1) The document analyzes how long Baby Boomers and Gen Xers need to work to have a 50%, 70%, and 80% probability of adequate retirement income according to simulations run using the EBRI/ERF Retirement Security Projection Model. 2) The simulations show that deferring retirement increases the probability of having adequate retirement income, with higher probabilities associated with later retirement ages. 3) Continuing to participate in defined contribution plans like 401(k)s after age 64 also increases the probability of having adequate retirement income.

1. How long will Baby Boomers and Gen Xers need to work for a 50,
70, and 80 percent probability of adequate retirement income?
Jack VanDerhei and Craig Copeland,
EBRI
Is There a Future for Retirement?
EBRI-ERF Policy Forum #68
May 12, 2011
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2. Key Points from Today’s Presentation
• Review of Retirement Security Project Model (RSPM)
• Retirement Readiness Ratings measures those “at risk” for inadequate
retirement income
• What can be done for those “at risk”?
• Increase savings during accumulation phase
• What if the additional savings rate is too high to be feasible?
• Deferring retirement age
• We know mathematically that this will improve the probability of adequacy
• But for how many households and at what retirement ages?
• RSPM simulations for percentage of households with adequate retirement income
by retirement age
• 50, 70 and 80 percent of simulated life paths
• Value of DC participation after age 64
• Isolating the impact of nursing home and home health costs
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3. Brief Chronology of the EBRI/ERF Retirement
Security Projection Model™
• 2009, Pension Research Council
• 2001, Oregon o Winners/losers analysis of defined benefit
o Simulated retirement wealth vs. ad hoc thresholds freezes and enhanced defined contribution
for retirement expenses employer contributions provided as a quid
• 2002, Kansas and Massachusetts pro quo
o Full stochastic retiree model: Investment and • 2010, EBRI Issue Brief (April)
Longevity risk, Nursing home and home health care o Impact of modification of employer
costs contributions when they convert to automatic
o Net housing equity enrollment for 401(k) plans
• 2003, National model o 2010, EBRI Issue Brief (July)
o Expanded to full national sample o Updated model to 2010, included automatic
• 2004, Senate Aging testimony enrollment for 401(k) plans
o Impact of everyone saving another 5 percent of o 2010, EBRI Notes (Sept and Oct)
compensation o Analyzes how eligibility for participation in a
• 2004, EBRI Policy forum DC plan impacts retirement income
adequacy
o Impact of annuitizing defined contribution/IRA
balances o Computes Retirement Savings Shortfalls for
Boomers and Gen Xers
• 2006, EBRI Issue Brief
o 2010, Senate HELP testimony
o Evaluation of defined benefit freezes on participants
o Analyzes the relative importance of
• 2006, EBRI Issue Brief employer-provided retirement benefits and
o Converted into a streamlined individual version for Social Security
the ballpark estimate Monte Carlo o 2011, EBRI Issue Brief (February)
• 2008, EBRI policy forum o Analyzes the impact of the 2008/9 crisis in
o Impact of converting 401(k) plans to automatic the financial and real estate markets on
enrollment retirement income adequacy
© Employee Benefit Research Institute 2011

4. Modeling Innovations in the EBRI/ERF
Retirement Security Projection Model
• Pension plan parameters coded from a time series of
several hundred plans.
• 401(k) asset allocation and contribution behavior based on
individual administrative records
o Annual linked records dating back to 1996
o 2009: More than 20 million employees in 50,000 plans.
• Stochastic modeling of nursing facility care and home
based health care.
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5. Retirement Income
• Limited to income produced by
• Public and private retirement plans (including
IRAs)
• Social Security
• Housing equity
• Not used in the baseline results shown today
• Original baseline assumes retirement income
commences at age 65
• Today’s presentation will analyze the value of deferring
retirement for baby boomers and gen Xers
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6. Retirement Expense Assumptions
• Decomposed total expenditures for retirees into:
o Those that are deterministic:
 Food, apparel and services, transportation,
entertainment, reading and education, housing, and
basic health expenditures.
o Those that are stochastic:
 Home health care and nursing home care.
• Performed annual simulations on U.S. families with a retiree to
determine if each retiree would:
o Require home health care,
o Enter a nursing home,
o Die, or
o Continue to survive without incurring any of these stochastic
health costs.
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7. EBRI 2010 Retirement Readiness Ratings vs. National
Retirement Risk Index (NRRI)
Percentage of population “at risk” for inadequate
retirement income, by age cohort (baseline
assumptions)
80%
70%
60%
50%
40%
30%
20%
10%
0%
early boomers late boomers gen xers
NRRI w 2009 market 41% 48% 56%
NRRI w LTC 52% 64% 71%
RSPM baseline 47% 44% 45%
Sources: EBRI/ERF Retirement Security Projection Model ™ version 100504e; “The National
Retirement Risk Index: After the Crash,” Center for Retirement Research at Boston College, October
2009; “Long-term Care Costs and the National Retirement Risk Index,” Center for Retirement Research
at Boston College, March 2009
© Employee Benefit Research Institute 2011

