EBRI: Delayed Retirement May Not Be Enough To Cover Basic Expenses and Health Care

According to an EBRI Issue Brief, many Baby Boomers and Gen Xers would not have adequate income to cover their basic retirement expenses and uninsured health care costs even if they delayed their retirement past the age of 65. A major factor that does make a difference in a person’s ability to meet their basic expenses and uninsured health care costs in retirement, is the whether they are still participating in a defined-contribution retirement plan (such as a 401(k)) after the age of 65.

In "The Impact of Deferring Retirement Age on Retirement Income Adequacy," published as EBRI Issue Brief No. 358, EBRI reports that the lowest preretirement income quartile would need to defer retirement age to 84 before 90% of the households would have a 50% probability of success. "Although a significant portion of the improvement takes place in the first four years after age 65, the improvement tends to level off in the early 70s before picking up in the late 70s and early 80s." At the other end of the spectrum, 75.9% of households in the highest preretirement income quartile are likely to have adequate income for retirement if they retired at age 65. This increases to 81.1% if they keep working to age 69.

In addition, the study noted another major factor in ensuring adequacy: whether stochastic post-retirement health care costs are excluded (or the stochastic nature is ignored).

For the lowest preretirement income quartile, the value of deferral (in terms of percentage of additional households that will meet the threshold by deferring retirement age from 65 to 84) decreases from 16.0 percent to 3.8 percent by excluding these costs. The highest preretirement income quartile experiences a similar decrease, from 12.8 percent to 2.6 percent.

Source: Employee Benefit Research Institute Press Release (June 7, 2011)