “can model a wide range of scenarios, taking into account various age-cohorts, retirement-plan-eligibility status and possible retirement-expenditure scenarios” by analyzing data gathered from 24 million 401(k) participants’ actual account activity.
In this instance, EBRI examined households headed by 35- to 64-year-olds. Average retirement costs were based on age-, income- and family-status cohorts, and took into consideration “some health insurance and out-of-pocket, health-related expenses, plus stochastic expenses from nursing-home and home-health care,” EBRI noted in its report.
The model projected only 57.4 percent of retirement savers are on-track to cover 100 percent of average retirement expenditures, leaving 42.6 percent who will come up short.
Of course, if retirees are able to cut back spending, the outlook improves.
Over two-thirds (68.1 percent) of Americans are on a path to meet 90 percent of anticipated expenses. And it’s estimated that more than four out of five (82.1 percent) households can finance 80 percent of predicted retirement costs.
As such, “If the retirement expenditure threshold is reduced to 90 percent, the projected retirement saving shortfall drops from $4.13 trillion to $2.09 trillion—a decline of nearly 50 percent,” EBRI pointed out.
The report went on to highlight the detriment long-term care costs can have on a nest egg. Expenses related to this type of care are in fact so great that, if removed from the calculation, 75.5 percent of savers would be on-track to cover 100 percent of retirement expenses.
With regard to proposed policy changes, EBRI concluded in its report, “At various times, policymakers have contemplated changes to the system intended to increase defined contribution plan coverage, keep money in the defined contribution system, and reduce tax deferrals by limiting pretax contributions through caps and other mechanisms.
“Accurately understanding the size of the retirement deficit and the impact of changes to the system are clearly critically important.”
Jessica Claeys is an editor, writer, and graphic designer, who has been creating both print and digital marketing and communications content for 10+ years.
Jessa Claeys is a licensed insurance producer in the state of Colorado and an insurance editor for Bankrate. She currently covers auto, home and life insurance with the goal of helping others secure a healthy financial future. Jessa has over a decade of experience writing, editing and leading teams of content creators. Her work has been published by several insurance, personal finance and investment-focused publications, including BiggerPockets, 401(k) Specialist, BP Wealth and more.