47% of early boomers could run shy of cash

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.