According to a recent analysis of retirement income prospects, Baby Boomers (those born between 1946 and 1964) have a probability of running out of money in retirement that ranges from 43 to 47 percent, depending on their age cohort.
Every year, the Employee Benefit Research Institute, which conducts public policy research and employee benefits, does an analysis of the retirement prospects of US workers. Using data from thousands of defined benefit and defined contribution plans and various public survey results, the study models the participation and contribution behavior for workers in various age brackets, includes expected Social Security benefits, and estimates the extent to which the financial resources of future retirees will be sufficient to meet their anticipated spending in retirement.
This year’s study indicates that “early boomers” (age 56 – 64) have a 47.2% chance of outliving their assets, while late boomers (age 46 – 55) have a 43.7% chance of running out of assets in retirement. Gen Xers (age 36 – 45) have a 44.5% chance of outliving their financial resources. These results are actually more optimistic than the results of EBRI’s first analysis of this kind, conducted in 2003.
The analysis assumes that workers retire at 65, but it seems likely that in future years, the typical retirement age will increase, partly because some workers will have no choice but to continue working. The Social Security trustees project that the trust will only be able to pay out full benefits through 2037, with benefits reduced by 25% thereafter. In fact, that projection may be overly optimistic. In my own analyses of retirement plans, I always assume that people under 50 will receive less from Social Security than the amounts projected by the SSA. In any case, there is a good chance that the age for full Social Security benefits will be raised from its present maximum level of 67 for many participants.
It makes sense to periodically assess whether you’re making sufficient progress in providing for your expenses in retirement (or if you don’t intend to retire, providing for the time when your health may prevent you from working). If health permits you to keep working past age 65, it’s wise to do so if the adequacy of your retirement assets is in doubt.