Millions of Americans are nearing retirement age without enough savings to get by – but for many there's still time to get back on track.
That's the conclusion of a study released Tuesday, which looked at the financial outlook for Americans age 36 to 62.
The report finds that nearly half of "early baby boomers," currently age 56 to 62 are at risk of not having sufficient income to pay for basic retirement expenditures and uninsured medical expenses. The "late baby boom" generation is not much better off, with 44 percent at risk. And 45 percent of Generation X (age 36 to 45) are in a similar position.
The study was conducted by the nonpartisan Employee Benefit Research Institute (EBRI) in Washington. Although the detailed study suggests a significant financial challenge lies ahead, the findings are not entirely grim.
Many workers still have time to bolster their financial position. The study estimates that for a middle-income Gen Xer, saving about 5 percent more of income could make the difference between falling short and being secure in retirement.
Moreover, the trend toward automatic enrollment in 401(k) plans, spurred by a 2006 law, has already improved the outlook for many households. This has helped in two ways: boosting participation in savings plans and boosting the performance of investments within those plans (since money invested in the stock market generally tends to yield bigger returns than other methods over the long term).
One goal of the report is to help policymakers consider what else needs to be done to improve retirement security. New policies, designed to boost private savings, could help change the outlook, too.
“As the private-sector retirement plan system evolves from a largely paternalistic one to a system in which workers must make their own decisions, policymakers need to understand what percentage of the population is likely to fail to achieve retirement security under current conditions,” said Jack VanDerhei of EBRI, the study's lead author, in a statement accompanying the report's release.
People who lack access to 401(k) style plans are significantly more at risk than those who do. The study estimated that 60 percent of Gen Xers who aren't eligible for such a "defined-contribution" plan will be at risk of an income shortfall during retirement, versus only 20 percent of those who do have access to a 401(k).
With or without 401(k)s, the "early boomers" face a particular challenge. As the group of workers nearest to retirement, many have faced two setbacks: a tottering stock market and eroding home values. Many of them should try to save in a big way, socking away an additional 25 percent of income if possible, now, the report concludes.
The level of risk varies heavily by income. Looking at workers by income rather than age, EBRI researchers estimate that 41 percent of those in the lowest-income quarter of the population may run short of money within 10 years after retirement. That compared to 23 percent for the next-lowest quarter, 13 percent of the third quarter, and less than 5 percent of the highest-income quarter.