2012: Research Year in Review

As we close out 2012, and embark upon a new set of challenges in 2013, this week’s EBRIef offers a roundup of our 2012 research. Best wishes for a Happy and Prosperous New Year!

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What’s New(s) – Health & Workforce

“Findings from the 2012 EBRI/MGA Consumer Engagement in Health Care Survey” MORE.

"Views on Employment-Based Health Benefits: Findings from the 2012 Health Confidence Survey" MORE.

“Self-Insured Health Plans: State Variation and Recent Trends by Firm Size” MORE.

'Savings Needed for Health Expenses for People Eligible for Medicare: Some Rare Good News,' and 'IRA Asset Allocation, 2010' MORE.

Employment-Based Retiree Health Benefits: Trends in Access and Coverage, 1997-2010” MORE.

“Sources of Health Insurance and Characteristics of the Uninsured: Analysis of the March 2012 Current Population Survey” MORE.

"2012 Health Confidence Survey: Americans Remain Confident About Health Care, Concerned About Costs, Following Supreme Court Decision" MORE.

"Satisfaction With Health Coverage and Care: Findings from the 2011 EBRI/MGA Consumer Engagement in Health Care Survey" MORE.

“Private Health Insurance Exchanges and Defined Contribution Health Plans: Is It Déjà Vu All Over Again?” MORE.

'Health Plan Choice: Findings from the 2011 EBRI/MGA Consumer Engagement in Health Care Survey' MORE.

'Use of Health Care Services and Access Issues by Type of Health Plan: Findings from the EBRI/MGA Consumer Engagement in Health Care Survey' MORE.

"Trends in Employment-Based Coverage Among Workers, and Access to Coverage Among Uninsured Workers, 1995-2011" MORE.

'Characteristics of the Population With Consumer-Driven and High-Deductible Health Plans, 2005–2011' MORE.

“Employment-Based Health Benefits: Trends in Access and Coverage, 1997-2010” MORE.

‘Trends in Health Coverage for Part-Time Workers’ MORE.

'Employer and Worker Contributions to Health Savings Accounts and Health Reimbursement Arrangements, 2006–2011' MORE.

“Health Savings Accounts and Health Reimbursement Arrangements: Assets, Account Balances, and Rollovers, 2006–2011” MORE.

'The Impact of PPACA on Employment-Based Health Coverage of Adult Children to Age 26' MORE.

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What’s New(s) – Retirement

“401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2011” MORE.

"Employee Tenure Trends, 1983–2012" MORE.

“All or Nothing? An Expanded Perspective on Retirement Readiness” MORE.

“Employment-Based Retirement Plan Participation: Geographic Differences and Trends, 2011” MORE.

'IRA Asset Allocation, 2010' MORE.

“Individual Account Retirement Plans: An Analysis of the 2010 Survey of Consumer Finances” MORE.

"Increasing Default Deferral Rates in Automatic Enrollment 401(k) Plans: The Impact on Retirement Savings Success in Plans With Automatic Escalation" MORE.

"Is Working to Age 70 Really the Answer for Retirement Income Adequacy?" MORE.

““After” Math: The Impact and Influence of Incentives on Benefit Policy” MORE.

'Own-to-Rent Transitions and Changes in Housing Equity for Older Americans' MORE.

'Retirement Readiness Ratings and Retirement Savings Shortfalls for Gen Xers: The Impact of Eligibility for Participation in a 401(k) Plan' MORE.

“Effects of Nursing Home Stays on Household Portfolios” MORE.

“Individual Retirement Account Balances, Contributions, and Rollovers, 2010: The EBRI IRA Database^TM” MORE.

"Retirement Income Adequacy for Boomers and Gen Xers: Evidence from the 2012 EBRI Retirement Security Projection Model®" MORE.

'Time Trends in Poverty for Older Americans Between 2001–2009' MORE.

‘Modifying the Federal Tax Treatment of 401(k) Plan Contributions: Projected Impact on Participant Account Balances’ MORE.

“The 2012 Retirement Confidence Survey: Job Insecurity, Debt Weigh on Retirement Confidence, Savings” MORE.

'Labor-force Participation Rates of the Population Age 55 and Older, 2011: After the Economic Downturn' MORE.

“Expenditure Patterns of Older Americans, 2001-2009” MORE.

'Spending Adjustments Made By Older Americans to Save Money' MORE.

Making a "List"

Years ago―when my kids were still kids―we discovered an ingenious Web site¹ that purported to offer a real-time assessment of your “naughty or nice” status.

As parents, we rarely invoked the name of Santa to encourage good behavior, and for the very most part our children didn’t require much “redirection.” But no tone of voice or physical threat ever had the impact of that Web site―if not on their behaviors (they were kids, after all), then certainly on the level of their concern about the consequences. In fact, in one of his final years as a “believer,” my son (who, it must be acknowledged, had been PARTICULARLY naughty that December) was on the verge of tears, worried that he’d find nothing under the Christmas tree but the coal and the bundle of switches he surely deserved. 
 

One could argue that many participants still act as though some kind of benevolent elf will drop down their chimney with a bag full of cold cash from the North Pole, that somehow, their bad savings behaviors throughout the year(s) notwithstanding, they’ll be able to pull the wool over the eyes of a myopic, portly gentleman in a red snow suit.

Next month we’ll field the 23^rd annual version of the Retirement Confidence Survey,² where we will, among other things, seek to gain a sense of American workers’ preparation for (and confidence about) retirement, as well as some idea as to how those already retired view the adequacy of their own preparations. In previous years we’ve seen confidence wax stronger and then wane―and we’ve seen distressingly low levels of preparation that sometimes seem at odds with the high confidence expressed. However, in wake of the Great Recession, we’ve also seen a growing awareness of the need for those preparations,³ and cognizance of the challenge in doing so. We’ve also seen regrets that more wasn’t done earlier, at a time when the options were greater, and time an asset.

Ultimately, the volume of presents under our Christmas tree never really had anything to do with our kids’ behavior. As parents, we nurtured their belief in Santa Claus as long as we thought we could (without subjecting them to the ridicule of their classmates), not because we expected it to modify their behavior (though we hoped, from time to time), but because kids should have a chance to believe, if only for a little while, in those kinds of possibilities.
 

We all live in a world of possibilities, of course. But as adults we realize—or should realize—that those possibilities are frequently bounded in by the reality of our behaviors.

 

 

Yes, Virginia, there is a Santa Claus—but he looks a lot like you, assisted by “helpers” like the employer match, tax incentives, automatic enrollment and deferral increases, and qualified default investment alternatives.

