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Report Cites Need for Behavioral Changes
To Increase Inadequate Retirement Savings
American workers do not fully understand the nature of the financial problems they could face when they attempt to retire, according to a study released June 6 by the Center for Retirement Research at Boston College.
The report, Retirements at Risk: A New National Retirement Risk Index, based primarily on data from a sample of 4,500 households from the Federal Reserve Board's 2004 Survey of Consumer Finances, canvasses for information on income, wealth, pension coverage, and other variables of a family's financial position, the CRR report stated.
Although the report used conservative factors to project whether workers who plan to retire at age 65 will have adequate income to do so, the factors were not meant to convey a horizon of "doom and gloom," Alicia Munnell, CRR director, told reporters during a teleconference to launch the release of the report. Munnell was a member of President Bill Clinton's Council of Economic Advisers and an assistant secretary of Treasury for economic policy.
According to the report, 35 percent of the households of "Early [Baby] Boomers," born between 1946 and 1954, are at risk of being unable to maintain their standard of living in retirement. Despite workers' often-stated plans to work beyond the normal retirement age of 65, in actuality the average retirement is 63 for men and 62 for women, Munnell said.
The report said the share of households of "Late Boomers," born between 1955 and 1964, who are at risk for being underprepared for retirement was 44 percent, and 49 percent of members of "Generation X," born after 1964, are at risk for having saved inadequate post-retirement income.
The report said the reason for the disconnect between workers' retirement income expectations and the study's projections was that the amount of post-retirement income is declining for the three groups. For example, it projected that Social Security benefits will replace a smaller fraction of workers' preretirement income as the normal retirement age phases from age 65 to age 67.
The report also said traditional defined benefit plans, which provide an employer-sponsored life annuity based on years of service and final salary, are being replaced by defined contribution plans, such as those under tax code Section 401(k), where individuals are responsible for their own saving. Moreover, it added, people of working age are saving virtually nothing outside of their employer-sponsored pensions. It also said bond yields have declined over the past two decades and suggested that stock returns could follow, which could result in accumulated retirement assets yielding less income.
The report said changing retirement and saving behaviors--such as by planning to retire at age 67 rather than age 65, or starting retirement saving at a rate of 3 percent at an early age--could cut individuals' rate of risk by 11 percentage points.
The research and report were sponsored by a grant from Nationwide Mutual Insurance Co. "The findings and conclusions expressed are solely those of the Center for Retirement Research at Boston College and do not necessarily reflect the views of Nationwide Mutual Insurance Company," the report said.
A copy of the NRRI report is at http://www.bc.edu/crr/nrri.shtml.
To Increase Inadequate Retirement Savings
American workers do not fully understand the nature of the financial problems they could face when they attempt to retire, according to a study released June 6 by the Center for Retirement Research at Boston College.
The report, Retirements at Risk: A New National Retirement Risk Index, based primarily on data from a sample of 4,500 households from the Federal Reserve Board's 2004 Survey of Consumer Finances, canvasses for information on income, wealth, pension coverage, and other variables of a family's financial position, the CRR report stated.
Although the report used conservative factors to project whether workers who plan to retire at age 65 will have adequate income to do so, the factors were not meant to convey a horizon of "doom and gloom," Alicia Munnell, CRR director, told reporters during a teleconference to launch the release of the report. Munnell was a member of President Bill Clinton's Council of Economic Advisers and an assistant secretary of Treasury for economic policy.
According to the report, 35 percent of the households of "Early [Baby] Boomers," born between 1946 and 1954, are at risk of being unable to maintain their standard of living in retirement. Despite workers' often-stated plans to work beyond the normal retirement age of 65, in actuality the average retirement is 63 for men and 62 for women, Munnell said.
The report said the share of households of "Late Boomers," born between 1955 and 1964, who are at risk for being underprepared for retirement was 44 percent, and 49 percent of members of "Generation X," born after 1964, are at risk for having saved inadequate post-retirement income.
The report said the reason for the disconnect between workers' retirement income expectations and the study's projections was that the amount of post-retirement income is declining for the three groups. For example, it projected that Social Security benefits will replace a smaller fraction of workers' preretirement income as the normal retirement age phases from age 65 to age 67.
The report also said traditional defined benefit plans, which provide an employer-sponsored life annuity based on years of service and final salary, are being replaced by defined contribution plans, such as those under tax code Section 401(k), where individuals are responsible for their own saving. Moreover, it added, people of working age are saving virtually nothing outside of their employer-sponsored pensions. It also said bond yields have declined over the past two decades and suggested that stock returns could follow, which could result in accumulated retirement assets yielding less income.
The report said changing retirement and saving behaviors--such as by planning to retire at age 67 rather than age 65, or starting retirement saving at a rate of 3 percent at an early age--could cut individuals' rate of risk by 11 percentage points.
The research and report were sponsored by a grant from Nationwide Mutual Insurance Co. "The findings and conclusions expressed are solely those of the Center for Retirement Research at Boston College and do not necessarily reflect the views of Nationwide Mutual Insurance Company," the report said.
A copy of the NRRI report is at http://www.bc.edu/crr/nrri.shtml.
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