Every three years, the Center for Retirement Research at Boston College issues the National Retirement Risk Index (NRRI), taking a look at the percentage of America's households that are at risk of seeing a decline in quality of life after retirement. In the recently released report for 2013, 52% of households were at risk, a marginal improvement from the 2010 rate of 53%. The result is surprising, considering the rise in the stock market over those three years and the beginning of a rebound in housing prices, two factors that are key in influencing the overall retirement security picture.
Since 2010, stock equity prices increased by 40% (adjusted for inflation), a factor that should help improve retirement security. That fact was offset that the gains were concentrated in the top one-third of the income distribution, a group that holds some 90% of stock equity, so most Americans didn't benefit from that increase. Housing prices, which are much more wide in their impact, only rose about 6% in real terms. That modest increase and a decline in the percentage of households owning homes only improved the index slightly.
Much of the improvements in the stock and housing markets, however, was offset. First is the continued phasing in of the raising of the Social Security full retirement age, from 65 to 67, delaying the onset of benefit payouts for a significant portion of households. Second, a decrease in interest rates means households get less income from assets such as 401(k)/IRA balances and reverse mortgages on homes. Finally, a revision in reverse mortgage rules that lowered the percentage of house value that borrowers could receive via reverse mortgages lowered potential income as well.
The lack of progress is particularly problematic because it means we haven't recovered from previous shocks to the retirement security system for working families. The share of Americans at risk is far higher now than in the past. In the 1980s, fewer than one-third of Americans were at risk, compared to more than half today. And the report shows that the younger you are and the lower your income, the more likely you are to be at risk in the future.
Read the full report.