Nevin E. Adams, JD

(1) The Naughty or Nice site is STILL online, here.
 

(2) More information about the Retirement Confidence Survey, as well as results from prior years, is available online here.
 

(3) That first step on that path, and it’s a critical one, is to Choose to Save.® A great place to start those preparations figuring out quickly what you’ll need is the BallparkE$timate,® available online here. Organizations interested in building/reinforcing a workplace savings campaign can find free resources—and a handy schedule of events around which to construct a program—courtesy of the American Savings Education Council (ASEC). Choose to Save® is sponsored by the nonprofit, nonpartisan Employee Benefit Research Institute Education and Research Fund (EBRI-ERF) and one of its programs, the American Savings Education Council (ASEC). The Website and materials development have been underwritten through generous grants and additional support from EBRI Members and ASEC Partner institutions.

Covered "Call"

Sooner or later, at just about every retirement plan conference, you’ll hear someone—and generally more than just one someone—cite the statistic that “only about half of working Americans are covered by a workplace retirement plan.”

It’s a data point that is widely and openly presented as fact—not only by those inclined to dismiss the current system as inadequate (or worse), but even by some of its most ardent champions, who see it as a call to action for expanded access to these programs. It’s drawn from the U.S. Census Bureau’s March 2012 Current Population Survey (CPS).(1) But does it tell the full story?

A recent EBRI Issue Brief notes that in 2011, 78.5 million workers worked for an employer/union that did not sponsor a retirement plan. Looking specifically at those who did not work for an employer that sponsored a plan, the report notes that:

• 8.9 million were self-employed (and were thus barred from having a plan by their own inaction).
• 6.2 million were under the age of 21 (below ERISA’s mandated coverage level).
• 3.9 million were age 65 or older (beyond “normal” retirement age).
• Just over 31 million were not full-time, full-year workers.
• 16.8 million had annual earnings of less than $10,000.

Taking those factors(2) into account, it’s not hard to see why a large percentage of the 78.5 million people who worked for an employer that did not sponsor a plan—roughly 66.8 million in 2011, based on the CPS estimates above—might not be covered by a workplace plan for reasons that have little to do with the efficiency or efficacy of the current retirement plan structure.

When you filter out the overlap between those categories—situations where workers fall into several of those categories simultaneously (for example, workers who are under age 21, have less than $10,000 in annual earnings, and who are not a full-time, full-year worker)—there are about 42.4 million workers whose lack of coverage might be attributed to being in one or more of those categories. And yes, that’s more than half of the “uncovered” workers in the CPS analysis.

Indeed, while claiming that “fewer than half of working Americans have access to a workplace retirement plan” might be technically accurate, doing so exaggerates the size of the coverage “gap”—and obscures factors that might actually help explain it.

Nevin E. Adams, JD

(1) A similar result can be gleaned from the National Compensation Survey from the Bureau of Labor Statistics.

(2) There are other factors linked to rates of participation. For example, the EBRI Issue Brief also notes a correlation between firm size and participation. See Figure 30 in “Employment-Based Retirement Plan Participation; Geographic Differences and Trends, 2010.”

“Next” Step

On December 13, EBRI will hold its 71st biannual policy forum, “’Post’ Script: What’s Next for Employment-Based Health Benefits?” It is a question that has been on the mind of employers, lawmakers and policymakers alike for some time now. It predates the time that the structure for the Patient Protection and Affordable Care Act (PPACA) was put in place, has evolved, but not been resolved, as regulations were, and continue to be issued subsequent to its passage. It has remained on the minds of employers, providers, and policymakers following the various courts’ assessment of the various challenges to the constitutionality of the law, and even as the nation went to the polls last month.

Today we know more than we once did about certain aspects of the law, its provisions and applications.¹And yet there is much yet to know about its broader implementation: How the insurance exchanges might work,² for example, or how their presence might affect or influence cost, access, or employer plan designs. Will employers step away from their traditional role in providing these benefits, or will these changes lead to an environment in which employers find them to be of even greater value to their retention programs and strategies? In addition, an overarching concern at present—not just for health benefits, but workplace benefits overall—is the potential impact that changes in tax policy³ could have on these programs, both direct and indirect.

Our next policy forum will bring together a wide range of national experts on U.S. healthcare policy to share a post-election perspective on fiscal impacts from the federal budget, findings from the EBRI Center for Research on Health Benefits Innovation, and a sense of how employment-based health benefits might evolve as a result of the changes set to come.

In a field as complex and sensitive as healthcare policy, we may not always know “what’s next”—but it’s our hope that the information, and interaction, at the EBRI policy forum will provide insights and clarity that can help.

EBRI’s 71st biannual Policy Forum will be held on Thursday, Dec. 13, from 9:00 a.m.–12:30 p.m. at the Henry J. Kaiser Family Foundation, 1330 G Street NW, Washington, DC 20005. The agenda and registration information are available online here. For those not able to attend in person, a free live webcast of the policy forum will be provided by the International Foundation of Employee Benefit Plans, online here.

Nevin E. Adams, JD

¹ A summary of EBRI Research on PPACA and its Potential Impact on Private-Sector Health Benefits is available online here. Of specific topical interest are:

• “Employment-Based Health Benefits: Trends in Access and Coverage, 1997–2010.”
• “Sources of Health Insurance and Characteristics of the Uninsured: Analysis of the March 2012 Current Population Survey.”
• “Employment-Based Retiree Health Benefits: Trends in Access and Coverage, 1997-2010.”
• “Health Savings Accounts and Health Reimbursement Arrangements: Assets, Account Balances, and Rollovers, 2006–2011.”

² For insights on the topic of health insurance exchanges, see “Private Health Insurance Exchanges and Defined Contribution Health Plans: Is It Déjà Vu All Over Again?” online here.

³ See “Employment-Based Health Benefits and Taxation: Implications of Efforts to Reduce the Deficit and National Debt,” online here.

The "Big" Picture

A recent EBRI Issue Brief examined trends in employment-based retirement plan participation, noting that in 2011, the percentage of all workers participating in an employment-based retirement plan was essentially unchanged from the year before. More specifically, the percentage of all workers (including part-time and self-employed) participating in an employment-based retirement plan¹ stood at 39.7 percent in 2011, compared with 39.8 percent in 2010.² At the same time, the percentage of full-time, full-year wage and salary workers ages 21–64 (those most likely to be offered a retirement plan at work) saw a slight decline, slipping from 54.5 percent in 2010 to 53.7 percent in 2011.