8. Impact of “salary” on at risk probability
Percentage of population “at risk” for inadequate
retirement income, by age-specific remaining
career income quartiles (baseline assumptions)
80%
70%
60%
50%
40%
30%
20%
10%
0%
Lowest 2 3 Highest
Baseline RSPM 76% 51% 35% 20%
Source: EBRI/ERF Retirement Security Projection Model ™ version 100504e
© Employee Benefit Research Institute 2011

9. Impact of age and future years of eligibility for participation in
a defined contribution plan on at risk probabilities
Percentage of population “at risk” for inadequate
retirement income, by age cohort and future years eligible
for participation in a defined contribution plan (baseline
assumptions)
70%
60%
50%
40%
30%
20%
10%
0%
early boomers late boomers gen xers
0 54% 53% 60%
1-9 38% 40% 45%
10-19 27% 32%
20+ 20%
Source: EBRI/ERF Retirement Security Projection Model ™ version 100504e
© Employee Benefit Research Institute 2011

10. Analyzing the importance of retirement age
• Figures 20-22 of the EBRI July 2010 Issue Brief presents additional
savings (expressed as a percent of compensation) needed to achieve
various probabilities of success for retirement age at 65
• Unfortunately, the results for many combinations of age/income cohorts would be
too high to be feasible
• We have always known that the other possibility may be to defer
retirement age
• Assumes this is feasible
• I.E., no health problems for worker or spouse, job still available
• The Retirement Confidence Survey has consistently found that a large
percentage of retirees leave the work force earlier than planned
• 45 percent in 2011
• Easy to do stylized examples, but what would the impact be for baby
boomers and gen Xers?
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11. Assumptions for the new analysis
• Updated certain financial market and employee behavioral assumptions from
the 2010 RSPM
• Started with a set of assumptions that would be most favorable to deferring
retirement age (will relax these in future work)
• Wages
• No age/wage curves after 64; grows at average national wage growth
• Job change, disability, unemployment
• None after 64
• Nursing home or home health care expenses for the worker
• None prior to retirement
• Defined contribution plans
• Employee contributions continue at the age 64 contribution rate
• Any auto escalation for AE plans is turned off at this age
• Employer contributions
• Match rates are assumed to remain constant
• Nonelective contributions continue at the age 64 contribution rate
• Social Security
• Initial receipt deferred until retirement age or age 70
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12. Percentage of Baby boom and Gen X Households Simulated
to Have Adequate* Retirement Income for at Least 50 Percent
of Simulated Life Paths After Retirement Age by Pre-
Retirement Income Quartiles
100%
90%
Percentage of Households
80%
70%
60%
50%
40%
30%
20% lowest
10% 2
0% 3
65 67 69 71 73 75 77 79 81 83 85 highest
Retirement Age
Source: EBRI Retirement Security Projection Model® versions110410i.
* An individual or family is considered have "adequate” retirement income in this version of the model if their aggregate resources in retirement
are sufficient to meet aggregate minimum retirement expenditures defined as a combination of deterministic expenses from the Consumer
Expenditure Survey (as a function of income) and some health insurance and out-of-pocket health related expenses, plus stochastic expenses
from nursing home and home health care expenses (at least until the point they are picked up by Medicaid). The resources in retirement will
consist of Social Security (either status quo or one of the specified reform alternatives), account balances from defined contribution plans, IRAs
and/or cash balance plans, annuities from defined benefit plans (unless the lump-sum distribution scenario is chosen) and (in some cases) net
housing equity (either in the form of an annuity or as a lump-sum distribution). This version of the model is constructed to simulate "basic"
retirement income adequacy; however, alternative versions of the model allow similar analysis for replacement rates, standard of living and
other ad hoc thresholds.
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© Employee Benefit Research Institute 2011

