Do you worry that you might outlive your retirement savings? You should worry about it, according to a recent study published by the accounting firm of Ernst & Young. If you are like most of your peers, there’s a high likelihood that you will either run out of retirement money or have to significantly reduce your standard of living in retirement.

The study addresses the Social Security retirement benefits, private retirement accounts and savings of individuals who are either near retirement (age 58 and planning on retirement at age 65) or have recently reached age 65 and retirement. The subjects of the study were divided into three rough income groups — those earning $50,000 or so per year, those closer to $75,000, and those at about $100,000 of annual household income.

The Ernst & Young study looked at those variables plus gender and marital status, and then further divided the group into those who enjoyed a defined-benefit retirement plan (like most government and unionized workers) and those whose retirement savings are all defined-contribution (such as IRAs and 401k plans). The study then compared savings and retirement benefits among each group. The two central questions the study attempted to address: (1) what is the likelihood for each group that they will outlive their savings, and (2) what percentage reduction in standard of living would each group have to endure in order to reduce the likelihood of outliving savings to below 5%?

The most at-risk subgroup in the study? Married couples near retirement and earning $50,000 per year but not covered by a defined-benefit retirement plan. That group had a 94% chance of outliving their retirement savings, and would have to reduce their standard of living by 46% in order to reverse their poor prospects. In general, those with defined benefit plans, no spouses and/or higher incomes tended to fare better than their married, defined-contribution and lower-income colleagues.

Among near-retirees the most secure group (with a mere 20% chance of outliving their assets) were single men covered by defined-benefit retirement plans and earning $50,000 to $75,000 per year at the time of retirement. In a reversal of the general trend, their higher-earning peers (that is, single men near retirement and covered by a defined-benefit plan but earning $100,000) were slightly more likely to outlive their assets, at a 21% likelihood.

Recent retirees fared slightly better, with most singles (men and women) covered by defined-benefit retirement plans squeaking under the 5% likelihood level of outliving retirement assets. Those groups would not have to reduce their standard of living at all, according to the study.

The Ernst & Young study is very thought-provoking. In order to keep the number of variables under control the firm did not evaluate those with incomes higher than the $100,000 range or lower than about $50,000. They also did not deal with those further into retirement, or those with a mix of defined-benefit and defined-contribution plans. Still, it should be possible to generalize from some of the data -- and the generalizations one can draw do not look promising. It is clear that many, perhaps most, Americans are not saving enough for retirement, and that when they do save it is late in their work life. The need to pare back one's quality of life on retirement, and the likelihood of outliving one's retirement savings, are sobering realities facing the aging workforce.

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