A Matter of Time

Preparing for retirement inevitably brings up questions of time: When will you retire? How long will your retirement last? How long do you have to prepare? Often we don’t take advantage of the time we have, and sometimes we don’t have the time we thought we would.

It was just five years ago this week that my wife and I, having just deposited my youngest off for his first semester of college, spent our drive home up the East Coast with Hurricane Irene (and the reports of her potential destruction and probable landfalls) close behind.

We arrived home, unloaded in record time, and went straight to the local hardware store to stock up for the coming storm. As you might imagine, we weren’t the only ones to do so. And what we had most hoped to acquire (a generator) was not to be found — there, or at that moment, apparently anywhere in the Nutmeg State.

What made that situation all the more infuriating was that, while the prospect of a hurricane landfall in Connecticut was relatively unique, we had, on several prior occasions, been without power, and for extended periods. After each I had told myself that we really needed to invest in a generator — but, as human beings are inclined to do, thinking that I had plenty of time to do so (and when it was more convenient), I simply (and repeatedly) postponed taking action.

That uncertainty came home in a very different way to me this past week, with word of the passing of a colleague, just 55. She had spoken of retiring “early” so as to be able to spend more time with her young daughter — hoping to catch up on some of the family time she had perhaps missed due to the obligations of a professional career, or maybe just doing some of the relaxing and travelling that always seem to fall prey to the pressures of everyday life. Tragically, while riding her bike, of all things, this dear lady — a two-time cancer survivor — was struck and killed by a car.

We never know how much time we’ll have — to work, to live, to save, to prepare for the time we have left, to say and do the things we always mean to say and do.

Ultimately, of course, what matters isn’t the time you have, it’s what you do with it.

- Nevin E. Adams, JD

"Short" Changed

My wife is fond of recounting one of our early dates when we ran out of gas.  Now, we were in the heart of a Chicago suburb at the time, not the middle of nowhere, and while the hour was late, I continue to maintain that it was a simple case of my misreading the gas gauge in a relatively new car with which I hadn’t yet gained a full appreciation for just how far I could push such things.  My wife, of course, has always accused me of a more “nefarious” purpose.

It would be more difficult to explain such an outcome these days.  We’ve gone from vehicles that simply had a floating gauge and a range of red at the 1/8 tank line, to those that have a solid and then a blinking yellow light, to ones that beep and flash and tell you how many miles you have left before you run out.

As inconvenient as running out of gas late at night can be, it surely pales in comparison to the prospects of running short of money in retirement.  EBRI has, for more than a decade now, used highly sophisticated modeling techniques to gauge the retirement readiness of baby boomers and Gen Xers.  One of the primary outputs of EBRI’s Retirement Security Projection Model (RSPM)[i] is the production of Retirement Readiness Ratings (RRRs), which represent the percentage of simulated life-paths that do not run short of money in retirement.  The 2014 version of RSPM found that over half of baby boomer and Gen Xer households would not run short of money in retirement.  However, when the results were analyzed by preretirement wage quartile, we found that while 86.4 percent of the highest income quartile were projected to not run short, just 16.8 percent of the lowest income quartile would not.

While it is useful, certainly from a public policy perspective, to know not only how many but also what types of individuals are projected to run short of money in retirement, it begs the question: when will they run short?

A recent EBRI Notes article[ii] provides new results showing how many years into retirement baby boomer and Gen Xer households are simulated to run short of money, by preretirement income quartile and for a variety of assumptions, as well as taking into account the impact of the potentially catastrophic expenses of nursing home and home health care expenses.  Not surprisingly, it finds that those in the lowest income brackets are most likely to run short.

Moreover, while some in all income brackets—including the highest—may run short at some point during their retirement, the EBRI analysis also found that, when nursing home and home health care expenses are factored in, the number of households in the lowest income quartile that are projected to run short of money within 20 years of retirement is considerably larger than those in the other three income quartiles combined.

The EBRI analysis provides valuable insights for policymakers, providers and employers alike because, whether you’re concerned about running out of gas short of your destination – or short of money in retirement – it’s important that your gauges be accurate, and appropriate to the vehicle in which you’re riding there.

• Nevin E. Adams, JD

[i] A Brief Description of EBRI’s Retirement Security Projection Model® is available here.

[ii] The June EBRI Notes article, ““Short” Falls: Who’s Most Likely to Come up Short in Retirement, and When?” is available online here.