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Is Working to Age 70 Really the Answer for Retirement Income Adequacy?

This paper provides results from EBRI’s Retirement Security Projection Model® to examine claims that merely working to age 70 would provide most workers with adequate retirement income levels. Contrary to some reports that working just a little bit longer -- to age 70 -- will allow between 80 and 90 percent of households to have adequate income in retirement, new research by the nonpartisan Employee Benefit Research Institute (EBRI) shows that for approximately one-third of the households between the ages of 30 and 59 in 2007 that won’t be enough. The EBRI research, the latest in a series of detailed analysis of retirement income adequacy by the Institute, stems from projections that large numbers of Baby Boomer and Generation X workers are likely to run short of what they need to cover general expenses and uninsured health care expenses in retirement. Working longer can, however, have a positive impact. The new research, using results from EBRI’s Retirement Security Projection Model,® shows that nearly two-thirds (64 percent) of households aged 50-59 in 2007 would be considered “ready” for retirement at age 70, compared with 52 percent of those same households if they were to retire at age 65. Moreover, the research indicates that a worker’s participation status in a defined contribution (DC) retirement plan at age 65 will be extremely important due to the multi-year consequences for additional employee and employer contributions to the plan. Among the key reasons for the differences between EBRI’s estimates and other models is that EBRI’s research is based on data from millions of actual 401(k) participants and its model incorporates longevity risk, investment risk, and the risk of potentially catastrophic health care costs (such as prolonged stays in a nursing home). The results highlight, once again, the need for relying on comprehensive data and research methodologies, rather than simplistic “rules of thumb” assumptions.The PDF for the above title, published in the August 2012 issue of EBRI Notes, also contains the fulltext of another August 2012 EBRI Notes article abstracted on SSRN: “Satisfaction With Health Coverage and Care: Findings from the 2011 EBRI/MGA Consumer Engagement in Health Care Survey.”