While those movements were very small, the increase in the number of workers participating in 2011 halted a three-year decline. Moreover, it’s not as though this gauge has shown a steady trend, even in recent history. When you take into account all workers, the percentage participating in an employment-based retirement plan reached 44.4 percent in 2000, but declined to 39.7 percent in 2006, before increasing to 41.5 percent in 2007—the highest level since 2004, before then slipping back to 39.6 percent in 2009.³

When you look inside the overall numbers, we find that some categories examined had increases in the probability of workers participating and others showed decreases. Not only does the status as a full-time or part-time worker have a major impact on participation rates, the report notes, so does the demographic characteristics of the individual worker, the type and size of their employer, and even their physical location (workers in the South and West were less likely to participate in a plan than those in other regions of the country, for example).

Looking at the overall percentage of females participating in a plan, you might notice that it was lower than that of males—but when you control for aspects such as work status or earnings, the female participation level actually surpasses that of males. If you look only at the participation rate of Hispanics as a group, they appear to lag other groups significantly in terms of retirement plan participation. However, it turns out that only the nonnative Hispanics actually have participation levels substantially below those of all other workers. In fact, nonnative-born Hispanics had substantially lower participation levels than native-born Hispanics, even when controlling for age and earnings.

In responding to big issues, it’s sometimes tempting to look at data only in the aggregate, and in the press of time, to draw broad conclusions from trend lines over remarkably recent history, trying to get a sense of the “big picture.” But as the data above suggest, a “better” picture is often drawn from an analysis of the component parts that make up that big picture, balanced with an appreciation for longer-term trends.

Nevin E. Adams, JD

¹ The number of workers participating in an employment-based retirement plan increased from 60.7 million in 2010 to 61.0 million in 2011, returning to the 2009 level, the second lowest since 1997 and well below the 67.1 million workers who participated in a plan in 2000, the peak year for the number of workers participating in a plan from 1987–2011.

² “All workers” is the broadest work force population group, including those not covered by a retirement plan. A more restrictive definition of the work force, which more closely resembles the types of workers who generally must be covered by a retirement plan in accordance with the Employee Retirement Income Security Act of 1974 (ERISA), is the work force of full-time, full-year wage and salary workers ages 21–64. Under this definition, 60.8 percent of these workers worked for an employer sponsoring a plan, and 53.7 percent of them participated in a retirement plan.

³ An important public-policy topic associated with an analysis of employment-based retirement plan participation is the number of workers who are not participants, as well as the number of those who work for employers/unions that do not sponsor a plan. For example, when taking into account only workers who work full-time, full-year, make $10,000 or more in annual earnings, and work for an employer with 100 or more employees, 15.1 million (or 25.2 percent of the defined population) would be included among those working for an employer that did not sponsor a plan. Another way to look at this last number is that 74.8 percent of workers with those characteristics worked for an employer that did sponsor a retirement plan in 2011. This is explained in more detail on page 30 of the November 2012 EBRI Issue Brief, “Employment-Based Retirement Plan Participation: Geographic Differences and Trends, 2011,” online here. See also “’Under’ Covered,” online here.

Predict-Able

Retirement planning is a complex and highly individualized process, but many people find it easier to start by focusing on a single, specific target number.

For those interested in a single number for health care expenses in retirement, a recent EBRI report provides that. Among other things, the report noted that a 65-year-old man would need $70,000 in savings and a woman would need $93,000 in 2012 if each had a goal of having a 50 percent chance of having enough money saved to cover their projected health care expenses in retirement. A 65-year-old couple, both with median drug expenses, would need $163,000 in 2012 to have a 50 percent chance of having enough money to cover health care expenses.¹

Determining how much money is needed to cover health care expenses in retirement is complicated. It depends on retirement age, the length of life after retirement, the availability and source of health insurance coverage after retirement to supplement Medicare, the rate at which health care costs increase, interest rates, market returns, and health status, among other things. That said, it is possible to project health care expenses with some accuracy, and EBRI’s recent analysis uses a Monte Carlo simulation model to estimate the amount of savings needed to cover health insurance premiums and out-of-pocket health care expenses in retirement.

However, those recent “single number” projections specifically excluded the financial impact of long-term care.

EBRI has long acknowledged the critical impact that health care expenses can have on retirement finances, and considering that EBRI has long incorporated both the costs of health care and long-term care in its Retirement Savings Projection Model® (RSPM), one might well wonder why this particular report specifically excluded those long-term care projections.

For all the complexity in those calculations, the reality is that everyone won’t have to deal with the expenses associated with long-term care. For those who will, the impact on retirement finances could be significant, even catastrophic.² That’s why EBRI has modeled their impact in the RSPM since 2003.

As noted above, for those interested in a single number, the recent EBRI report provides that, along with variations that permit one to take into account different likelihoods of success and gender/marital combinations. We are able to do that because we treat longevity risk and investment risk stochastically,³ and the fact that those expenses (and the costs of insurance) are, at least relatively, predictable.

But while it is possible to come up with a single number that individuals can use to start setting retirement-savings goals, it is important to bear in mind that a single number based on averages will be wrong for the vast majority of the population—and that those who rely exclusively on that single number run the risk of running short.

Nevin E. Adams, JD

¹ Unlike reports produced by a number of organizations, the EBRI report also provided estimates for those interested in a better-than-50-percent chance of success. See ”Savings Needed for Health Expenses for People Eligible for Medicare: Some Rare Good News,” online here.

² The EBRI Notes article above illustrates the difference: If you ignore the impact of nursing home and home health care expenses, more than 90 percent of single male Gen Xers were projected to have no financial shortfall in retirement—but when that impact was included, just 68 percent of that group was projected to have no financial shortfall in retirement. The error of ignoring nursing home and home health care costs is even more profound if one focuses on the percentage of individuals with shortfalls in excess of $100,000.

³ For an expanded description of the difference stochastic modeling can make, see “Single Best Answer.”
See also: “Employment-Based Retiree Health Benefits: Trends in Access and Coverage, 1997-2010”, and “Effects of Nursing Home Stays on Household Portfolios.”

“Grayed” Expectations?

Even the best retirement planning requires a fair number of assumptions: the age at which you hope to retire, for one thing; the amount of income that living in retirement will require; the length of time over which your retirement will last; the rate of return on your savings prior to, and following, retirement; the sources of retirement income that will be available to you, and in what amount(s).

Consider that in the 2012 Retirement Confidence Survey while worker confidence in having enough money to pay basic expenses in retirement wasn’t exactly high (only 26 percent were very confident), workers were noticeably less likely to feel very confident about their ability to pay for medical expenses after retirement (13 percent) and even less likely to feel very confident about paying for post-retirement long-term care expenses (9 percent) — levels that have remained statistically unchanged since 2010.

