Do Americans know how many of them lack proper retirement readiness? A February 2017 Center for Retirement Research at Boston College study, “Do Households Have a Good Sense of Their Retirement Preparedness?” conducted by Alicia H. Munnell, Wenliang Hou and Geoffrey T. Sanzenbacher, used the National Retirement Risk Index (NRRI) to look at working-age (ages 40-59) households.

Their research found that even if household members work until age 65 and annuitize all their financial assets, including the income from a reverse mortgage on their home, 52% won’t be able to maintain their current standard of living in retirement. This ongoing study is finding that lack of retirement readiness is growing steadily. In 1989 30% of working-age adults were considered unprepared; in 2007 that number reached 44%; and in 2013, the year with the most recent data, it rose to 52%.

What’s the Cause?

Adults are living longer, which means that the length of retirement is increasing, yet the average age of retirement remains approximately 63. However, the normal retirement age (also called the full retirement age) for Social Security has been getting older, which means that younger people will be responsible for funding a greater amount of their retirement income and will have to wait longer to collect their full benefits. In addition, Medicare premiums are rising, causing a boost in expenses.

Corporate pensions are increasingly rate, and most retirees today must fund their own financial future through contributions to an individual retirement account and/or a 401(k)  or other qualified retirement plan. Although these could in theory sufficiently supplement Social Security, in practice they are for the most part grossly underfunded, with a median 2013 balance of just $111,000 for household heads approaching retirement. (For more, see Will Your Retirement Income Be Enough?)

What, Me Worry?

The Center for Retirement Research study examined the relationship between perceptions of retirement readiness and reality. Using the NRRI as a measure of financial readiness, it found that in 2013 57% of households had an accurate view of their financial readiness. That leaves 43% of households out of touch with the truth. Of this group, 19% is too optimistic about the future for their financial situation, while 24% are too pessimistic.

Additional reason for concern comes from a survey, “Boomer Expectations for Retirement 2016,” from the Insured Retirement Institute. It found that today approximately 35 million Baby Boomers completely lack retirement savings. Of those surveyed, only 24% are confident that they have sufficient funds to last through retirement, which is 12% fewer than in 2012. Additionally, the proportion of Boomers who anticipate that Social Security will be their major retirement source is 59%, up from 42% in 2011. The inescapable fact is that a majority lacks sufficient assets to sustain their current lifestyle in retirement. 

The Bottom Line

Although a significant minority of households may not know how unprepared they are for retirement (2 in 10 working-age Americans), a much larger group of Boomers – already in or approaching their senior years – have grave concerns about them. With fears about growing expenses, the solvency of Social Security and a lack of financial resources, 20% of Boomers are worried that they won’t have enough funding for basic expenses. Ultimately, although many adults do know how unprepared they are for retirement, a significant number remain in the dark about their jeopardized futures. (For more, see Are We in a Baby Boomer Retirement Crisis?)




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