The low-interest-rate environment “has an extremely large impact on failure rates,” according to a soon-to-be-finished study by the Employee Benefits Research Institute.
EBRI research director Jack VanDerhei discussed the research, which he plans to finish within a month, on Thursday at the group’s policy conference in Washington. Other retirement planning experts also gave their takes on how the current interest rate environment is affecting workers’ retirement savings.
While there’s a “limited impact” on retirement income adequacy for those in the lowest income quartile and a “very significant” impact for the top three income quartiles, VanDerhei said that overall, “25% to 27% of Baby Boomers and Gen Xers who would have had ‘adequate’ retirement income under historical averages end up running ‘short’ of money in retirement if today’s rates are assumed to be a permanent condition.”
Granted, he added, “this assumes retirement income/wealth covers 100% of simulated retirement expense.”
Indeed, Stacy Schaus, an executive vice president at PIMCO and leader of the firm’s Defined Contribution Practice, noted that consultants surveyed by the bond giant this year predicted that the low-rate environment could likely last for at least the next two years—with some saying it could drag on for 10 to 15 years.
Now is a good time for plan sponsors to revisit their plan’s offerings, Schaus said. “Plans that just offer money-market funds may want to revisit that,” she said. It’s now time to “put some inflation hedging into the plan, and broaden out to income commodities or real estate, which may bring more returns.”