Between 4–14% More U.S. Households “At Risk” of Running Short of Money in Retirement Due to 2008–2009 Recession

Depending largely on age and income, between 4 percent and 14 percent of Americans who otherwise would have had adequate income to cover basic expenses in retirement became “at risk” of running short because of the housing and financial crisis of 2008–2009, according to a new report by Employee Benefit Research Institute (EBRI).

The EBRI analysis, based on its retirement income adequacy models, notes that the likelihood of becoming “at risk” because of the economic crisis depends to a large extent on the size of the retirement account balances the household had in 401(k)-type plans and/or individual retirement accounts, as well as their relative exposure to fluctuations in the housing market. The resulting percentages of households that would not have been “at risk” without the 2008/2009 crisis that ended up “at risk” vary from a low of 3.8 percent to a high of 14.3 percent, EBRI found.

How much additional money would these households need to save to make up for their losses from the crisis? Looking at all Early Boomer households, EBRI finds they would generally need to save between 1 percent and 4 percent of compensation more each year between now and retirement age. However, the answer to that question varies greatly and depends on several key factors, such as the size of account balances and exposure to the equity market; proximity of the household to retirement age (the closer to retirement age, the fewer years of additional savings are possible); the relative level of preretirement income; and the desired probability of adequate retirement income.

“The impact of the 2008/2009 financial crisis affected people in many different ways, and this study helps to show which groups were affected and how much more they’ll need to save in order to recover,” said Jack VanDerhei, EBRI’s director of research and author of the report.