falling short: the coming retirement challenges
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Andrew D. EschtruthAssociate Director for External Relations
Center for Retirement Research at Boston College
Aging and Retirement: Understanding Generational Changes
Washington, DC
une !", #$!%
Falling Short:
The Coming Retirement Challenge
and What to Do About It
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What is the sco&e of the &ro'lem( )ur index
shows half of current wor*ers falling short.
Source: Alicia +. unnell, Wenliang +ou, and Anthon- We''. #$!. /0RR1 U&date 2hows +alf 2till 3alling 2hort.4Issue in Brief !5#$.
Center for Retirement Research at Boston College.
6he 0ational Retirement Ris* 1ndex, !78"5#$!"
!78"!78%!787!77#!779!778#$$!#$$#$$#$!$#$!"$;
#$;
$;
%$;
"!; "!; "$;
"; "8;$; "8;
9; ;
9"; 9#;
#
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6he retirement shortfall is dri
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)ne reason &eo&le need more retirement
income is that the- are li
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But the- are onl- wor*ing a bit longer, so
the retirement s&an is growing.
A
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1n addition, &eo&le need more 'ecause
retiree health care costs are high and rising.edicare >art B >remium and )ut5of5>oc*et >a-ments as
>ercentage of A
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And interest rates are low, which reduces
what &eo&le get from their nest egg.
Real 1nterest Rate, !77$5#$!9
Sources: U.2. Board of Goennacchi, and >eter Ritch*en. #$!#.
/1nflation Ex&ectations, Real Rates, and Ris* >remia: E
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At the same time, the U.2. retirement s-stem
is contracting.
Defined Contri'ution5 $!* 5 >lans
Defined Benefit >lans
1ndi
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2ocial 2ecurit- will re&lace a shrin*ing
share of &re5retirement earnings.2ocial 2ecurit- Re&lacement Rates for Aart B 2,1 deduction
After &ersonal income taxation
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And em&lo-er &lans ha
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$!*s could wor*, 'ut &eo&le ma*e
mista*es at erea&er #$!95#. Center for Retirement Research at Boston College.
!!
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Due to mista*es, &artici&ants often end u&
with modest 'alances.
Source: Alicia +. unnell. #$!. /$!*1RA +oldings in #$!": An U&date from the 2C3.4Issue in Brief!5!9. Center for Retirement
Research at Boston College.
$!*1RA Balances for edian Wor*ing +ousehold with a $!*,
Age 995%, '- 1ncome Huintile, #$!"
6o&
3ourth
6hird
2econd
Bottom
I$ I#$$,$$$ I$$,$$$ I%$$,$$$
I9#,$$$
I!"#,$$$
I!$$,$$$
I9",$$$
I!",$$$
!#
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2till, ha
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2o we should 'e
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What to do( 2olutions are straightforward.
Wor( longer to 'uild assets shrin* retirement &eriod@
Sa!e more
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Wor*ing longer is feasi'le for most, and
the- canstillenJo- a length- retirement.
0ote: 3or the ratio of ex&ected retirement to wor*ing -ears, &eo&le are assumed to start wor* at #$.
Source: AuthorFs calculations using U.2. 2ocial 2ecurit- Administration. #$$. =ife 6a'le 3unctions Based on the Alternatiro'a'ilities in the #$$ 6rustees Re&ort un&u'lished.
Retirement Age EKual to Age5%9 Retirement in !7$,
Based on Rising =ife Ex&ectanc- 1n ?ears: onths
?earAge at which ratio of ex&ected retirement
to wor*ing -ears remain constant
!7$ %9:$$
!79$ %9:!!
!7%$ %%:$8
!7$ %:$%
!78$ %8:$$
!77$ %8:$%
#$$$ %7:$$
#$!$ %7:$
#$#$ $:$#
#$"$ $:$8!%
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And it im&ro
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)n the saers&ectiroJected 2ocial 2ecurit- 1ncome and Cost Rates, as a >ercentage of 6axa'le >a-roll, !77$5#$7$
$;
.;
8;
!#;
!%;
#$;
!8
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1n $!*s, we need to get more mone- into
&lans '- ma*ing them full- automaticM
>ercentage of $!* >lans with Automatic Enrollment and Automatic Escalation, #$!
Source: AuthorFs calculations 'ased on anguard. #$!9. /+ow America 2a
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Mreduce mone- lea*ing outM
Source: AuthorFs calculations 'ased on anguard. #$!9. /+ow America 2a
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Mand *ee& an e-e on inercentage of Assets for Acti
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1n
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A final issue with $!*s is how &eo&le will
draw down their assets in retirement.>ercentage of Remaining edian Assets in #$$# for 2ingles Ages #58! in !779,
'- >ermanent 1ncome Huintile
Source: ariacristina De 0ardi, Eric 3rench, and ohn Baile- ones. #$$7. /=ife Ex&ectanc- and )ld Age 2a
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Draw5down solutions include 'u-ing an
annuit- or using sensi'le rules of thum'.
2ingle >remium 1mmediate Annuities 2>1As &ro
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Be-ond $!*s, man- &ro&osals exist to
co
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But Congress has not &assed an- legislation,
so the states are ste&&ing into the 'reach.
2tate Retirement 2ecurit- Acti
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3inall-, we need to con
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>eo&le can get mone- from their house in two
wa-s: downsiOe or ta*e a re
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Conclusion
6he current retirement income s-stem will deli
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