BOSTON _ If you’re a baby boomer, the odds are high you’ll exhaust your retirement savings after 10 or 20 years of retirement, according to the latest Retirement Readiness Rating report released last week by the Employee Benefit Research Institute.
Nearly half of older boomers _ those now aged 56 to 62 _ and some 44 percent of younger boomers_aged 46 to 55 now_are at risk of not having sufficient income to pay for basic retirement expenses and uninsured medical expenses, according to the study.
The study, which assumed that boomers would retire at age 65, also found that lower-income retirees are most likely to run out of money after 10 and certainly 20 years of retirement, while higher-income retirees are least likely to run out of money.
To wit: 41 percent of those in those lowest income quartile are likely to run short of money after 10 years of retirement, and 57 percent after 20 years. Meanwhile, just 5 percent of those in the highest income quartile will run out of money after 10 years, and 13 percent after 20 years.
So, what to make of this study?
In reality, most Americans don’t run out of money; they run out of lifestyle. As they age and spend down their assets, they typically reduce their living standard.
“For the most part, people do not completely run out of money when our software says they will,” said Stephen L. Deschenes, senior vice president and general manager for the annuities division of Sun Life Financial’s U.S. operation.
“They do not run full-speed like Wile E. Coyote off the cliff and only then realize that they are out of terra firma. Rather, they take action either to spend less or work more or some combination to forestall running out,” he said.
Other research finds a high likelihood that Americans will be forced to spend less. After factoring in health-care and long-term-care costs, the National Retirement Risk Index, produced by Boston College’s Center for Retirement Research, finds that some 65 percent of American households are at risk of not having enough money to maintain their living standard in retirement, according to the index.
A point to consider about the retirement readiness study: It assumes boomers will retire at age 65. That’s not likely to happen. Most boomers, assuming good health, likely will work past age 65, according to Sun Life Financial’s Unretirement Index.