Connect With Members Before Retirement

CUNA’s E-Scan Newsletter
September 3, 2010 | COMMENTS

Almost one-half of early baby boomers (ages 56-62) will find themselves short on retirement dollars, according to the 2010 EBRI Retirement Rating TM, recently published by the Employee Benefit Research Institute this July. (Issue Brief at ebri.org.) Retirement fund shortages will leave the ill-prepared without enough money to cover common expenses of retirement and uninsured health costs.

The study, begun in 2003 to give a snapshot of national retirement income, uses the most current information and takes into consideration changes in retirement plans such as automatic enrollment, increases in contributions, and other updates for economic market outcomes and employee actions, based on millions of 401(k) participants.

High numbers of Americans will likely have inadequate retirement funds, even those in upper income levels. Shortages will mostly appear 10 to 20 years after retirement, and affect those at all income levels:

• More than 41% of those in the lowest quartile of pre-retirement income will fall short in their elder years.
• About 29% in the second highest income group will experience shortfalls.
• Even among the highest wage earners, 13% will struggle to make ends meet.

Generation X also is projected to have money problems, with an estimated 45% chance that retirement expenses will outpace savings.

“Policymakers need to understand what percentage of the population is likely to fail to achieve retirement security under current conditions,” said Jack VanDerhei, principal author of the study. “Even more important is to identify which of those households still have time to modify their behavior to achieve retirement security, and how they need to proceed.”

The Pension Protection Act of 2006 promoted automatic enrollment, and thus increased participation in diversified 401(k) plans. But EBRI report results indicate that future eligibility for 401(k) plans is important—and varied. For example, those with no future years of eligibility have an “at-risk” level of 60%, compared with only a 20% risk for those with 20 or more years of future eligibility.

While knowing the percentage of households that are “at risk” is valuable, it doesn't show how much additional savings is required to achieve the desired probability of success. The analysis does, however, model how much additional savings would need to be contributed from 2010 until age 65 to achieve adequate retirement income 50%, 70%, and 90% of the time for each household.

For credit unions, these trends reinforce the necessity of member education and retirement planning. The following resources are designed to help connect with members concerned about adequate retirement nest eggs.

This article originally appeared in CUNA's E-Scan Newsletter. Reprinted with permission.