® Employee Benefit Research Institute 2015 ® Employee Benefit Research Institute 201 1

Retirement Security

Jack VanDerhei

Research Director, Employee Benefit Research Institute

2015 White House Conference on Aging

Tampa Regional Forum

February 19, 2015

® Employee Benefit Research Institute 2015 ® Employee Benefit Research Institute 201

Background and Caveats

• The Employee Benefit Research Institute is a nonprofit, nonpartisan,

education and research organization established in Washington, DC,

in 1978.

• EBRI does not take policy positions, nor does it lobby, advocate

specific policy recommendations, or receive federal funding

• The views expressed in this presentation are solely those of Jack

VanDerhei and should not be attributed to the Employee Benefit

Research Institute (EBRI), the EBRI Education and Research Fund,

any of its programs, officers, trustees, sponsors, or other staff.

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® Employee Benefit Research Institute 2015 ® Employee Benefit Research Institute 201

Retirement Security for Boomers and Gen Xers (those ages 40-64)

• EBRI developed Retirement Readiness Ratings in the 1990’s to help individual states

project whether future retirees would run short of money in retirement (and when) • Applied on a national basis since 2003

• Measures the probability that a family will NOT run short of money in retirement

• In other words, the closer the rating is to 100 percent, the more likely it is that the family will have a

“secure” retirement

• In 2014, 58 percent of all Boomer and Gen Xer Households were projected to have a

secure retirement • Family = 73 percent

• Single Male = 68 percent

• Single Female = 42 percent

• Retirement security depends on several factors: • Pre-retirement

• Relative level of pre-retirement income

• Whether eligible to participate in a defined contribution plan (e.g., 401(k) plan)

• Leakage

• Post-retirement

• Longevity

• Long-term Care Costs

• Social Security

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Source: Jack VanDerhei, Retirement Savings Shortfalls for Boomers

and Gen Xers: Evidence from the EBRI Retirement Security Projection

Model® February 2015 EBRI Issue Brief

® Employee Benefit Research Institute 2015 ® Employee Benefit Research Institute 201

Pre-retirement factors for retirement security

Relative level of pre-

retirement income

17%

53%

72%

86%

Lowestincomequartile

Secondquartile

Thirdquartile

Highestquartile

Whether eligible to

participate in a DC plan in

the future

70%

39%

Some future years No future years

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Source: Jack VanDerhei, Why Does Retirement Readiness Vary: Results

from EBRI’s 2014 Retirement Security Projection Model®, The Journal of

Retirement (April 2014)

® Employee Benefit Research Institute 2015 ® Employee Benefit Research Institute 201

Leakages

• Possible sources:

• Cash-outs at job

change

• Hardship withdrawals

(with six month

suspension of

contributions)

• Loan defaults

27%

23%

18% 15%

Lowestincomequartile

Secondquartile

Thirdquartile

Highestquartile

Percentage of households simulated to NOT reach an

80 percent replacement rate with leakages present who would reach 80 percent if leakages were prevented

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Source: Jack VanDerhei, "The Impact of Leakages on 401(k)

Accumulations at Retirement Age" Testimony for the ERISA Advisory

Committee, June 17, 2014.

® Employee Benefit Research Institute 2015 ® Employee Benefit Research Institute 201

Post-retirement factors for retirement security

• Longevity • Looking at households in the second and third income quartile (the “middle 50 percent”)

• 62 percent are simulated to have sufficient retirement income

• But those in the longest relative longevity quartile only have a 33 percent chance

• Qualifying Longevity Annuity Contracts

• Defer payments to a later age (e.g., 85)

• Can increase probability of a secure retirement by as much as 9.6 percent for the longest

relative longevity quartile

• Long-term Care Costs • Only 17 percent of the “middle 50 percent” who are in the top long-term care cost quartile will

have sufficient retirement income

• Social Security • If pro-rata reductions (of approximately 23 percent) start in 2033:

• the percentage of Gen Xers in the lowest income quartile who would have sufficient

retirement income would be cut in half (20.9% to 10.3%)

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Source: Jack VanDerhei, Why Does Retirement Readiness Vary: Results

from EBRI’s 2014 Retirement Security Projection Model®, The Journal of

Retirement (April 2014)

® Employee Benefit Research Institute 2015 ® Employee Benefit Research Institute 201

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