1. ® Employee Benefit Research Institute 2013
® Employee Benefit Research Institute 2013
1
The Role of the Private Sector in Improving Retirement
Income Adequacy
Institute of Medicine and National Research Council
FORUM ON AGING, DISABILITY, AND INDEPENDENCE
Jack VanDerhei
Research Director, Employee Benefit Research Institute
June 12, 2013
vanderhei@ebri.org

2. ® Employee Benefit Research Institute 2013
® Employee Benefit Research Institute 2013
Key points
• Extent of the problem (EBRI RSPM)
• 60 percent of lowest income quartile will run short of money in retirement
• 41 percent within ten years of retirement
• Future years of eligibility in a defined contribution plan makes a huge difference
• Retirement Saving Shortfalls: vast majority of it disappears if “stochastic health
expenses” are eliminated
• What can employers do?
• Automatic enrollment 401(k) plans are a major improvement over voluntary
enrollment 401(k) plans
• Especially for low income
• Automatic escalation of contributions may make AE 401(k) even better
• Depends on plan design and employee behavior
• What can (could?) employees do?
• Purchase of LTCI
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3. ® Employee Benefit Research Institute 2013
® Employee Benefit Research Institute 2013
EBRI’s Retirement Security Projection Model®
• Accumulation phase
• Simulates retirement income/wealth for Boomers and Gen Xers from defined
contribution, defined benefit, IRA, Social Security and net housing equity
• 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 administrative records dating back to 1996
o More than 24 million employees in 60,000 plans.
• Retirement phase
• Simulates 1,000 alternative life-paths for each household starting at 65
• Deterministic modeling of food, apparel and services, transportation,
entertainment, reading and education, housing, and basic health expenditures.
• Stochastic modeling of longevity risk, investment risk, nursing facility care and
home based health care.
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4. ® Employee Benefit Research Institute 2013
0%
10%
20%
30%
40%
50%
60%
70%
0 5 10 15 20 25 30 35 40 45
Cumulative
Probability
Years in Retirement (Assuming retirement at age 65)
Years in Retirement Before Early Boomers Run Short
of Money,* by Preretirement Income Quartile
Lowest
2
3
Highest
Income Quartile
Source: VanDerhei and Copeland (2010)

5. ® Employee Benefit Research Institute 2013
5
Source: VanDerhei (May 2012)

6. ® Employee Benefit Research Institute 2013
$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
Married Single
Female
Single Male Married Single
Female
Single Male Married Single
Female
Single Male
Early Boomers Late Boomers Gen Xers
Average Individual Retirement Income Deficit by Gender,
Martial Status and Age Cohort (in 2010 $): with and without
stochastic health
without
stochastic
health
with stochastic
health
Source: VanDerhei (October 2010)

7. ® Employee Benefit Research Institute 2013
® Employee Benefit Research Institute 2013
Employees Currently Ages 25–29 Who are Predicted to Have 31-40 Years
of Eligibility: Median 401(k) Accumulation Multiples at Age 65 as a
Function of Salary Quartile
voluntary enrollment automatic enrollment
Lowest 1.2 7.7
2 2.4 8.0
3 3.7 8.3
Highest 6.0 8.5
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Post-2009 401(k)
"Accumulations" as a
Multiple of Final
Earnings
Source: VanDerhei (April 2010)

8. ® Employee Benefit Research Institute 2013
6% 9% 12% 15%
Lowest, Optimistic 48.9% 64.2% 73.5% 79.2%
Highest, Optimistic 28.9% 41.0% 53.0% 64.0%
Lowest, Pessimistic 45.7% 56.4% 61.0% 62.1%
Highest, Pessimistic 27.0% 34.1% 38.8% 41.1%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Probability
Maximum Employee Contributions
Success Rates of Achieving a Combined 80% Real Replacement
Rate From Social Security and 401(k) Accumulations,
as a Function of Maximum Employee Contributions from Auto Escalation
Source: EBRI/ERF Retirement Security Projection Model, versions 100810a1–100810a16.
Source: VanDerhei and Lucas (2010)

9. ® Employee Benefit Research Institute 2013
9
Source: VanDerhei (2005)
0%
5%
10%
15%
20%
25%
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
1936-1940 1941-1945 1946-1950 1951-1955 1956-1960 1961-1965
Birth Cohort/Income Quartiles
Figure 3: Reduction in Median Percentage of Additional Compensation That Must Be Saved Annually Until Retirement for a 90%
Chance of Covering Expenses, as a Result of Purchasing Long-Term Care Insurance at Retirement (truncated observations
removed)
family
single female
single male
Average Percentage
• Lowest income: 8.9%
• Second: 20.3%
• Third: 16.1%
• Highest: 10.6%

