50% U.S. Households Won’t Have Enough Retirement Income

Retirement for Baby Boomers and Gen Xers could be more difficult than for current retirees, according to the National Retirement Risk Index (NRRI) compiled by the Center of Retirement Research at Boston College. The NRRI measures the percentage of working-age households that are at risk of being unable to maintain their pre-retirement standard of living in retirement and tries to address the challenges of ensuring retirement security of an aging population.

The latest report that analyzes retirement risks data from 2016 indicates that half of today’s households won’t have enough retirement income to maintain their pre-retirement lifestyle even if they work to the age of 65 and annuitize their financial assets, including receipts from reverse mortgage on their homes.

According to the report, rising home prices and stock market gains led the NRRI to improve modestly from 52 percent in 2013 to 50 percent of working-age households in 2016. It said that during this time period, a substantial percentage of households in all income groups owned a home and enjoyed the benefits of rising prices. Citing the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, the report said that between 2013 and 2016, U.S. home prices increased about 14 percent in real terms. The NRRI stresses on home ownership and home prices due to their significant impact when home equity is accessed in retirement by taking out a reverse mortgage that can turn into an income stream through annuitization.

On the other hand, it said that Social Security’s rising Full Retirement Age (FRA), reverse mortgage reform and declining interest rates served as a headwind against greater progress and reduced risk on the NRRI. The report indicated that by 2016 almost all workers had an FRA of 67, leading to a larger impact on low-income households who depend almost entirely on Social Security for retirement income.

Lower interest rates in 2016, compared to 2013 meant that households got less income from annuitizing their assets, while the reverse mortgage reform announced by the government in 2017 meant raising up-front premiums and placing tighter limits on home loans.

When viewed by age and income, all groups of households experienced an improvement, except middle-age and middle-income households due to more non-mortgage borrowing, particularly for education expenses. For households ages 45-50, their average non-mortgage debt-to-income ratio almost doubled from 14 percent in 2013 to 27 percent in 2016. Increased borrowing was also an issue for the middle-income group, aggravated by a downturn in reported defined benefit coverage.