According to a report in the Wall Street Journal, the typical household headed by a person aged 60-62 with a 401(k) account has less than one-quarter of the amount necessary to maintain their standard of living in retirement.  The analysis conducted by the Center for Retirement Research at Boston College utilized data compiled by the Federal Reserve.

Using estimates of 401(k) balances from the end of 2010, the report reviewed the income those amounts would provide in retirement as compared to estimated income needs in retirement.  As a benchmark, the report used an assumption that retirees would need 85% of their 2009 salaries to maintain their standard of living.


The households examined by this report had a median income of $87,700 in 2009, so according the to 85% assumption, the income needed would be $74,545.  Estimates suggest that Social Security will provide as much as 40% of the pre-retirement income, in this case $35,080, leaving $39,465 to close the gap.

The median 401(k) plan held $149,400, which would generate an annual retirement income of $9,073.  In order to provide the full amount necessary, those accounts would need to have $636,673 in them.  A little under one half of those reviewed do expect some form of additional pension income with a median amount of $26,500, but even when combined with the 401(k) amount, it still falls short.

Baby boomers represent the first generation to be reaching retirement age since 401(k) plans became widely used in the 1980s.  Inadequate contributions, combined with recent collapses of the stock and housing markets have left many of these accounts underfunded.  This leads to those approaching retirement to seek additional solutions, including postponing retirement, downsizing housing, reducing expenses and seeking more aggressive (riskier) investments.

The article provides several illustrative examples of how people, who thought they were on the right path, ended up with unexpected results.  The examples don't relay people who made foolish decisions or mismanaged retirement accounts, they just came up short are now forced to make difficult decisions.

The article serves as a reminder, not only of how a reverse mortgage has the potential to fit into a retirement plan to bridge gaps in income need, but also of the mindset of those facing shortfalls.  The typical reverse mortgage client of the past, was an older American facing an immediate need.  Moving ahead, as the audience widens, the reverse mortgage can become the bridge for those with underfunded accounts.

The challenge will be to get past the emotional mindset to educate the prospective clients on the opportunities.  Those in this situation will likely have some combination of disappointment or embarrassment that their plans didn't work out, along with a certain amount of anger and distrust for the financial markets.  It can sometimes be a tenuous path to travel on the road to solutions. However, it is one of the necessary steps as the reverse mortgage products mature from needs based products to integral tools of retirement planning.