Silver Linings


We all know people who manage to find the bright side of things, no matter how dire the situation—the folks who can spot a silver lining in every cloud. Then, of course, there are those who have an uncanny ability of discerning the cloud in every silver lining. In my experience, those in the former category know, and acknowledge, their inclination to accentuate the positive.  

However, I’ve generally found that those in the latter category don’t view themselves as negative or pessimistic. Rather, they are inclined to see their perspective on the world as “realistic.” 

A recent EBRI analysis[1] found that current levels of Social Security benefits, coupled with at least 30 years of 401(k) savings eligibility, could provide most workers—between 83 and 86 percent of them, in fact—with an annual income of at least 60 percent of their preretirement pay on an inflation-adjusted basis. Even at an 80 percent replacement rate, 67 percent of the lowest-income quartile would still meet that threshold. Those projections improve even more when you assume automatic enrollment and an annual contribution acceleration of 1 percent in 401(k) plans.

A more recent analysis[2] using EBRI’s Retirement Security Projection Model® (RSPM) found that, due to the increase in financial market and housing values during 2013, the probability that Baby Boomers and Generation Xers would NOT run short of money in retirement improved—slightly (between 0.5 and 1.6 percentage points, based on the EBRI Retirement Readiness Ratings (RRRs). For early Boomers (those on the brink of retirement), the analysis found that more than half (56.7 percent) were projected not to run short of the funds they need to cover projected retirement expenses. On the other hand, nearly half are projected to run short (though not “out” of money, since Social Security benefits would continue to be paid).

In 2012, EBRI estimated that the national aggregate retirement income deficit number, taking into account current Social Security retirement benefits and the assumption that net housing equity is utilized “as needed,” was $4.3 trillion for all Baby Boomers and Gen Xers.[3]

Now, certainly compared with some of the figures[4] one hears bandied about these days, those might be considered relatively encouraging numbers. Some might even consider them optimistic, a “silver lining” in a looming retirement “crisis”5 cloud.

What the EBRI data show is that, based on current trends and savings patterns, many individuals will fare better financially in retirement than the headlines suggest—and a large number will not. Despite the clarion calls for action, and some shifts in the underlying dynamics, this is not a new issue for America:. If a crisis looms, it is surely one of the most widely anticipated, long-standing, and debated issues of the past half-century.

EBRI data and modeling have previously quantified the kinds of plan design and policy changes that can help—and hinder—those results. The true “silver lining” is that there is yet time for many of those currently at risk of running short of funds to remedy that situation[6]. 

- Nevin E. Adams, JD

[1] See “The Role of Social Security, Defined Benefits, and Private Retirement Accounts in the Face of the Retirement Crisis”  online here. http://www.ebri.org/pdf/notespdf/EBRI_Notes_01_Jan-14_SpslCvg-RetPlns1.pdf#page=8
 
[2] See “What Causes EBRI Retirement Readiness Ratings™ to Vary: Results from the 2014 Retirement Security Projection Model,®” online here. http://www.ebri.org/publications/ib/index.cfm?fa=ibDisp&content_id=5351
[3] See “Retirement Income Adequacy for Boomers and Gen Xers: Evidence from the 2012 EBRI Retirement Security Projection Model,” online here. http://www.ebri.org/pdf/notespdf/EBRI_Notes_05_May-12.RSPM-ER.Cvg1.pdf      
 
[4] See “Whether Forecasts” online here. https://ebriorg.wordpress.com/2014/01/03/whether-forecasts/
5 For some perspective on the existence of a retirement “crisis,” see Dallas Salisbury’s keynote address at the Pensions&Investments West Coast Defined Contribution Conference online here. http://www.youtube.com/watch?v=LbmcQa8sbss&feature=youtu.be 
6 Particularly those who Chooseto$ave®org for your future!  Check out the resources at www.choosetosave.org, including the Ballpark E$timate.                                                      
 

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