13. Percentage of Baby boom and Gen X Households Simulated
to Have Adequate* Retirement Income for at Least 70 Percent
of Simulated Life Paths After Retirement Age by Pre-
Retirement Income Quartiles
100%
90%
Percentage of Households
80%
70%
60%
50%
40%
30%
20% lowest
10% 2
0% 3
65 67 69 71 73 75 77 79 81 83 85 highest
Retirement Age
Source: EBRI Retirement Security Projection Model® versions110410i.
* An individual or family is considered have "adequate” retirement income in this version of the model if their aggregate resources in retirement
are sufficient to meet aggregate minimum retirement expenditures defined as a combination of deterministic expenses from the Consumer
Expenditure Survey (as a function of income) and some health insurance and out-of-pocket health related expenses, plus stochastic expenses
from nursing home and home health care expenses (at least until the point they are picked up by Medicaid). The resources in retirement will
consist of Social Security (either status quo or one of the specified reform alternatives), account balances from defined contribution plans, IRAs
and/or cash balance plans, annuities from defined benefit plans (unless the lump-sum distribution scenario is chosen) and (in some cases) net
housing equity (either in the form of an annuity or as a lump-sum distribution). This version of the model is constructed to simulate "basic"
retirement income adequacy; however, alternative versions of the model allow similar analysis for replacement rates, standard of living and
other ad hoc thresholds.
13
© Employee Benefit Research Institute 2011

14. Percentage of Baby boom and Gen X Households Simulated
to Have Adequate* Retirement Income for at Least 80 Percent
of Simulated Life Paths After Retirement Age by Pre-
Retirement Income Quartiles
100%
90%
Percentage of Households
80%
70%
60%
50%
40%
30%
20%
10% lowest
0% 2
65 67 69 71 73 75 77 79 81 83 85 3
Retirement Age highest
Source: EBRI Retirement Security Projection Model® versions110410i.
* An individual or family is considered have "adequate” retirement income in this version of the model if their aggregate resources in retirement
are sufficient to meet aggregate minimum retirement expenditures defined as a combination of deterministic expenses from the Consumer
Expenditure Survey (as a function of income) and some health insurance and out-of-pocket health related expenses, plus stochastic expenses
from nursing home and home health care expenses (at least until the point they are picked up by Medicaid). The resources in retirement will
consist of Social Security (either status quo or one of the specified reform alternatives), account balances from defined contribution plans, IRAs
and/or cash balance plans, annuities from defined benefit plans (unless the lump-sum distribution scenario is chosen) and (in some cases) net
housing equity (either in the form of an annuity or as a lump-sum distribution). This version of the model is constructed to simulate "basic"
retirement income adequacy; however, alternative versions of the model allow similar analysis for replacement rates, standard of living and
other ad hoc thresholds.
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© Employee Benefit Research Institute 2011

