What is Your Retirement Risk Index?
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.
- 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.
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.