Indeed, the lack of employment-based retiree health insurance may result in unanticipated expenses in retirement. In the 2011 RCS, one-third of workers reported that they expected to receive this type of insurance from an employer (36 percent), though only 27 percent of retirees in that survey actually received it.

Earlier research found little impact of reductions in coverage on retirees, but the report notes that that may be because initial changes employers made to retiree health benefits affected future retirees, rather than those retired at the point of change. A recent EBRI Issue Brief highlights that, over time, more and more retirees have “aged into” those program changes, resulting in the greater impact found in more recent studies. The report also notes that most employers that continue to offer retiree health benefits have made changes in the benefit package they offer, changes that impact both the cost and availability of the benefit, including raising premiums that retirees are required to pay, eliminating employer subsidies, tightening eligibility, limiting or reducing benefits, or some combination of these.

However, as that Issue Brief also notes, very few private-sector employers currently offer retiree health benefits, and the number offering them has been declining, even in the public sector: Between 1997 and 2010, the percentage of non-working retirees over age 65 with retiree health benefits fell from 20 percent to 16 percent. Still, expectations seem to outpace reality; in 2010, 32 percent of workers expected retiree health benefits, while only 25 percent of early retirees and 16 percent of Medicare-eligible retirees actually had them.

Circumstances change, expectations matter, and retirement planning that relies on flawed or outdated expectations can, unfortunately, leave us short of where we need to be.

Nevin E. Adams, JD

See Employment-Based Retiree Health Benefits: Trends in Access and Coverage, 1997‒2010

Rely-Able?

Last week the Center for Retirement Research at Boston College provided an update on its National Retirement Risk Index (NRRI).¹ The impetus for the update was the triennial release of the Federal Reserve’s Survey of Consumer Finance (SCF), published in June, reflecting information as of December 2010.

Now, many things have changed since 2007, and in the most recent iteration of the NRRI, the authors note five main changes: the replacement of households from the 2007 SCF with those from the 2010 SCF; the incorporation of 2010 data to predict financial and housing wealth at age 65; a change in the age groups (because a significant number of Baby Boomers have retired, according to the report authors); the impact of lower interest rates on the amounts provided by annuities; and changes in the Home Equity Conversion Mortgage (HECM) rules that lowered the percentage of house value that borrowers could receive in the form of a reverse mortgage at any given interest rate.

And, when all those changes are taken into account, the CRR analysis concludes that, as of December 2010, anyway, the percentage of households (albeit those from a partially different cohort) at risk of being unable to maintain their pre-retirement standard of living in retirement increased by 9 percentage points² between 2007 and 2010 (from 44 percent at risk to 53 percent).

When the baseline for your analysis is updated only every three years, it’s certainly challenging to provide a current assessment of retirement readiness. In previous posts, we’ve covered the limitations of relying solely on the SCF data³and, to some extent, the apparent shortcomings of the NRRI (see “’Last’ Chances”), and retirement projection models, generally (see “’Generation’ Gaps”).

On the other hand, the impact of the decline in housing prices and the stock market were modeled by EBRI in February 2011 (see “A Post-Crisis Assessment of Retirement Income Adequacy for Baby Boomers and Gen Xers”), while the impact of the rising age for full Social Security benefits has been incorporated in EBRI’s Retirement Savings Projection Model (RSPM) since 2003. Moreover, EBRI has also included the potential impact of reverse mortgages in our model for nearly a decade now.

Meanwhile, as a recent EBRI report noted (see “Is Working to Age 70 Really the Answer for Retirement Income Adequacy?”), the NRRI not only assumes that everyone annuitizes at retirement, and continues to ignore the impact of long-term care and nursing home costs (or assumes that they are insured against by everyone), but it also seems to rely on an outdated perspective of 401(k)-plan designs and savings trends, essentially ignoring the impact of automatic enrollment, auto-escalation of contributions, and the diversification impact of qualified default investment alternatives.

It’s one thing to draw conclusions based on an extrapolation of information that, while dated, may be the most reliable available. It’s another altogether to rely on that result in one’s retirement planning, or the formulation of policies designed to facilitate good planning.

Nevin E. Adams, JD

¹ The report, “The National Retirement Risk Index: An Update” is available online here.

² The report notes that, between 2007 and 2010, the NRRI jumped by 9 percentage points due to: the bursting of the housing bubble (4.5 percentage points); falling interest rates (2.2 percentage points); the ongoing rise in Social Security’s Full Retirement Age (1.6 percentage points); and continued low stock prices (0.8 percentage points).

³ As valuable as the SCF information is, it’s important to remember that it contains self-reported information from approximately 6,500 households in 2010, which is to say the results are what individuals told the surveying organizations on a range of household finance issues (typically over a 90-minute interviewing period); of those households, only about 2,100 had defined contribution (401(k)-type) retirement accounts. Also, the SCF does not necessarily include the same households from one survey period to the next. See “Facts and ‘Figures.’”

Out of Cite?

Our industry pays a lot of attention to the investment choices that retirement plan participants make; we fret about the type and number of choices on their investment menu, the efficacy of target-date funds, the utilization of active versus passive investment strategies, and the prudence of the asset allocation choices that individuals make—with or without the benefit of tools and/or professional guidance. Unfortunately, once they leave that part of our private retirement system, not so much.

A significant percentage of that retirement plan money winds up in individual retirement accounts, or IRAs. In fact, today IRAs represent more than a quarter of all retirement assets in the U.S., according to a recent EBRI Issue Brief. But there remains a limited amount of knowledge about the investment behavior of individuals who own IRAs, alone or in combination with employment-based retirement plans.

In order to fill this gap, EBRI has undertaken an initiative to study in depth this connection between DC plans and IRAs, and created the EBRI IRA Database,(1) which links individuals (both within and across data providers) in this IRA database and with participants in DC plans. The asset allocation across ages within each IRA type(2) had some minor differences, but, in general, the percentages allocated to equities and balanced funds declined as the owner became older, and the percentage allocated to bonds and other assets increased. Additionally, as the account balances increased, the percentages of assets in equities and balanced funds combined decreased, while bond and “other” assets’ shares increased.

While gender differences abound in many walks of life, male and female IRA owners had virtually identical allocations in bonds, equities, and money in the EBRI IRA database, though males were slightly more likely to have assets in the “other”(3) category, and females had a higher percentage of assets in balanced funds.

