47% of early boomers could run shy of cash

By Jeanne Sahadi, senior writer


NEW YORK (CNNMoney.com) -- Many early baby boomers may have a hard time making ends meet in retirement, according to a new study.

The Employee Benefit Research Institute estimates that 47% of boomers between the ages of 56 and 62 are likely to run shy of the cash they'll need to pay for basic expenses and uninsured health costs in retirement.

On the bright side, that's down from the estimate seven years ago. In 2003, 59% of early boomers ran the risk of running short of money in retirement. What's the difference between now and then? Much broader use of policies governing work-based retirement plans, such as automatic enrollment in 401(k) plans and automatic increases to 401(k) contributions.

"This makes a huge difference, especially for low-income workers," said the study's coauthor, Jack Vanderhei, who is EBRI's research director.

Of course, the chances that any individual will run short of cash varies according to how much he or she make today and how long they will spend in retirement.

For instance, people making roughly $31,000 to $72,000 a year today have a 13% chance of not being able to pay all their expenses after 10 years in retirement and a 29% chance after 20 years. Not surprisingly, those in the lowest income groups, defined as those making less than $31,000, have a much higher risk.

And those in the high-income group -- those making more than $72,000 -- have the lowest risk (5% after 10 years and 13% after two decades).

That means even some folks who are expected to have the most money in retirement will be scrounging to pay their bills. And that's after accounting for any Social Security benefits and pension payments they have coming. (Calculator: What you need to save for retirement.)

The big culprit is uninsured health costs.

"Nursing home costs are wiping them out," Vanderhei said. (Read the 'Ultimate Guide to Retirement')

So what can early boomers do to increase their odds that they remain in the black throughout retirement? Of course, it's the last thing anyone wants to hear: Save more.

Just how much more depends entirely on how much you have saved currently, how many years you have until retirement, what your expected Social Security and pension benefits will be and what kind of return you expect on your investments.

Take, for instance, a 59-year-old with a 401(k) balance of $70,000 who makes roughly $50,000 a year. He would have to save 12% of his income every year on top of what he is already saving if he wants a 70% chance of being able to pay all his bills in retirement, Vanderhei said. That assumes a 7.6% annual average return on a portfolio evenly divided between stocks and bonds.

The additional savings required is somewhat lower for the average late boomer -- those aged 46 to 55 -- and drastically lower for Gen Xers -- those between 36 and 45. That's because those groups have more years until retirement.

For instance, a Gen Xer with an average income and an average 401(k) balance would only need to save an additional half percent of his income a year to have a 70% chance of success in having adequate funds for basic expenses and uninsured health costs in retirement. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Overnight Avg Rate Latest Change Last Week
30 yr fixed4.07%4.28%
15 yr fixed3.18%3.26%
5/1 ARM3.36%3.43%
30 yr refi4.05%4.21%
15 yr refi3.17%3.18%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 17,098.45 18.88 0.11%
Nasdaq 4,580.27 22.57 0.50%
S&P 500 2,003.37 6.63 0.33%
Treasuries 2.34 0.01 0.39%
Data as of 11:11pm ET
Company Price Change % Change
Bank of America Corp... 16.09 0.08 0.50%
Apple Inc 102.50 0.25 0.24%
Intel Corp 34.92 0.27 0.78%
Facebook Inc 74.82 0.96 1.31%
General Electric Co 25.98 -0.03 -0.12%
Data as of 4:04pm ET

Sections

The deal would value Vice at $2.5 billion. The online media company would also create content for the cable network, delivering a wider audience. More

Gas prices are falling to nearly $3 a gallon in some parts of South Carolina, and that will soon be common in much of the country. More

Netflix told the FCC that its speed on the Comcast network became so slow that customers began dropping their service. More

The Coolest Cooler is the most successful Kickstarter campaign in the site's history, raising $13.3 million from over 62,000 backers. More

Five CNNMoney readers share stories about saving that you can learn from: What they would do differently if they had another chance. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.