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Gen X Retirement Worse Than Boomers’? Check Your Math, Says EBRI

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EBRI recently challenged a pair of studies that concluded Gen Xers’ retirement prospects were in worse shape than boomers’ prospects, pointing out also that the oldest Gen Xers are only 49, with many earnings years left before they reach traditional retirement age.

EBRI charges that some studies used flawed assumptions or bad methodologies to reach their conclusion that investors born between 1965 and 1974 had a smaller likelihood of saving enough for retirement than older investors born between 1948 and 1964.

“Calculating retirement income adequacy is very complex, and it’s important to use reasonable assumptions and current data if you want credible results,” Jack VanDerhei, EBRI research director and author of the report, said in a statement.

EBRI took issue with a 2013 study by Pew Charitable Trusts that found the median replacement rate for Gen Xers who retire at 65 would be 32 percentage points lower than early boomers’ and nine points lower than later boomers’.

However, that finding “explicitly ignores future contributions,” EBRI argued. “EBRI’s analysis concludes that ignoring decades of potential future contributions (as the Pew study does) exaggerates the percentage of Gen X workers simulated to run short of money in retirement by roughly 10 to 12 percentage points among all but the lowest-income group,” according to the report.

An earlier study, conducted in 2012 by the Center for Retirement Research (CRR) at Boston College, found 44% of households in their 50s were “at risk,” compared with 55% of those in their 40s and 62% of those in their 30s.

In that report, CRR failed to consider the effect of automatic enrollment and escalation features, which were widely adopted following the Pension Protection Act of 2006. Gen X is the first generation to have a full working career in a defined contribution environment, EBRI noted.

EBRI noted that all of its Retirement Security Projection Models since 2010 have found Gen Xers retirement prospects were “approximately the same” as boomers’.

EBRI found that almost 60% of Gen Xers will not run short of money in retirement. If future contributions are ignored, as they were in the Pew report, that rate falls by almost nine points to 48%. If future contributions are cut by 50%, it falls by three points to 54%.

If future contributions increase by 50%, however, retirement readiness increases to over 60% of Gen Xers.

Future eligibility in the plan is a factor too. A Gen X participant with no future years of eligibility in his or her 401(k) have a retirement readiness rate of under 40%. Just one to nine years of future eligibility increases the rate to over 60%. Gen Xers with 10 to 19 years of future eligibility have a 73% probability of not running out of money, while the youngest Gen Xers see their rate climb to over 85%.


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