Among IRA categories, Roth IRAs had the highest share of assets in equities (59.1 percent) and balanced funds (15.5 percent). Of course, Roth owners are younger, on average, than rollover owners, and Roth IRAs tend to be supplemental savings funded by individual contributions only, whereas rollovers tend to be the main or primary retirement savings for workers nearing retirement or retirees.

Indeed, the most significant difference among IRA types is that Roth owners were much more likely to have 90 percent or more of their accounts invested in equities than in other asset types, and were correspondingly likely to have less than 10 percent of their assets in bonds and money combined. Once again, the likelihood of these “extreme” allocations was very similar across genders.

When comparing the overall percentage of 401(k) assets held in equities (equities, equity share in balanced funds, and company stock) from the EBRI/ICI 401(k) database, the number is relatively close to that found in the IRA accounts (60.0 percent in 401(k) plans and 52.1 percent in IRAs), although the bond and money percentages are higher for IRAs than 401(k) plans (19.9 percent and 11.6 percent, respectively, for bonds and 8.9 percent and 4.4 percent, respectively, for money), while balanced funds constitute more of the assets in 401(k) plans than in IRAs. In sum, while it wasn’t the focus on the study, the average asset allocation found for IRAs was similar to that in 401(k) plans.

Of course, those IRA balances likely aren’t the totality of the retirement savings for these individuals, and thus, whether that particular allocation—looked at in isolation—is “good” news or not, remains to be seen.(4)

- Nevin E. Adams, JD

(1) The Employee Benefit Research Institute’s retirement databases (the EBRI/ICI Participant-Directed Retirement Plan Database, the EBRI IRA Database, and the EBRI Integrated Defined Contribution/IRA Database) have been the subject of multiple independent security audits and have been certified to be fully compliant with the ISO-27002 Information Security Audit standard. Moreover, EBRI has obtained a legal opinion that the methodology used meets the privacy standards of the Gramm-Leach-Bliley Act. At no time has any nonpublic, personal information that is personally identifiable, such as Social Security number, been transferred to or shared with EBRI. None of the three databases allows identification of any individuals or plan sponsors.

(2) The report considered four types of IRAs: traditional-contributions (traditional IRAs originating from contributions, in which distributions are taxable); Roth (in which contributions are nondeductible and distributions are tax free); SEP (Simplified Employee Pension)/SIMPLE (Savings Incentive Match Plan for Employees); and traditional-rollovers (traditional IRAs originating from assets rolled over from other tax-qualified plans, such as an employment-based pension or DC plans, in which distributions are taxable)

(3) “Other” assets includes assets that do not fit into the categories of equities, bonds, money/cash equivalents, or balanced funds. This could include stable-value funds, real estate (both from investment trusts and directly purchased), fixed and variable annuities, etc.

(4) As the EBRI IRA Database expands, more elaborate studies are being conducted. Linked with defined contribution account data, the tracking of movements of money between multiple retirement saving accounts (DC plans and IRAs) is being studied to see what, if any, asset allocation changes are being made when assets are moved between accounts. Furthermore, once individuals have reached retirement, the withdrawal or “spend-down” of those assets over time can be studied based on the longitudinal data that will be available, offering the potential of a far greater understanding of the retirement preparation and post-retirement behavior of Americans as these databases mature.

A Moving Target

Trying to figure out how much money an individual or couple needs to live on in retirement is, to put it mildly, a complicated business. Among other factors, it depends on the age at which he or she retires, where they live, and how they live. It can be affected by marital status, their health, and the markets, both before and after retirement.

And, as a recent EBRI Notes article (see “Savings Needed for Health Expenses for People Eligible for Medicare: Some Rare Good News”) explains, it can also be affected by the availability and source of health insurance coverage after retirement to supplement Medicare, and the rate at which health care costs increase.

Additionally, public policy that changes any of the above factors will also affect spending on health care in retirement. Consequently, trying to hit that target can feel like aiming at a bulls-eye that is not only moving, but moving fast, and zig-zagging away from the bouncing, moving vehicle in which you find yourself.

We’re often asked to come up with a single number that individuals can use to set their retirement savings goals—and while it’s certainly possible to do so (and others have), what’s often glossed over is that while that approach appears to offer clarity, a single number based on averages will be wrong for the vast majority of the population.¹ Moreover, frequently overlooked in the generalizations about retirement spending levels is the very real (and potentially huge) financial impact of post-retirement health care expenses.

Individuals will be responsible for saving for health insurance premiums and out-of-pocket expenses in retirement for a number of reasons. Medicare generally covers only about 60 percent of the cost of health care services for Medicare beneficiaries ages 65 and older, while out-of-pocket spending accounts for 13 percent. The percentage of employers offering retiree health benefits has been falling, even in the public sector, and even when offered, those benefits are becoming less generous and more expensive to the retiree.

Using a simulation model, we recently estimated the amount of savings needed to cover health insurance premiums and out-of-pocket health care expenses (excluding long-term care) in retirement. The EBRI article presents estimates for people who supplement Medicare with a combination of individual health insurance through Plan F Medigap coverage and Medicare Part D for outpatient-prescription-drug coverage. For each source of supplemental coverage, the model simulates 100,000 observations to allow for the uncertainty related to individual mortality and rates of return on assets in retirement, and computes the present value of the savings needed to cover health insurance premiums and out-of-pocket expenses in retirement at age 65. From those observations, the analysis determined asset targets for having adequate savings to cover retiree health costs 50 percent, 75 percent, and 90 percent of the time, both for individuals,² and for a stylized couple, both of whom are assumed to retire simultaneously at age 65.³

Of course, some will need more money than the amounts cited in the report, which did not factor in the savings needed to cover long-term care expenses, nor the reality that many individuals retire prior to becoming eligible for Medicare. Some will need to save less than projected if they choose to work during retirement.

Still, as hard as it can be to hit a moving target, it’s even harder to hit a target you can’t see.

- Nevin E. Adams, JD

¹ For more on the shortcomings of this approach, see “Single Best Answer.”

² Separate estimates are presented for men, women, and married couples. Because women have longer life expectancies than men, women will generally have larger expenses than men to cover health insurance premiums and health care expenses in retirement, regardless of the savings target.

³ Our analysis found a 1–2 percent reduction in needed savings among individuals with median drug use and 4-5 percent reductions in needed savings among individuals at the 90th percentile in drug use since EBRI’s 2011 analysis (see “Savings Needed for Health Expenses for People Eligible for Medicare: Some Rare Good News”).

