Retirement shortfalls are a major problem in the U.S., as new data shows that more than half of today’s households lack enough retirement income to maintain their pre-retirement standard of living, according to a December report by the Center for Retirement Research (CRR) at Boston College.
Recently, other reports have detailed the lack of sufficient retirement savings in 49 out of 50 states, and the toll family caregiving takes on Americans’ finances and retirement plans.
But the latest data suggests 52% of U.S. households are in trouble.
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 only slightly improved from 2010 to 2013, 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.
“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 security remains a serious challenge for Americans and that, to address this issue, Americans must save more and/or work longer.
Access the full report here.
Written by Emily Study