Half of U.S. Households Won’t Have Sufficient Income to Retire

An ongoing analysis of Americans’ retirement readiness showed a slight improvement in 2016, but the results still reveal that half will find themselves short of their golden-year goals.

The National Retirement Risk Index (NRRI) dropped from 52% to 50% between 2013 and 2016, according to the most recent calculation from the Center for Retirement Research at Boston College — indicating that exactly half of homeowners will end their careers with at least 10% less than the amount that would fund a comfortable replacement income.

While that represents a gain in the share of households that aren’t at risk, the researchers — center director Alicia Munnell, senior research advisor Wenliang Hou, and associate director for research Geoffrey Sanzenbacher — note that the findings aren’t cause for celebration.

“The bottom line is that half of today’s households will not have enough retirement income to maintain their pre-retirement standard of living, even if they work to age 65 and annuitize all their financial assets, including the receipts from a reverse mortgage on their homes,” the authors wrote. “This analysis clearly confirms that many of today’s workers need to save more and/or work longer to achieve a secure retirement.”

Rising home prices made the most prominent positive contribution, a reflection of the home as most soon-to-be-retirees’ most valuable asset. That gain was enough to offset some of the negative trends from 2013 to 2016, including the gradual increase of the full Social Security retirement age from 65 to 67 and drops in interest rates.

The researchers also pointed to recent changes to the federally backed reverse mortgage program, which generally lowered the amount of principal that borrowers can access — though they noted that the effect was minimal.

“This effect increased the percentage of households at risk, but its impact was slightly offset by the decline in interest rates, which raised the amount of home equity that can be borrowed,” they observed. “The net impact on the NRRI from these changes is small.”

The NRRI takes into account data from the Federal Reserve’s 2016 Survey of Consumer Finances, as well as other estimates of household wealth such as Social Security benefits and savings.

The 2016 numbers mark the second consecutive decline after a peak of 53% in 2010; for comparison, the proportion of Americans considered at risk was only 31% when the index was first calculated in 1983.

Read the full report at the Center for Retirement Research.

Written by Alex Spanko

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