Means, Tested

Recently the Center for Retirement Research at Boston College released a paper titled “Can Retirees Base Wealth Withdrawals On the IRS’ Required Minimum Distributions?”¹ The answer to that question, according to CRR, is “yes.” A more complete response might be, “yes, or any number of other random withdrawal methodologies.”

There are some advantages to a drawdown strategy based on the schedule provided by the Internal Revenue Service (IRS) for required minimum distributions, or RMDs.² First off, and as the CRR paper notes, it’s relatively straightforward. Secondly, it effectively defers initiating withdrawals until age 70-½, which also provides some additional accumulation opportunity. Perhaps most importantly, it helps avoid the stiff penalties the IRS imposes on those who don’t withdraw funds from these accounts at least as rapidly as the RMD schedule provides. The CRR paper cites as an advantage the reality that those drawdowns are based on the portfolio’s current market value, though surely some people remember how the impact of the 2008 financial crisis on those accounts triggered a more aggressive withdrawal schedule than many found optimal or necessary.

A previous post dealt with another popular drawdown method: the so-called 4 percent rule (see “Withdrawal ‘Symptoms”). As with that 4 percent “rule,” once you stipulate certain assumptions about the length of retirement, portfolio mix/returns, and inflation, those type guidelines are really “just” a mathematical exercise that involves stretching a finite pool of resources over an estimated period of time.

The CRR paper outlines a series of reasons as to why the RMD approach might be superior to alternatives such as the 4 percent rule, but ultimately the biggest shortcoming of the RMD schedule as a basis for withdrawal may be that it fails to take into account how much income is needed, much less when it is needed—and it’s based on a series of assumptions that may or may not apply to an individual’s real-life circumstance.

Of course, in a very real sense, relying on any arbitrary systematic calculation to determine how much, and how fast, to drawdown savings can be seen as a way of living within your means—an approach that can work just fine if you have first made preparations to have adequate means upon which to live.

- Nevin E. Adams, JD

¹ The CRR report is online here.

² Information about required minimum distributions is available at the IRS website, online here. IRS worksheets to calculate the amount of the RMD are online here.

For some interesting data on actual withdrawal rates from individual retirement accounts, see “Withdrawal Symptoms.”

Wealth Connected?

A recent EBRI Issue Brief (Individual Account Retirement Plans: An Analysis of the 2010 Survey of Consumer Finances) examined trends in individual account retirement plans.

Analyzing the information from the Survey of Consumer Finances (SCF)¹, it was not surprising to find that the median (midpoint) net worth of American families decreased by 38.8 percent from 2007 to 2010, and the median value of family income also decreased during that period (though at a much smaller rate of 7.7 percent).

At the same time, defined contribution retirement plan balances came to represent a larger portion of families’ total financial assets among families with these plans; 61.4 percent in 2010, compared with 58.1 percent in 2007. Defined contribution and/or IRA/Keogh balances increased their share as well, from 64.1 percent of total family financial assets in 2007 to 65.7 percent in 2010. And, while regular IRAs account for the largest percentage of IRA ownership, it is perhaps not surprising to find out, as the EBRI analysis reveals, that rollover IRAs had a larger share of assets than regular IRAs in 2010.

The Issue Brief notes, “[t]he employment-based system is generating much of this wealth from individual account retirement plans, because it includes, obviously, all of the defined contribution assets (especially from 401(k)s) as well as approximately 45 percent of IRA wealth,” as well as rollovers of lump sum distributions from defined benefit plans².

Perhaps not surprisingly, the SCF data show that participation in an employment-based retirement plan was strongly linked to family income and the family head’s educational level and race. However, in terms of net worth, families within the highest 10 percent of net worth were most likely to have a retirement plan participant in 2010, while the two net worth percentile breaks just below the highest had similar levels of participation to that of the highest net worth families. As recently as 2007, families in the lower levels of percentile of net worth were more likely to have a participant than those in the highest level.

However, the EBRI Issue Brief also looks at a comparison of the mean and median net worth across family income and age of family head shows that families with ANY type of individual account retirement plan (defined contribution plan from current or previous employer or an IRA/Keogh plan) not only have larger amounts of wealth, but that wealth is substantially larger across each and every income and age of household group (see chart below). Consider that the median household wealth for a family with annual income of less than $25,000 that had an individual account retirement plan was $118,000, while the median household wealth for a family in the same income category, but with no individual retirement account, was $5,800.

It is perhaps not surprising to find that those with more income or wealth are more likely to have an individual retirement plan account.

However, it’s surely worth noting that the data suggest that those with an individual retirement plan account – any individual retirement plan account – at even the lowest income levels, look to be much better off.

- Nevin E. Adams, JD

¹The Survey of Consumer Finances is, as its name suggests, a survey of consumer households “to provide detailed information on the finances of U.S. families.” It is conducted every three years by the Federal Reserve, and is eagerly awaited and widely used—from analysis at the Federal Reserve and other branches of government to scholarly work at the major economic research centers. The 2010 version was published in June.

²Lump-sum distributions are increasingly available in DB plans. For example, in 2010, 46 percent of full-time employees in private-sector DB plans were eligible for a lump-sum distribution (U.S. Department of Labor, 2011c). That compares with 1997 and 1995, when 76 percent and 85 percent, respectively, of full-time workers participating in a DB plan in a medium or large establishment were not offered a lump-sum distribution (U.S. Department of Labor, 1999, 1998). A recent EBRI analysis of the distribution options for more than 33,000 participants in 84 defined benefit/cash balance plans in 2010 found that only about one in five had no lump sum option. Additional information will be available in a future EBRI publication.

“Wishful” Thinking?

Last week the Wall Street Journal reported that Sears and Darden Restaurants were planning a “radical change in the way they provide health benefits to their workers,” giving employees a fixed sum of money and allowing them to choose their medical coverage and insurer from an online marketplace, or exchange1. “It’s a fundamental change,” EBRI’s director of health research, Paul Fronstin, noted in the WSJ article.

Indeed, this is the time of year when many American workers – and, by extension, most Americans – will find out the particulars of their health insurance coverage for the following year. For most, the changes are likely to be modest. And, based on the 2012 Health Confidence Survey (HCS), not only do most Americans seem to be confident in those future prospects, they would seem to be satisfied with that outcome.

More than half of those with health insurance are extremely or very satisfied with their current plans, and a third are somewhat satisfied. Nearly three-quarters say they are satisfied with the health benefits they receive now, compared with just 56 percent in 2004.

