BREAKING NEWS: 50% of U.S. Households Lack Enough Income to Retire

2018 Research report documents looming crisis.  Two actions that can avoid pitfalls and strengthen retirement security.   

The Center for Retirement Research (CRR) at Boston College, one of the nation’s premier retirement think tanks, released a new report, National Retirement Risk Index Shows Modest Improvement in 2016, (January, 2018, Number 18-1).  The title, in my opinion, is a bit misleading in that it would seem to infer good news, when the news really isn’t good at all.  In fact, the conclusions underscore the severity of the steadily growing retirement crisis financial experts, researchers, and academics have been warning of.

Briefly, the National Retirement Risk Index (NRRI) is constructed from data drawn from the Federal Reserve’s 2016 Survey of Consumer Finances (SCF) which includes household financial facts and demographic information.  The NRRI compares projected retirement income as a percentage of pre-retirement income to determine which households would be able to maintain their living standard after retirement, and what percent are at risk of falling short.  The NRRI shows the percentage of households where projected retirement incomes fall 10 percent or more below pre-retirement income.

Good News / Bad News

The good news is the NRRI (percent of households at risk) improved between 2013 and 2016 to 50 percent down from 52 percent of households at risk before.  Rising home values during this period was the leading contributor to the gain out pacing negatives including low interest rate returns and the gradual increase to the Social Security full retirement age from 65 to 67.  The 2016 numbers represent the second consecutive improvement from the index’s highest level of 53 percent recorded in 2010. 

More significantly, though, the ratio was 31 percent in 1983 when the index was first calculated.  Clearly, the longer-term trend of increasing risk from 31 percent to 50 percent is significant, and alarming.  Beyond the reality that one-half will be unable to sustain a desired or accustomed standard of living, great numbers will simply run out of money.

The list of reasons why this financial dilemma exists is long, very long – elimination of traditional pension plans, inadequate personal savings, accumulated debt, medical expenses, economic recessions, market loses, family needs, unemployment, over spending, financial mistakes, and so on.  The history of the past is written and over, but the future is open to be determined by new decisions and actions.

Looking Ahead – Hope for Some

Bottom line:  When the clock runs out, and it’s time to retire you have what you have, and basically that’s it.  Just as one’s current circumstances were shaped by past events and decisions made, so too will one’s financial future be determined by the quality of plans and actions taken today.  So, short of winning the lottery, take time now to:  step back; assess near and longer term realities objectively; and develop a comprehensive plan that utilizes all resources available.  Unquestionably, the most effective way to accomplish this is to engage professional help.  Many will ignore or procrastinate taking this step now – big mistake!  A successful plan takes advantage of two essential factors, time and expertise.  Ignoring either can be foolhardy.

Two Actions That Increase Retirement Security

1. Professional Advisor. Interview and engage a qualified financial advisor (Registered Investment Advisor or Certified Financial Planner) to guide you through the planning maze and develop a comprehensive plan tailored to your particular needs and objectives that will: (1) maximize all your resources; (2) track your progress, and (3) periodically facilitate adjustments to meet the changes ahead. Make sure you feel comfortable with the advisor you choose. Most importantly, choose an advisor that understands the value and importance of including home equity (housing wealth) in the overall wealth management process. 
2. Housing Wealth Management. For most, housing wealth is the largest single component of one’s net worth. Unfortunately, traditional financial planning practices have generally overlooked this resource in the planning process. Including housing wealth can have profound effect empowering: (1) increased cash flow; (2) retirement risk reduction, and (3) protection of assets under management.  Properly utilized, housing wealth can dramatically influence plan structure and prolong retirement security. 

Conclusion

Retirement researchers have sounded the alarm. An increasing number of older Americans are at increasing risk of not having sufficient income, or will run out of money in retirement.  Proper planning has never been more important.  Moreover, the utilization of housing wealth must become a basic component of financial and retirement planning.