More than 40 percent American workers face the prospect of having too little income in retirement and are likely to run out of money, according to a new study by the Employee Benefit Research Institute (EBRI).
The share of the population segment at risk for an inadequate retirement ranges from 70.3 percent of households with incomes in the lowest one-third of the population to 41.6 percent in the middle income group to 23.3 percent for the highest income group.
Surprisingly, given the difficulties from the financial crisis and the recession, the results find workers better prepared for retirement than a similar study conducted seven years ago.
In 2003, by comparison, 79.5 percent of households in the lowest one-third of income were at risk, falling to 47.3 percent for the middle income households and 39.6 percent of the highest income group.
Defying the expected pattern, older worker are less prepared than some younger workers. For example, 47.2 percent of Early Baby Boomers may not have enough to live in retirement, while 44.5 percent of Generation Xers may not have enough.
In 2003, by comparison, 59.2 percent of Early Boomers were "at risk" while 57.4 percent of Generation Xers were at risk.
The study measures the projected time from a worker retirement date until the worker runs out of money, based on what they have saved to far and what they are likely to save before retiring. Not surprisngly, 41 percent of the lowest income group will run out of money after only 10 years in retirement.
The study finds that one popular proposal to improve retirement saving and income -- auto-enrollment into plans and auto-escalation of contributions every year -- would make it possible for a 25-year-old work to accumulate twice as much saving as a 25-year-old worker in a plan without the automatic features.
Click on the link at the end of this sentence to reach the web page at the Employee Benefits Research Institute where you can download a pdf Issue Brief describing the findings of the study.