Retirement income - what's enough?

In a Sept. 13 press release (pdf), the Employee Benefit Research Institute (EBRI) announced its new study on calculating adequate retirement income. Conventional thought was that replacement of preretirement cash flow, with adjustments, was sufficient. However, EBRI finds that kind of calculation to be "overly simplistic and potentially inaccurate."
Given the huge variation of individual circumstances (such as age, health, and income) and the complexity of retirement risks that need to be dealt with -- such as longevity (addressed through annuitization of assets), old-age infirmity (addressed through long-term care insurance), and asset preservation (addressed through investment allocation) -- a single one-size-fits-all replacement rate will not work for most Americans.
The new EBRI model uses three "building blocks" to estimate retirement income needs: investment risk, longevity risk, and catastrophic health care costs. EBRI has also produced a Retirement Security Projection Model (RSPM) that incorporates additional factors such as defined benefit accruals, defined contribution, cash balance, IRAs, social security, and housing equity. "...the model points not only to a more realistc size of the retirement income problem but also ways that individuals can begin to deal with it."

According to its web site,
The EBRI mission is to contribute to, to encourage, and to enhance the development of sound employee benefit programs and public policy through objective research and education.

Measuring Retirement Income Adequacy: Calculating Realistic Income Replacement Rates
       Full report (pdf, 1.2MB, 36p.)
       Executive summary (html)


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