More than half of American households are at risk of being unable to maintain their preretirement standard of living in retirement, according to new estimates from the Center for Retirement Research.
To arrive at that conclusion, the center used data in the Federal Reserve's 2013 Survey of Consumer Finances and "compared projected replacement rates — retirement income as a percentage of preretirement income — with target rates that would allow (SCF households) to maintain their living standard and calculated the percentage at risk of falling short."
In its data-crunching, the center took into consideration that people typically need less than their full preretirement income once they stop working, since they generally pay less in taxes, no longer need to save for retirement, and often have paid off their mortgage.
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Households whose projected replacement rates fell more than 10 percent below the target were deemed to be at risk of having insufficient income to maintain their preretirement standard of living, the center said. But while the anticipated result was a dramatic improvement over 2010 — the last year that the Fed's SCR was conducted — that was not the case.
Instead the improvement was scant. In 2010, the center's National Retirement Risk Index indicated that 53 percent of Americans were at risk. The 2013 results show that 52 percent still were, despite rising employment and an ongoing bull market.
Why? According to the study, "The ratio of wealth to income had not bounced back from the financial crisis … more households faced a higher Social Security Full Retirement Age, and the government had tightened up on the percentage of housing equity that borrowers could extract through a reverse mortgage."
In addition, gains in equities have been "concentrated in the top third of the income distribution, which holds about 90 percent of all equities," and home ownership has declined, limiting the households who might be able to draw on reverse mortgages. Lower interest rates also limit possible gains made through annuitizing assets.
The hardest hit were those in the 50-59 age group, who suffer from those low interest rates and also from a decline in retirement assets.
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