Did you know that more than 40 percent of households are at risk of being financially unprepared for retirement and don’t know it? According to a recent report from the Center for Retirement Research (CRR) at Boston College it’s true, and the picture is even worse when you factor in the cost of health care.
The latest analysis of the National Retirement Risk Index (NRRI), released by the CRR, examined whether households have a good sense of their retirement preparedness by comparing their self-reported assessments to their ability to maintain living standards in retirement as measured by the NRRI.
The NRRI was updated in February and shows that 61% of today’s workers will be at risk for not being financially prepared to retire. This is a 17-point increase from the previous Index number of 44 percent which was released in July 2007 and demonstrates how the surging cost of health care is having a significant effect on retirement savings.
"While recent studies have found that households are not generally knowledgeable about personal finance issues, we wanted to know whether they have a good gut sense of their own retirement preparedness," said Alicia H. Munnell, CRR director. "We found that nearly 60 percent do and nearly 40 percent do not. Some worry too much. Some worry too little."
The study also found that owning a home significantly increases the likelihood of being in the ‘too worried group’. The NRRI shows most of these home-owning households as not being ‘at risk’ because it has them taking a reverse mortgage on their home and annuitizing the proceeds.
On the other hand, surveys show that households do not plan to tap home equity to support general consumption in retirement, so these households with homes underestimate their potential well-being, and fall in the ‘too worried’ category. To read a copy of the report click the link below.