A high percentage of Americans--even in upper-income categories--are likely to run short of money after 10 or 20 years of retirement.
A study by the Employee Benefit Research Institute (EBRI) finds 64% of Americans in the two lowest income levels will run short after 10 years in retirement. The EBRI study also finds that after 20 years of retirement, almost a third (29%) of those in the next-to-highest income level will run short of money, as will 13% of those in the high-income levels.
Not surprisingly, those with the highest income are at the lowest risk of running short of money--but many in the highest income category still face significant risks of not being able to pay basic expenses and uninsured medical expenses for the remainder of their lives.
"As the private-sector retirement plan system evolves from a largely paternalistic one to a system in which workers must make their own decisions, policymakers need to understand what percentage of the population is likely to fail to achieve retirement security under current conditions," said Jack VanDerhei, principal author of the study, in a statement.
The analysis shows how early boomers' retirement money will fall short by pre-retirement income quartiles, assuming retirement at age 65. After 10 years of retirement the lowest-income quartile has a 41% chance of running short of money. The next-lowest quartile has a 23% chance, the third income quartile has a 13% chance and the highest-income quartile has a 5% chance.
Broken out by age, early boomers (now ages 56-62) have a 47.2% chance of outliving their assets, late boomers (now ages 46-55) have a 43.7% chance of outliving their assets and Generation Xers (now ages 36-45) have a 44.5% chance of outliving their assets.
When the results of the analysis are classified by future eligibility in a defined contribution plan, such as a 401(k), the differences in the "at-risk" percentages are large. For example, Gen Xers with no future years of eligibility have an "at-risk" level of 60%, compared with only 20% for those with 20 or more years of future eligibility.
According to EBRI, an individual or family is considered to "run short of money" if their aggregate resources in retirement are not sufficient to meet aggregate minimum retirement expenditures--defined as a combination of basic expenses from the Bureau of Labor Statistics' Consumer Expenditure Survey and some health insurance and out-of-pocket health-related expenses, plus expenses from nursing home and home health care expenses, at least until the point they are picked up by Medicaid.