10. ® Employee Benefit Research Institute 2013
® Employee Benefit Research Institute 2013
Summary: How can the private sector assist?
• Plan design to increase participation and contributions in retirement savings
programs
• Impact of moving 401(k) plans to automatic enrollment
• Optimal plan design of auto enrollment with auto escalation
• Personal Planning: Educate employees on the potential value of
• Contributing a sufficient percentage of compensation
• Choosing an age-appropriate asset allocation (or TDF)
• VanDerhei (June 2009) shows how this can substantially mitigate:
• Young employees with zero equity exposure
• Employees close to retirement with equity allocations that are too high
• Extreme concentrations in company stock
• Retiring later
• VanDerhei (August 2012) shows how working to age 70 instead of age 65 can increase
the probability of success by 24 percent
• SPIAs/longevity insurance
• VanDerhei (2006) shows how annuitization at age 65 can reduce the replacement rate
needed for 90 percent probability of success by as much as 24 percent
• LTCI

11. ® Employee Benefit Research Institute 2013
® Employee Benefit Research Institute 2013
References
VanDerhei (March 2005), Projections of Future Retirement Income Security: Impact of Long Term Care
Insurance. 2005 American Society on Aging/National Council on Aging joint conference
VanDerhei, J. (September 2006). "Measuring Retirement Income Adequacy: Calculating Realistic
Income Replacement Rates". EBRI Issue Brief
VanDerhei, J. (June 2009). How Would Target-Date Funds Likely Impact Future 401(k) Accumulations.
Testimony before the joint DOL/SEC Hearing, Target Date Fund Public Hearing.
VanDerhei (April 2010), “The Impact of Automatic Enrollment in 401(k) Plans on Future Retirement
Accumulations: A Simulation Study Based on Plan Design Modifications of Large Plan Sponsors”.
EBRI Issue Brief.
VanDerhei (October 2010), Testimony before the Senate Health, Education, Labor and Pensions
Committee, on “The Wobbly Stool: Retirement (In)security in America” (T-166).
VanDerhei (May 2012), Testimony before the House Ways and Means Committee, on "Tax Reform and
Tax-Favored Retirement Accounts"
VanDerhei, Jack (August 2012). Is Working to Age 70 Really the Answer for Retirement Income
Adequacy? EBRI Notes
VanDerhei and Copeland (2010), The EBRI Retirement Readiness Rating:™ Retirement Income
Preparation and Future Prospects. EBRI Issue Brief
VanDerhei and Lucas (2010), The Impact of Auto-enrollment and Automatic Contribution Escalation on
Retirement Income Adequacy, November 2010 EBRI Issue Brief #349
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® Employee Benefit Research Institute 2013
Appendix
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13. ® Employee Benefit Research Institute 2013
15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95%
100
%
105
%
110
%
115
%
120
%
125
%
130
%
135
%
140
%
145
%
Lowest–income quartile, all pessimistic 0% 0% 0% 0% 0% 2% 6% 9% 13% 20% 26% 35% 44% 54% 64% 71% 77% 80% 83% 86% 88% 90% 92% 93% 94% 95% 95%
Highest-income quartile, all pessimistic 0% 1% 2% 4% 7% 12% 19% 28% 37% 46% 55% 63% 69% 73% 76% 80% 83% 85% 87% 89% 90% 91% 92% 93% 94% 94% 95%
Lowest-income quartile, all optimistic 0% 0% 0% 0% 0% 2% 5% 6% 7% 9% 11% 14% 17% 21% 25% 31% 37% 43% 50% 57% 64% 69% 73% 77% 78% 81% 83%
Highest-income quartile, all optimistic 0% 1% 2% 2% 3% 4% 6% 8% 10% 14% 19% 24% 30% 36% 43% 50% 55% 60% 64% 68% 71% 73% 76% 78% 80% 82% 84%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Combined Real Replacement Rate
Source: EBRI/ERF Retirement Security Projection Model, versions 100810a1–100810a16.
Figure 5
CDFs* of the Two Extreme Combinations of Design Variables and
Employee Response Assumptions for Employees Currently Ages 25–29 and