Confidence Builders

By Nevin Adams, EBRI

AdamsI’ll never forget my first day of driver’s ed class.  This was at a time when it was still part of the “regular” school curriculum, and we were placed in groups based on whether or not we had actually driven a car before.  Now, at the time, the extent of my driving was no more than backing the family car up and down our short driveway.  But driving looked easy enough, and my friends were in the “having driven” group, so I confidently “fudged” the extent of my experience and shortly found myself behind the wheel of the driver’s ed class car, along with my high school basketball coach/instructor and a couple of my friends in back.

To make a long story short, there was quite a bit of difference between backing a car up and down a driveway and navigating a car on the open road.  And, but for the extra brake on the instructor’s side of the vehicle, I might have spent my first driver’s ed class waiting to be pulled out of a ditch, my confidence notwithstanding.

The recent release of the 23rd annual Retirement Confidence Survey (RCS) got a LOT of attention.1  The headlines were mostly about Americans’ lack of confidence in their prospects for a financially secure retirement; indeed, the percentage “not at all confident” hit an all-time high for the RCS, while the percentage “very confident” remained at the all-time low it notched a year ago.  A striking number of inquiries about the report focused on what could be done about retirement confidence.

As it turns out, there are several things that the study linked to higher confidence: having more retirement savings is perhaps the most obvious connection, and so is participation in a workplace retirement savings plan (which was also linked to larger savings balances2).  However, the RCS also found that something as fundamental as having taken the time to do a retirement needs assessment made a positive difference in confidence3 – even though those who had done such an assessment tended to set higher savings goals.4  However, fewer than half of workers responding to the RCS have completed this assessment, and many of those who have made an attempt to figure out how much they might need – guess.5

Still, asked how much they need to save each year from now until they retire so they can live comfortably in retirement, one in five put that figure at between 20 percent and 29 percent, and nearly one-quarter (23 percent) cited a target of 30 percent or more.  Those targets are larger than one might expect, and larger than the savings reported by RCS respondents would indicate.  They do, however, suggest that some are beginning to grasp the realities of their situation – a realization that could be weighing on their confidence in the future, even as it lays the foundation for change.

Because, what really matters is not how confident you feel, but whether you have a reason to feel confident.


1 See The 2013 Retirement Confidence Survey: Perceived Savings Needs Outpace Reality for Many

2 According to the 2013 RCS , workers who participate in a retirement savings plan at work (45 percent) are considerably more likely than those who are offered a plan but choose not to participate (22 percent) or are not offered a plan (18 percent) to have saved at least $50,000. These participants are much less likely than others to report having saved less than $10,000 (20 percent vs. 46 percent who choose not to participate and 50 percent who are not offered a plan).

3 A great place to start figuring out what you’ll need is the BallparkE$timate®, available online at  Organizations interested in building/reinforcing a workplace savings campaign can find a variety of free resources there, courtesy of the American Savings Education Council (ASEC).  Choose to Save® is sponsored by the nonprofit, nonpartisan Employee Benefit Research Institute Education and Research Fund (EBRI-ERF) and one of its programs, the American Savings Education Council (ASEC). The website and materials development have been underwritten through generous grants and additional support from EBRI Members and ASEC Partner institutions.

4 The RCS found that 31 percent who have done a calculation, compared with 14 percent who have not, say they are very confident that they will be able to accumulate the amount they need, while 12 percent who have not done a calculation, compared with 3 percent who have, report they are not at all confident in their ability to save the needed amount.

5 Workers often guess at how much they will need to accumulate (45 percent), rather than doing a systematic, retirement needs calculation, according to the RCS, while 18 percent indicated they did their own estimate, another 18 percent asked a financial advisor, 8 percent used an on-line calculator, and another 8 percent read or heard how much was needed.

Retirement Readiness: Who’s Close and Who’s Not

Jack VanDerhei

Among those who are likely to miss their retirement savings goal, how many will be close? And how many will miss it by a mile?

According to a new report by EBRI, nearly half of Generation X households will have enough to cover basic retirement costs, and about a third will fall short—but not by much. About 20 percent are likely to be far off-target.

Past analysis using EBRI’s proprietary Retirement Security Projection Model® (RSPM) has found that roughly 44 percent of Baby Boomer and Gen X households are projected to be at-risk of running short of money in retirement, assuming they retire at age 65 and retain any net housing equity in retirement until other financial resources are depleted. However, that includes a wide range of personal circumstances, from individuals projected to run short by as little as a dollar to those projected to fall short by tens of thousands of dollars.