Dissatisfaction, such as there is to be found, appears to be focused primarily on cost; just 22 percent are extremely or very satisfied with the cost of their health insurance plans, and even fewer are satisfied with the costs of health care services not covered by insurance. Perhaps not surprisingly, about one-half (52 percent) of Americans with health insurance coverage report having experienced an increase in health care costs3 in the past year, though that was the lowest rate since this question was added to the survey in 2006.

The HCS found that confidence about various aspects of today’s health care system has remained fairly stable2 – and undiminished either by the passage of, or the recent Supreme Court decision on, the Patient Protection and Affordable Care Act (PPACA); more than one-half (56 percent) of respondents report being extremely or very confident that they are able to get the treatments they need, and another quarter (27 percent) report being somewhat confident. Only 16 percent of 2012 HCS respondents said they were “not too” or “not at all” confident that their employer/union would continue to offer health insurance for workers – though that was more than twice as many as expressed that level of concern in 2000.

While respondents were generally supportive of the measures broadening access and/or choice in the PPACA, nearly two-thirds said they hadn’t yet noticed any changes to their health insurance – and among the 31 percent that had, 70 percent said the changes were negative, including impacts such as higher premiums, higher copays, and reduced coverage of services.

Despite a falloff from previous surveys, more than two-thirds (69 percent) of employed workers said that benefits were “very important” in their employment decision, with health insurance topping the list of those important benefits by an enormous margin. Nearly six out of 10 said that health insurance was the most important employee benefit, as has been the case for some time now.

All of which reinforces that, while many see room for improvement in the current system, those that have employment-based health insurance now like it, and want to keep it.

It will be interesting to see if, in the months and years ahead, they get that wish.

- Nevin E. Adams, JD

More information from the 2012 Health Confidence Survey (HCS) is online here. The HCS is sponsored by EBRI and Mathew Greenwald & Associates, Inc., a Washington, DC-based market research firm, and made possible by the generous support of the HCS underwriters, listed here.

1 More information about private health insurance exchanges is available in the July 2012 EBRI Issue Brief “Private Health Insurance Exchanges and Defined Contribution Health Plans: Is It Déjà Vu All Over Again?”

2Asked to rate the health care system, survey respondents offered a diverse perspective: 17 percent rated it either “very good” or “excellent,” 28 percent consider it to be “good,” 28 percent say “fair,” and 26 percent rate it “poor.” However, the percentage of Americans rating the health care system as poor doubled between 1998 and 2004 (rising from 15 percent to 30 percent).

3Of more than passing concern is the finding that among those experiencing cost increases in their plans in the past year, nearly a third had decreased their contributions to retirement plans, while more than half have decreased their contributions to other savings as a result.

Starting (Over) Points

Earlier this week, an EBRI research report quantified the financial impact of setting a higher starting point for 401(k) default contributions—and it can be significant.

Most private-sector employers that automatically enroll their 401(k) participants do so at a default rate of 3 percent of pay,(1) a level consistent with the starting rate set out in the Pension Protection Act of 2006 as part of its automatic enrollment safe harbor provisions—but it’s a rate that many financial experts acknowledge is far too low to generate sufficient assets for a comfortable retirement.

EBRI has previously modeled the impact of automatic enrollment(2) (see “The Impact of Automatic Enrollment in 401(k) Plans on Future Retirement Accumulations: A Simulation Study Based on Plan Design Modifications of Large Plan Sponsors,” online here). In the most recent research, using EBRI’s proprietary Retirement Security Projection Model® (RSPM), the impact of raising the default contribution rate to 6 percent for younger workers (who might have 31–40 years of simulated 401(k) eligibility) in plans with automatic enrollment and automatic escalation was evaluated to see how many would be likely to achieve a total income real replacement rate of 80 percent at retirement.

As noted earlier, the higher starting default made a significant impact; more than a quarter of those in the lowest-income quartile who had previously NOT been simulated to have reached the initial replacement rate target (under the actual default contribution rates) would reach the target as a result of the increase in raising the starting deferral rate to 6 percent of compensation. Even those in the highest-income quartile would benefit, although not as much.(3)

But what about when those workers change jobs: Would they “start over” at the new employer’s starting default rate, or would they “remember” and carry their higher rate of savings at their prior employer into the new plan? The modeling actually looked at both those scenarios,(4) and found that 15–26 percent of the lowest-income quartile that would otherwise not have reached the target threshold under their existing plan-specific deferral rates would now do so at the 6 percent level, as would 13–22 percent of those in the highest-income quartile.

In life, “starting over” can be a painful, awkward process, as anyone who’s restarted a career or home can attest. But, depending on where you are starting from—and what kind of start you make—it can also be an opportunity.

- Nevin E. Adams, JD

(1) Which, it should be noted, also contemplates an annual 1 percent automatic escalation of that starting rate, up to a designated level. Neither the automatic enrollment nor automatic escalation provisions are mandated by the legislation, unless the plan sponsor wants to take advantage of the PPA safe harbor protections.

(2) One point that had been made clear in previous research was that some workers who were defaulted into a 401(k) auto-enrollment (AE) plan (without auto-escalation provisions) would continue to contribute at the defaulted contribution rate chosen, typically in the range of 3 percent of compensation. Traditionally, and in the absence of these AE provisions, many workers eligible for workplace retirement savings plans have voluntarily elected to start contributing at a 6 percent rate (a point commonly associated with the level of matching contribution incentive provided by employers). However, some participants in AE plans—who otherwise might have voluntarily chosen to participate at a higher contribution level—instead might simply allow their savings to start (and remain) at the default rate. As a result, they were likely contributing at a lower rate than if they had been working for a plan sponsor offering a voluntary enrollment (VE) 401(k) plan AND had made a positive election to participate.

(3) The modeling assumed actual plan-specific default contribution rates with (1) an automatic annual deferral escalation of 1 percent of compensation; (2) that employees opted out of that auto-escalation at the self-reported rates from the 2007 Retirement Confidence Survey findings; (3) that they “started over” at the plan’s default rate when they changed jobs and began participation in a new plan; and (4) that the plan imposed a 15 percent cap on employee contributions.

(4) Among other criteria, the modeling also considered auto escalation rates of 1 percent and 2 percent.

Question “Mark”

Next month we’ll enter the final full month of the 2012 election cycle with a series of presidential (and one vice presidential) debates. Pundits claim these don’t have much impact on the election’s outcome, but millions of Americans will likely tune in anyway, either to help them make a decision, to reinforce the one they made months ago, or perhaps just for the prospect of seeing a historic gaffe. The answers, of course, will receive the most scrutiny, though as any journalist (or pollster) will tell you, the art lies in asking the “right” question.

