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Even the Wealthy Face Retirement Risk
Almost half—47.2 percent—of people currently ages 56 to 62 are at risk of running out of money in retirement, according to the Employee Benefit Research Institute. And a surprising number of those are in the highest income level of the EBRI study.
The good news is that, at every age, the percentage of people at risk for running out of money is down from the 2003 study. Among early boomers, the 56-to-62 group, the 47.2 percent is down from 59.2 percent in 2003. Among late boomers, ages 46 to 55, 43.7 are at risk, compared to 54.7 percent in 2003. And among Generation Xers, ages 36 to 45, 44.5 percent are at risk, down from 57.4 percent in 2003.
EBRI says the main reason for the improvement is the Pension Protection Act of 2006, which made it easier for employers to implement automatic retirement plan enrollment and increases.
However, most Americans still have a long way to go. And, not surprisingly, those with the least income are the most likely to come up short in retirement.
According to EBRI, people in the lowest income level have a 41 percent chance that they will run short of money after 10 years of retirement, and a 57 percent chance they will not have enough for 20 years of retirement. Those in the second-lowest income group have a 23 percent chance of running out of money in 10 years, and a 44 percent chance of running out in 20 years. In total, 64 percent, or almost two-thirds, of Americans who make less than $31,000 a year are at risk of running out of money within a decade of retirement.
EBRI bases its estimates of the amount of money needed in retirement on a combination of basic expenses from the Bureau of Labor Statistics’ Consumer Expenditure Survey, as well as estimates of out-of-pocket medical expenses and expected expenses for nursing home and home health care.
The risk is not limited to lower-income Americans, though. Among people making $31,000 to $72,000, 13 percent will be at risk after 10 years in retirement, and 29 percent will be at risk after 20 years.
Even those in the highest income level, making more than $72,000 a year, aren’t out of the woods. Five percent of those people could run short after a decade, and 13 percent might not have enough money after 20 years in retirement.
The biggest issue for most people, especially those in the higher income levels, is health care costs. As people live longer, they also incur much greater health care costs. And although some of those costs are covered by Medicare or other government programs, a lot of those costs become the responsibility of the individual retiree.
The bottom line is that many people need to save more money for retirement. According to EBRI, how much more you have to save depends on how much you have already, how long you have to save, and the kind of returns you get on your investments. No matter how old you are, you need a comprehensive plan to help ensure that your Golden Years don’t turn to lead.