Gen X Retirements At Risk? Not So Fast, Says EBRI


Even smart people can disagree with each other. Who knew?

A great example of that sentiment is playing out right now, as a handful of nationally renowned retirement research groups have found each other at odds with the other’s conclusions about the retirement security of the next few waves of retirees.

Retirement savings (or a lack there-of) have been getting a lot of press lately. The Federal Reserve recently released data that suggested 20 percent of people aged 55-64 had zero money saved for retirement. All in all, 31 percent of people surveyed said they had no retirement savings at all.

Two other recent studies make similarly striking claims—a 2013 Pew Charitable Trusts study found that newer retirees would have far less income during retirement than their baby boomer predecessors. Likewise, a 2012 study by the Center for Retirement Research (CRR) found nearly half of households in their 50’s were “at risk” for a rocky retirement.

But the Employee Benefit Research Institute doesn’t think the situation is so dire. In fact, the EBRI has gone so far as to rebuff the findings of those latter two studies. From ThinkAdvisor:

EBRI recently challenged a pair of studies that concluded Gen Xers’ retirement prospects were in worse shape than boomers’ prospects, pointing out also that the oldest Gen Xers are only 49, with many earnings years left before they reach traditional retirement age.

EBRI charges that some studies used flawed assumptions or bad methodologies to reach their conclusion that investors born between 1965 and 1974 had a smaller likelihood of saving enough for retirement than older investors born between 1948 and 1964.

“Calculating retirement income adequacy is very complex, and it’s important to use reasonable assumptions and current data if you want credible results,” Jack VanDerhei, EBRI research director and author of the report, said in a statement.

More on the “flawed assumptions” used in the Pew and CRR studies:

EBRI took issue with a 2013 study by Pew Charitable Trusts that found the median replacement rate for Gen Xers who retire at 65 would be 32 percentage points lower than early boomers’ and nine points lower than later boomers’.

However, that finding “explicitly ignores future contributions,” EBRI argued. “EBRI’s analysis concludes that ignoring decades of potential future contributions (as the Pew study does) exaggerates the percentage of Gen X workers simulated to run short of money in retirement by roughly 10 to 12 percentage points among all but the lowest-income group,” according to the report.

An earlier study, conducted in 2012 by the Center for Retirement Research (CRR) at Boston College, found 44% of households in their 50s were “at risk,” compared with 55% of those in their 40s and 62% of those in their 30s.

In that report, CRR failed to consider the effect of automatic enrollment and escalation features, which were widely adopted following the Pension Protection Act of 2006. Gen X is the first generation to have a full working career in a defined contribution environment, EBRI noted.

EBRI says all its recent research points to very different conclusions than other studies: Generation Xers are facing approximately the same retirement prospects as the Boomers’.

EBRI concludes that 60 percent of Generation X won’t run out of money in retirement.

Study: For Low-Income Workers, Retirement Not In The Cards


Defined-benefit pensions are becoming rare in the private sector, and many public-sector new hires are increasingly being enrolled in 401(k)s instead of traditional pensions.

Combine that with the fact that many lower-paid workers don’t have access to retirement plans at all, and these trends paint a grim picture: seventy million baby boomers are nearing retirement, and many of them aren’t financially ready.

In fact, recent data show that although high-income workers are saving for retirement at higher rates than ever, low-income workers are saving less—if they’re saving at all.

From the Associated Press:

Because retirement savings are ever more closely tied to income, the widening gulf between the rich and those with less promises to continue — and perhaps worsen — after workers reach retirement age. That is likely to put pressure on government services and lead even more Americans to work well into what is supposed to be their golden years.

Incomes for the highest-earning 1 percent of Americans soared 31 percent from 2009 through 2012, after adjusting for inflation, according to data compiled by Emmanuel Saez, an economist at University of California, Berkeley. For everyone else, it inched up an average of 0.4 percent.

Researchers at the liberal Economic Policy Institute say households in the top fifth of income saw median retirement savings increase from $45,539 in 1989 to $160,000 in 2010 in inflation-adjusted dollars. For households in the bottom fifth, median retirement savings were down from $8,433 in 1989 to $8,000 in 2010, adjusted for inflation. The calculations did not include households without retirement savings.

Employment Benefit Research Institute research director Jack VanDerhei found that in households where annual income is less than $25,000, nine in 10 saved less than $10,000, up slightly from 2009. For households with six-figure incomes, 42 percent saved at least $250,000, up from 34 percent five years earlier.

Experts say that about half of private-sector workers aren’t enrolled in a retirement plan at their job. According to the Employee Benefit Research Institute, only 13 percent of private-sector workers are enrolled in defined benefit plans.

In 1985, 33 percent of workers were enrolled in such plans.

These trends haven’t been lost on younger workers. Millennials are now starting to save early in their careers, according to a new report. From Bloomberg:

Concern that the future of the federal safety net for seniors is precarious and the ubiquity of 401(k)s are prompting those born from 1979 to 1996 to get an earlier start on saving than prior generations, according to a report from the Transamerica Center for Retirement Studies. Millennial workers began building nest eggs at a median age of 22, younger than both Generation X, which started at 27, and the baby boomers, who started at 35.

Though many millennial workers say they’re risk-averse and stock-shy as a result of the most severe recession in the post-World War II era, their deeds are telling a different story. That bodes well in the long run for a generation that may have to bear a greater share of retirement costs on its own, even if it means the economy will get a little less consumer spending in the short term.

Of millennials offered 401(k) or similar plans, 71 percent took part, contributing a median 8 percent of their salaries, the Transamerica report said. The survey polled those employed either full-time or part-time at for-profit companies.

That stands in stark contrast to surveys showing young adults are risk averse. In 2012, 22 percent of heads of households younger than 35 who owned mutual funds said they would only invest in financial instruments with no or below-average risk even if it meant getting a below-average return, based on a survey by ICI, the mutual-fund industry’s trade association.

Aside from seniors (65 years or older), the percent of millennials that own mutual funds is higher than any other age group.


Photo by 401(K) 2012 via Flickr CC License