In the not-too-distant future, EBRI will, in conjunction with Matt Greenwald & Associates, Inc., field the 2013 Retirement Confidence Survey.¹ Over its 23-year history, the RCS has examined the attitudes and behavior of American workers and retirees toward all aspects of saving, retirement planning, and long-term financial security. The survey itself—the longest-running survey of its kind in the nation—is meaningful both for the kinds of issues it deals with and the trends it measures: It’s tracked a “new normal,” where workers adjust their expectations about the transition to retirement; examined both age and gender differences on saving and planning for retirement; tracked attitudes about Social Security and Medicare; and compared expectations about retirement to the realities.²

Not surprisingly, coverage of the survey by the media continues to be quite extensive. The 2012 RCS was released on March 13, 2012,³ and partial tracking (to Sept. 5, 2012) found the 2012 RCS mentioned in 50 newspapers, 26 periodicals, 35 web-based outlets, 22 broadcast outlets (including CNN Money, CNBC.com, and CBS News), as well as eight newswire services.

Significantly, the RCS doesn’t merely deal with confidence as a “feeling,” but also at the criteria that underlie and influence that sentiment. It looks at the perspective both of those already in retirement, as well as those still working and heading toward that milestone, and does so with the perspective of research that has focused on those issues for more than two decades. It also (with a perspective based on more than 20 years of conducting this particular survey) offers insights on how those feelings and factors have changed over time.

From past experience, we know that how individuals view—and anticipate—retirement can have a dramatic impact on that reality. Each year the RCS research team, in collaboration with the survey’s advisory board of underwriters, meets to consider not only past trends and the present environment, but also future developments, as we seek to craft the right set of questions to help explore and expand our collective understanding of these critical issues.

As with many things in life, when it comes to planning for retirement, it’s hard to know what the right answer is if you aren’t asking the right questions.

P.S. The Retirement Confidence Survey is funded through subscriptions. In 2012, there were 26 subscribers (see the full list online here), which keeps the cost down to $7,500 per subscriber. If you’re interested in supporting and being part of the planning for the 2013 RCS, please email me.

Nevin E. Adams, JD

¹ The need and demand for reliable data about America’s retirement system, and worker/retiree post-career readiness for retirement has never been greater. If you’d like to know more, or participate as an underwriter of this important survey, please email Nevin Adams. A list of the 2012 RCS Underwriters is available online here.

² Information from prior editions of the Retirement Confidence Survey is available online here.

³ Data from the 2012 RCS is available online here.

“Last” Chances

While many Americans seem to lack a definitive sense of what living in retirement will be like, how long it will last, or how much it will cost, their sense of when it will begin has been trending older. The 2012 Retirement Confidence Survey (RCS) noted that, whereas in 1991, just 11 percent of workers expected to retire after age 65, in 2012, more than three times as many (37 percent) report they expect to wait until after age 65 to retire—and most of those indicated an expected retirement age of 70 or older.¹

Those expecting to delay retirement perhaps found solace in a recent report by the Center for Retirement Research (CRR) at Boston College which concluded that by postponing retirement until age 70, the vast majority of households (86 percent) were “…projected to be prepared for retirement.”

That sounds good – but what about the assumptions underlying that conclusion?

In 2003, the Employee Benefit Research Institute (EBRI) constructed the EBRI-ERF Retirement Security Projection Model® (RSPM)—the first nationally representative, micro-simulation model based on actual 401(k) participant behavior and a stochastic decumulation model. And though we have explicitly recognized that many individuals were retiring at earlier ages, a retirement age of 65 was chosen for baseline results, based upon the assumption that most workers would have the flexibility to work until that age, if they so chose.

Last year we modified the RSPM to determine whether just “working a few more years after age 65” would indeed be a feasible financial solution for those determined to be “at risk.” Unfortunately, for those counting on that as a retirement savings “solution”, the answer is not always “yes.”

Indeed, results from the EBRI modeling indicated that the lowest pre-retirement income quartile would need to defer retirement to age 84 before 90 percent of the households would have even a break-even (50‒50) chance of success.

Working longer does help, of course. A recent EBRI Notes article titled “Is Working to Age 70 Really the Answer for Retirement Income Adequacy?²” finds that 23 percent of those who would have been at risk of running out money in retirement if they retired at age 65 would be “ready to retire” if they kept working to 70. Better still, if those individuals are assumed not only to delay retirement, but also to keep participating in a defined contribution plan, a full third of those who would have been at risk of running short of money if they retired at age 65 would be “ready” to retire at age 70.³

What accounts for the difference in the projections? For a household to be classified as “ready for retirement” under the CRR method, a projected replacement rate is simply compared with a benchmark rate, while the RSPM uses a fully developed stochastic decumulation process to determine whether a family will run short of money in retirement (and, if so, at what age) under each of a thousand alternative, simulated retirement paths. Unlike the CRR model, EBRI’s RSPM model simultaneously considers the impact of longevity risk, investment risk, and the risk of potentially catastrophic health care costs (such as prolonged stays in a nursing home).⁵

Which, as it so happens, are the same things that those trying to make sure they have enough money to last through retirement—and those trying to help them do so—need to consider.

Nevin E. Adams, JD

¹ see “Is Working to Age 70 Really the Answer for Retirement Income Adequacy?”

² Also from the above article, “It’s worth nothing that a significant portion of the improvement in readiness takes place in the first four years after age 65, but that tends to level off in the early 70s before picking up in the late 70s and early 80s. Higher-income households would be in a much better situation: 90 percent of the highest-income quartile would already have a 50 percent probability of success by age 65, while those in the next-highest income quartile would need to wait until age 72 for 90 percent of their group to have a 50 percent probability. Those in the second-lowest income quartile would need to wait until age 81 before 90 percent of their group had a 50 percent probability of success.

³ At the same time, the percentage of workers expecting to retire before age 65 has decreased from 50 percent in 1991 to 24 percent (see this EBRI analysis, online here). A sizable proportion of retirees report each year that they retired sooner than they had planned (50 percent in 2012). Those who retire early often do so for negative reasons, such as a health problem or disability (51 percent) or company downsizing or closure (21 percent). The 2011 RCS found that the poor economy (36 percent), lack of faith in Social Security or the government (16 percent) and a change in employment situation (15 percent) were the most frequently cited reasons for postponing retirement.

⁴. For more on how this modeling works, see “Single Best Answer.”

⁵ For an explanation of four things that are sometimes overlooked by retirement-needs projection models, see “Generation ‘Gaps,’” online here.