Having access to a workplace retirement plan is one of the best ways to close the retirement savings gap for Generation X, according to a new report by the Employee Benefit Research Institute.
When trying to calculate what you will need in retirement, EBRI recommends taking into account what you will spend on nursing home and home health care expenses.
The nonpartisan EBRI bound in its research that 44 percent of both Baby Boomer and GenX households are likely to be at risk of running short of funds during retirement if they retire at age 65 and they retain their net housing equity in retirement until other financial resources are depleted.
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How much an individual has in retirement hinges on how many years the person was able to participate in a workplace retirement plan, like a 401(k). For those with no future years of eligibility, the average retirement savings shortfall is projected to be about $78,000 per individual. Those Gen Xers with at least 20 years of future eligibility are projected to have an average financial shortfall at retirement of about $23,000.
The inclusion of nursing home and home health care costs is a crucial factor in calculating realistic retirement expenses because, while those events will not be experienced by all households, or experienced to the same extent, they can have catastrophic financial consequences for a household's retirement income adequacy.
"Ignoring the impact of nursing home and home health care costs in retirement significantly overstates the likelihood of retirement income adequacy," said Jack VanDerhei, EBRI research director and author of the report. "Any realistic calculation of retirement needs has to include those expenses."
The Employee Benefit Research Institute is a private, nonprofit research institute based in Washington, D.C., that focuses on health, savings, retirement and economic security issues.
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