While equity markets are higher than they were in 2007, housing markets are still substantially lower than before the economic crisis hit. This has kept the National Retirement Risk Index depressed, according to research by the Center for Retirement Research at Boston College.
The National Retirement Risk Index measures the share of working-age American households that are at-risk of not having enough money saved up to maintain their current lifestyles in retirement. The Index is calculated by comparing households’ projected replacement rates—retirement income as a percent of pre-retirement income—with target replacement rates that would allow them to maintain their standard of living.
In 2010, the NRRI showed that even if households worked to age 65 and annuitized all of their financial assets, 53 percent of American households were at risk. Since then, the stock market has gone up 45 percent and housing prices have risen by 6 percent, the report’s authors found.
Using that same 2010 data, the Center for Retirement Research set out to determine what would have happened back then if equity and housing markets were at 2013 levels. What they found is that “improving asset markets have only slightly lowered retirement risk because the increases in house prices have been modest [at the same time] and the more robust growth in stocks mainly benefits the top third of households.”
Two other factors also have helped keep the NRRI depressed between 2007 and 2010: the increase in Social Security’s Full Retirement Age, which leads to growing actuarial reductions for those retiring at age 65, which is the assumed retirement age. The second is the decline in interest rates.
“Lower interest rates mean that households get less from annuitizing their wealth, and the NRRI assumes that all wealth is annuitized at retirement,” the report found.