15. Value of DC Participation After Age 64: Increase in the
Percentage of Baby boom and Gen X Households Simulated
to Have Adequate* Retirement Income for at Least 50 Percent
of Simulated Life Paths After Retirement Age by Pre-
Retirement Income Quartiles
25%
20%
15%
10%
lowest
5%
2
3
0%
highest
65 69 75 84
Source: EBRI Retirement Security Projection Model® versions110410i.
* An individual or family is considered have "adequate” retirement income in this version of the model if their aggregate resources in retirement
are sufficient to meet aggregate minimum retirement expenditures defined as a combination of deterministic expenses from the Consumer
Expenditure Survey (as a function of income) and some health insurance and out-of-pocket health related expenses, plus stochastic expenses
from nursing home and home health care expenses (at least until the point they are picked up by Medicaid). The resources in retirement will
consist of Social Security (either status quo or one of the specified reform alternatives), account balances from defined contribution plans, IRAs
and/or cash balance plans, annuities from defined benefit plans (unless the lump-sum distribution scenario is chosen) and (in some cases) net
housing equity (either in the form of an annuity or as a lump-sum distribution). This version of the model is constructed to simulate "basic"
retirement income adequacy; however, alternative versions of the model allow similar analysis for replacement rates, standard of living and
other ad hoc thresholds.
15
© Employee Benefit Research Institute 2011

16. Value of DC Participation After Age 64: Increase in the
Percentage of Baby boom and Gen X Households Simulated
to Have Adequate* Retirement Income for at Least 70 Percent
of Simulated Life Paths After Retirement Age by Pre-
Retirement Income Quartiles
25%
20%
15%
10%
5% lowest
2
0%
3
65 69 75 84
highest
Source: EBRI Retirement Security Projection Model® versions110410i.
* An individual or family is considered have "adequate” retirement income in this version of the model if their aggregate resources in retirement
are sufficient to meet aggregate minimum retirement expenditures defined as a combination of deterministic expenses from the Consumer
Expenditure Survey (as a function of income) and some health insurance and out-of-pocket health related expenses, plus stochastic expenses
from nursing home and home health care expenses (at least until the point they are picked up by Medicaid). The resources in retirement will
consist of Social Security (either status quo or one of the specified reform alternatives), account balances from defined contribution plans, IRAs
and/or cash balance plans, annuities from defined benefit plans (unless the lump-sum distribution scenario is chosen) and (in some cases) net
housing equity (either in the form of an annuity or as a lump-sum distribution). This version of the model is constructed to simulate "basic"
retirement income adequacy; however, alternative versions of the model allow similar analysis for replacement rates, standard of living and
other ad hoc thresholds.
16
© Employee Benefit Research Institute 2011

17. Value of DC Participation After Age 64: Increase in the
Percentage of Baby boom and Gen X Households Simulated
to Have Adequate* Retirement Income for at Least 80 Percent
of Simulated Life Paths After Retirement Age by Pre-
Retirement Income Quartiles
25%
20%
15%
10%
lowest
5% 2
3
0% highest
65 69 75 84
Source: EBRI Retirement Security Projection Model® versions110410i.
* An individual or family is considered have "adequate” retirement income in this version of the model if their aggregate resources in retirement
are sufficient to meet aggregate minimum retirement expenditures defined as a combination of deterministic expenses from the Consumer
Expenditure Survey (as a function of income) and some health insurance and out-of-pocket health related expenses, plus stochastic expenses
from nursing home and home health care expenses (at least until the point they are picked up by Medicaid). The resources in retirement will
consist of Social Security (either status quo or one of the specified reform alternatives), account balances from defined contribution plans, IRAs
and/or cash balance plans, annuities from defined benefit plans (unless the lump-sum distribution scenario is chosen) and (in some cases) net
housing equity (either in the form of an annuity or as a lump-sum distribution). This version of the model is constructed to simulate "basic"
retirement income adequacy; however, alternative versions of the model allow similar analysis for replacement rates, standard of living and
other ad hoc thresholds.
17
© Employee Benefit Research Institute 2011

18. Impact of excluding nursing home and home health costs at
retirement ages 65, 75 and 84 by income quartile and
probability of success
100%
90%
80%
70%
60%
50%
40% with
without
30%
20%
10%
0%
65 75 84 65 75 84 65 75 84 65 75 84 65 75 84 65 75 84 65 75 84 65 75 84 65 75 84 65 75 84 65 75 84 65 75 84
lowest 2 3 highest lowest 2 3 highest lowest 2 3 highest
0.5 0.7 0.8
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Source: EBRI Retirement Security Projection Model® version 110410i
© Employee Benefit Research Institute 2011

19. SUMMARY/CONCLUSIONS
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20. © Employee Benefit Research Institute 2011