Just over half, 57.4%, of U.S. households headed by individuals between the ages of 35 and 64 are on track to cover 100% of the average costs for retirees in their age-, income-, and family-status cohorts and not run out of money, according to the Employee Benefit Research Institute (EBRI). This means that the retirement deficit for households is $4.13 trillion in 2014 dollars.
However, if expenditures are reduced to 90% of the average costs for retirees, 68.1% of households are on track to not run out of money, reducing the retirement savings shortfall by nearly 50% to $2.09 trillion, and if expenditures are reduced to 80%, 82.1% of households are on track to not run out of money, and the deficit is reduced to $70 billion.
If long-term care costs are removed from the equation, 75.5% of U.S. households are on track to be able to cover 100% of expenses in retirement.
EBRI says it has made these projections to help policymakers determine the size of the retirement deficit. At various times, EBRI says, policymakers have sought ways to increase access to defined contribution plans, and to seek ways to keep money in the system until workers retire. Conversely, policymakers have considered reducing pretax contributions. “Such policymaking can lead to unintended and undesirable consequences if not informed by sound research,” EBRI says.
If all employers that are not providing a defined benefit (DB) or defined contribution (DC) plan were required to provide an automatic individual retirement account (IRA) with an initial deferral of 3%, the retirement deficit declines by 6.5% or $268 billion, EBRI says. If the Automatic Retirement Plan Act of 2017 were passed, whereby all but the smallest employers were required to offer plans and automatically enroll workers, including part-time workers, at 6%, the retirement deficit would decline by 15.6% or $645 billion.
If all employers, regardless of size, had to offer a DC plan, EBRI says, the retirement deficit would decline by 19.4% or $802 billion. “Such initiatives would have correspondingly much greater impact on younger age cohorts,” EBRI says.
If all leakage were removed, 27.3% more participants in the lowest income quartile would achieve retirement success. For those in the highest income quartile, 15.2% more participants would achieve retirement success.