EBRI’s new research takes a closer look at where different types of people are likely to fall within the range of retirement income adequacy. Looking specifically at Gen X households (those born between 1965–1978, currently ages 34–47), EBRI’s RSPM analysis finds that:

  • Nearly one-half (49.1 percent) will have substantially more (at least 20 percent more) than the income threshold deemed adequate to afford basic retirement expenses and uninsured health care costs.
  •  Approximately one-third (31.4 percent) will be close to the threshold for retirement adequacy (between 80–120 percent of the financial resources necessary to cover basic retirement expenses and uninsured health care costs.
  • About 1 in 5 (19.4 percent) are projected to be substantially below (less than 80 percent) of what is needed.

EBRI also finds that a worker’s future years of eligibility in a defined contribution retirement plan makes a huge difference in his or her likelihood of having enough money to cover basic retirement expenses and uninsured health care costs. Among Gen Xer single females simulated to have no future years of defined-contribution-plan eligibility, nearly two-fifths (39 percent) are in the most vulnerable (less than 80 percent) category, although this shrinks to only 8 percent for those with 20 or more years of future eligibility in a defined contribution plan.

“One problem with simply classifying a household as ‘at risk’ or not is that some households may be missing the threshold by relatively small amounts,” said Jack VanDerhei, EBRI research director and author of the report. “Using this new classification to analyze the impact of future eligibility in a defined contribution plan on the percentage of households with less than 80 percent of the necessary resources for sufficiency shows a substantial impact for all family/gender categories, especially single females.”

Full results are published in the November 2012 EBRI Notes, “All or Nothing? An Expanded Perspective on Retirement Readiness,” online at

“Consistent” Messages

By Nevin Adams, EBRI


By some accounts, inertia has long been the bane of the voluntary retirement system—and a great deal of money and time has been spent overcoming the reluctance of workers to become savers, and of savers to do so at levels sufficient to achieve their retirement goals.

That same inertia likely accounts for the fact that, once set on a savings course, or better still, set on one that improves on that initial setting,(1) participants in overwhelming numbers appear to “stay the course”—and do so through good times and times that aren’t as good.

So, what happens to those participants who stay the course, those “steady,” consistent participants?

The Employee Benefit Research Institute (EBRI), through the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project, has long tracked the changes in consistent participant accounts in a database that is the largest, most representative repository of information about individual 401(k) plan participant accounts in the world.(2) The EBRI/ICI project is unique because it includes data provided by a wide variety of plan recordkeepers and, therefore, portrays the activity of participants in 401(k) plans of varying sizes—from very large corporations to small businesses—with a variety of investment options.

Drawing from that database, which includes demographic, contribution, asset allocation, and loan and withdrawal activity information for millions of participants, EBRI has for years produced estimates of the cumulative changes in average account balances—both as a result of contributions and investment returns—for several combinations of participant age and tenure.

And, for those millions of individual participant accounts in the database, we are able to project changes in those average balances based on actual individual rates of contribution and the investment choices in place at a specific point in time.(3)

As a result, we are able to estimate that the average account balance of an individual ages 25‒34, with one to four years of tenure at his or her current employer,(4) increased 4.6 percent in June, while a participant ages 55‒64 with 20‒29 years of tenure had an average account increase of 2.5 percent.(5)

This capability is significant for several reasons. It provides a monthly update of a comprehensive perspective on 401(k) account movement. It has provided the ability to quickly and accurately estimate the impact of major market swings on a broad swathe of the 401(k) market.(6)

And it serves to remind us that those 401(k) balances are affected not just by the investment markets, but by the savings we invest—consistently.

You can access reports of both cumulative and monthly average account changes at


(1) Via plan design devices such as automatic enrollment, contribution acceleration, or asset allocation funds that rebalance automatically over time.

(2) As of December 31, 2010, the EBRI/ICI database included statistical information on about 23.4 million 401(k) plan participants, in 64,455 employer-sponsored 401(k) plans, representing $1.414 trillion in assets.

(3) That specific point in time being the annual update of recordkeeping information from data providers, currently 12/31/2010. The projections assume no change in behavior (such as deferral rates or interfund transfers).

(4) For individual participants in the database from December 31, 2010 to the valuation date of June 30, 2012.

(5) Note that that increase is based on not just investment returns, but also new contributions. Note also that contributions tend to have a larger percentage impact on the rate of growth in smaller accounts.

(6) Perhaps most notably for an Oct. 7, 2008, congressional hearing on “The Impact of the Financial Crisis on Workers’ Retirement Security.” See EBRI’s testimony online here.

