Retirement security remains a serious challenge for Americans, as the latest data shows that more than half of today’s households won’t have enough retirement income to maintain their pre-retirement standard of living, even if they work to age 65.
As measured by the National Retirement Risk Index (NRRI) — which shows the share of working-age households who are “at risk” of being unable to maintain their pre-retirement standard of living in retirement — Americans’ financial preparedness has only slightly improved since 2010, despite some positive economic factors.
In fact, 52% of households are considered at risk, a 1% drop from 2010, influenced in part by the rise in Social Security’s Full Retirement Age, the decline in interest rates and new reverse mortgage rules, according to a December report by the Center for Retirement Research (CRR) at Boston College.
“Our expectation was that the NRRI would improve sharply in 2013; it certainly felt like a better year than 2010,” the CRR writes. “But the ratio of wealth to income had not bounced back from the financial crisis, more households faced a higher Social Security Full Retirement Age, and the government had tightened up on the percentage of housing equity that borrowers could extract through a reverse mortgage.”
Other factors reduced the NRRI, creating a push-pull environment impacting Americans’ finances. These drivers included increasing equity and house prices.
In the NRRI, home ownership and home prices have a significant impact because households are assumed to access their home equity at retirement by taking out a reverse mortgage. The higher the home value, the more a household can extract in cash and turn into an income stream through annuitization.
Ultimately, however, the NRRI suggests retirement shortfalls are a major problem and that, to address this issue, Americans must save more and/or work longer.
Access the full report here.
Written by Emily Study