Falling Short: The coming retirement challenges

7/26/2019 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

Falling Short: The coming retirement challenges

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