Despite Economic Recovery, Retirement Out of Reach for Most

Despite substantial stock market improvements and modest growth in housing values, half of American households remain at risk of being unable to maintain pre-retirement standards of living in retirement according to new research out of Boston College.  

This represents only a minor decrease from the 53% of households deemed “at risk” in 2010 by the National Retirement Risk Index, say researchers from Boston College’s Center for Retirement Research in a December 2013 brief. 

Since 2010, the stock market has increased by 45% while housing prices have risen by 6%, adjusted for inflation. However, the CRR found that improving asset markets have only slightly lowered households’ retirement risk.

“Interestingly, updating the asset values only reduces the index to 50% because the rise in house prices has been relatively modest in real terms and the more robust growth in stocks mainly benefits the top third of households,” the researchers found. 

House prices have a significant impact in the NRRI because it assumes households will access their home equity at retirement by taking out a reverse mortgage, the CRR notes, and the higher the home value, the more cash that can be extracted. 

“Given the significant improvement in the equity market, why does the adjusted 2010 NRRI still look worse than 2007?” the researchers ask. “The most obvious reason is that while stocks are slightly higher than their pre-crisis peaks, house prices are still substantially lower in real terms than in 2007. And the house is a much more significant asset than stock holdings for most households, making trends in housing prices a major influence on the NRRI results.”

The only way for households to avoid retirement risk predicted by the index, the report concludes, is for people to save more and/or work longer.

Access the full brief.

Written by Alyssa Gerace

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