What is Your Retirement Risk Index?

October 27, 2009 by  
Filed under Retirement Planning

If you want to read some scary stuff this Halloween, check out the latest “retirement risk” data compiled by the Center for Retirement Research at Boston College.  The National Retirement Risk Index (NRRI) focuses on data indicating how well-prepared American adults are for retirement.

Here are some key NRRI findings and metrics and further commentary by Nationwide Insurance, the NRRI underwriter:

  • Fifty-one percent of Americans would be unable to maintain their standard of living if they retired at age 65, compared with 44 percent in 2007. This estimate is actually conservative because it doesn’t include medical or long-term care costs.
  • Americans are facing a decline in home equity at the same time that the government is increasing the age at which retirees qualify for full Social Security benefits. The average 401(k) retirement savings account fell by almost one-third in 2008, and people aren’t saving enough to make up the difference.
  • The U.S. personal savings rate fell to 3 percent of disposable income in August from 4 percent in July. (It was 8.9 percent at the end of 1992!) The saving rates needs to increase to at least 8 percent  to compensate for the drop in retirement assets.

It gets worse. It seems that our friends and neighbors are so discouraged by what has happened to their home equity and retirement accounts that they are disengaging from the retirement planning process.

This is from Nationwide:

Along with the new NRRI data, Nationwide’s senior vice president of Customer Insights and Analytics, Paul Ballew, says the company’s own research is showing that a significant number of consumers who were actively planning for retirement before the recession are disengaging from the process. Those insights are confirmed by existing market conditions.

“We’re really looking at a one-two punch right now,” Ballew said. “We’re seeing the number of disengaged households increasing by more than a third. Many of these individuals felt the brunt of the economic downturn to a greater degree than others and have moderated their expectations toward retirement. It’s clear that many of these people who were planning before the downturn are now pulling away from the table. That’s exactly the opposite of what they should be doing.”

And the scariest data of all? According to Nationwide, compared to 2007, there has been a 60% drop in agreement with this statement: Creating a retirement income source is important.

Are you kidding me? Do you want to live in a van down by the river when you retire? Or do you plan on dropping dead in your Walmart greeter’s vest?

That tells me that too many folks have transitioned from being merely negligent about their financial planning to being recklessly or willfully foolish. It also tells me that they are likely counting on the government (us) to bail them out. They have thrown up their hands in disgust and are now ignoring the retirement crisis in their future. They want their crisis to become my crisis.  They hope that Obamacare expands beyond health care to solving their retirement problems. That’s not gonna happen to Mr. ToughMoneyLove. I intend to tax-plan my way out of that obligation. (Yet another reason to pay off that mortgage.)

I’m not trying to sell Nationwide products here (particularly variable annuities) but I have to give it credit for supporting the National Retirement Readiness Index and for having one of the better sites  for retirement assessment. In that regard, if you want to get some feedback on your retirement readiness, try Nationwide’s “RetirAbility Check” interactive tool. Get your “R-Score” and let me know in the comments how you did.

Whatever you do, keep your head out of the sand and face your retirement problems head on – now.

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10 Responses to “What is Your Retirement Risk Index?”
  1. wrc1000 says:

    R-Score of 116, although I don’t feel that financially secure about the future within the current context of economic conditions as they are now and over the next 3-5 years.

  2. Erin Richards says:

    I got an 88, and some really helpful tips on how to improve my score!

  3. kitty says:

    R-score of 200. I had the sound turned off so I don’t know what they’d say. Written advice wasn’t that useful – I already know all of the stuff.

    Some problems with the calculator: they asked me if I’d receive a pension – I will, but didn’t ask how much. Ditto about social security. Surely it matters how much or how little you get? So I run it again with no pension and got 180.

    I guess it means I shall spend more money… But as I might be “retired” earlier than I want to against my wishes I don’t feel as secure.

    wrc1000 – you are right about economic conditions. Even though less than half of my 401K is in stocks – I’ve never been 100% invested and I further reduced my exposure during last two weeks by moving more money from stocks and long term bonds to stable value – but part is still at risk. I am currently under 40% in stocks in 401K/ITAs and about 60% in taxable accounts. I’d probably further reduce the exposure in 401K, but keep some very selected equities in taxable. Additionally, cash is not 100% safe either if we end up having inflation. Whatever… It’s really tought to say how much one needs for retirement since you nobody knows how long one will live.

  4. MasterPo says:

    I dunno. My 401k is with Fideltiy and if their calculation is correct I have a rate of return of 28% for this year.

    As to those who don’t prepare – *why* should they? The government will tgake care of them.

    Retirement planning is hard. And not fun.

    Playing Xbox or Wii and drinking Lattes is fun.

    Just tax the rich. That will solve the problem.

    Now back to my Halo…

  5. Steve says:

    I think things such as the Nationwide software are awful. They hide too many details that are too important, such as retirement age, goals, etc. They can (and probably mostly do) give a false sense of hope to people that may not be doing enough for their situation.

    In all fairness though, if someone takes the time to take the “test” (such as I just did) they are probably anal enough to where they are planning sufficiently, anyway :)

  6. Terry says:

    Master Po –

    What’s so hard about retirement planning? Seems fairly easy to me – IF you have more than a minimum wage income.

  7. Terry says:

    Master Po –

    Every good conservatives knows that if you tax something, you get less of it…and the more you tax it, the less you get of it.

    So just tax poverty, and we’ll reduce it pronto.

  8. MasterPo says:

    (I think Terry actually made a funny) 😉

  9. MasterPo says:

    Terry – We already determined here that your min wage existance of the last 20-25 years is mainly your own doing. Let it go…

  10. Terry says:

    But what can I do about it now?

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