Absolute security is never assured. But one can take steps to increase the odds in one’s favor, and that includes retirement plans and preparing for a financially secure retirement.
Jack VanDerhei, Research Director at the Employee Benefit Research Institute (EBRA), speaking at the recent Plan Sponsor Council of America (PSCA) annual conference held in Tampa, FL, discussed EBRI’s recent findings from application and analysis of the EBRI Retirement Security Projection Model.
EBRI found that the average retirement readiness rating improved from 2014 to 2019 in each of six age groups: 35-39, 40-44, 45-49, 50-54, 55-59 and 60-64. However, the results were different when they accounted for a reduction in Social Security benefits. With that adjustment, overall readiness was less pronounced for every age group; for those younger than age 45, that adjustment made the 2019 retirement readiness rating less than that of 2014.
EBRI found similar results when viewing aggregate retirement deficits. They report that using their model, the retirement savings shortfall amounted to $4.44 trillion in 2014 and fell to $3.83 trillion in 2019; however, it fell by less when adjusted to account for Social Security reductions to just $4.06 trillion, $23 billion more than the 2019 figure without the adjustment.
That held true regarding average retirement savings shortfalls by age group. For every age group except 60-64, the average retirement savings deficit was lower in 2019 than it was in 2014. The change for the oldest two groups EBRI studied, however, 55-59 and 60-64, was less than $2,000 from 2014 to 2019.
VanDerhei outlined what EBRI found regarding the effect of various mechanisms to increase participation and its vigor.
For instance, introducing auto-portability for participants who are Gen Xers reduced retirement savings shortfalls for couples regardless of which dies first, and for single people regardless of gender. And auto-enrollment and auto-escalation among participants age 25-29 who always work for employers that sponsor a plan likely would show better results and stronger retirement account balances than voluntary enrollment.
And what of the effect of states introducing plans and programs that they themselves sponsor and run? VanDerhei said that EBRI projects that regarding OregonSaves, the most pronounced positive effect on retirement savings for participants under age 55 would be when no more than 25% opted out of the program, there is auto-escalation up to 10%, and opting out of auto-escalation is not allowed.