401(k) Eligibility Key Driver in Retirement Readiness

Eligibility for participation in a workplace 401(k) savings plan is one of the single-most important factors in closing the retirement savings gap for Generation X, according to a new report by EBRI.

But for Gen Xers trying to calculate how much they will need in retirement, EBRI also finds that taking potential nursing home and home health care expenses into account is crucial to a realistic estimate of retirement savings needs.

EBRI, which has extensively measured retirement readiness levels using its Retirement Security Projection ModelTM (RSPM) since its launch in 2003, recently focused on Gen Xers (those born between 1965–1974).

Earlier EBRI research has found that, overall, about 44 percent of both Baby Boomer and Gen Xer households are likely to be at risk of running short of funds during retirement, assuming they retired at age 65 and retained any net housing equity in retirement until other financial resources were depleted.

However, EBRI’s modeling reveals great variability in that overall percentage, with a key factor being how long a Gen X worker will be eligible to participate in a defined contribution retirement plan such as a 401(k):

  • For those with no future years of eligibility, the average retirement savings shortfall is projected to be approximately $78,000 per individual.
  • Those Gen Xers with at least 20 years of future eligibility are projected to have an average financial shortfall at retirement of approximately $23,000.

The inclusion of nursing home and home health care costs is a crucial factor in calculating realistic retirement expenses because, while those events will not be experienced by all households, or experienced to the same extent, they can have catastrophic financial consequences for a household’s retirement income adequacy. Unlike many other models, that impact is already incorporated in the RSPM results.

For example, with nursing home and home health care expenses modeled, 68 percent of single male Gen Xers are projected to have no financial shortfall in retirement. On the other hand, if these expenses are ignored, more than 90 percent of this group would appear to have no projected shortfall.

“Ignoring the impact of nursing home and home health care costs in retirement significantly overstates the likelihood of retirement income adequacy,” said Jack VanDerhei, EBRI research director and author of the report. “Any realistic calculation of retirement needs has to include those expenses.”

The full report is online here.

EBRI: Auto-Enrollment Trend Boosts Retirement Readiness Ratings

More than half of Baby Boomers and Generation Xers are projected to have adequate retirement income to cover basic expenses and uninsured health care costs, according to the latest projections by the nonpartisan Employee Benefit Research Institute (EBRI).

While roughly 44 percent of Baby Boomers and Generation Xers are still projected to be “at risk” of running short of money in retirement, that’s still some 5–8 percentage points better than what was found in 2003, largely due to the increased adoption of auto-enrollment plan design features by 401(k) plan sponsors. “These latest results are a significant improvement,” noted Dr. Jack VanDerhei, EBRI research director and author of the report. The new EBRI projections, based on its proprietary Retirement Income Security Projection Model® (RSPM), update previous estimates from 2003.

According to the RSPM, lower-income households remain at greatest risk of insufficient retirement income: 87 per-cent of retired lowest-income households are projected to be at risk, compared with 13 percent of highest-income households. EBRI’s analysis finds that the aggregate national retirement income deficit number, taking into account current Social Security retirement benefits and the assumption that net housing equity is utilized “as needed,” is currently estimated to be $4.3 trillion for all Baby Boomers and Gen Xers.

Eligibility for a workplace defined contribution retirement plan was found to have a significant positive impact on these “at risk” levels: Simulation results show that Gen Xers with no future years of eligibility would run short of money in retirement 60.7 percent of the time, whereas fewer than 1 in 5 (18.2 percent) of those with 20 or more years of future eligibility would run this risk.

EBRI’s updated 2012 RSPM looks at Early Baby Boomers (individuals born between 1948–1954), Late Baby Boomers (born between 1955–1964), and Generation Xers (born between 1965–1974), to determine each group’s likelihood of running short of money to cover basic expenses and uninsured health costs in retirement.

EBRI’s analysis also provides Retirement Savings Shortfalls—the additional amount that individuals would have save by age 65 to eliminate their expected deficits in retirement—by age group, family status, and gender for both Baby Boomers and Gen Xers. For those on the verge of retirement (Early Boomers), the average cash shortfalls at retirement age range from approximately $22,000 (per individual) for married households, to $34,000 for single males and $65,000 for single females. However, when taking into account only those projected to run short of funds, the average shortfalls at retirement age are higher: approximately $70,000 (per individual) for married households, $95,000 for single males and $105,000 for single females.

The full report is published in the May 2012 EBRI Notes, “Retirement Income Adequacy for Boomers and Gen Xers: Evidence from the 2012 EBRI Retirement Security Projection Model,®” online at