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NRRI Update Shows Half Still Falling Short

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  • Alicia H. Munnell
  • Wenliang Hou
  • Anthony Webb

Abstract

The release of the Federal Reserve’s 2013 Survey of Consumer Finances (SCF) is a great opportunity to reassess Americans’ retirement preparedness as mea­sured by the National Retirement Risk Index (NRRI). The NRRI shows the share of working-age house­holds who are “at risk” of being unable to maintain their pre-retirement standard of living in retirement. The Index is constructed using the SCF, a triennial survey of a nationally representative sample of U.S. households that collects detailed information on their assets, liabilities, and demographic characteristics. For SCF households, the NRRI compares projected replacement rates – retirement income as a percent­age of pre-retirement income – with target rates that would allow them to maintain their living standard and calculates the percentage at risk of falling short. The NRRI was originally created using the 2004 SCF and has been updated with the release of each subse­quent survey. The discussion proceeds as follows. The first section describes the nuts and bolts of constructing the NRRI. The second section presents the NRRI in 2013, showing that 52 percent of households were at risk. The third section highlights the key levers, and presents the results by age, income, and the nature of pension coverage. The fourth section discusses the stability of the NRRI despite numerous revisions and then identifies why it provides a more dire outlook than that of the optimal savings literature. The final section concludes that the NRRI confirms what we al­ready know – today’s workers face a major retirement income challenge. Even if households work to age 65 and annuitize all their financial assets, including the receipts from reverse mortgages on their homes, more than half are at risk in retirement.

Suggested Citation

  • Alicia H. Munnell & Wenliang Hou & Anthony Webb, 2014. "NRRI Update Shows Half Still Falling Short," Issues in Brief ib2014-20, Center for Retirement Research.
  • Handle: RePEc:crr:issbrf:ib2014-20
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    File URL: http://crr.bc.edu/briefs/nrri-update-shows-half-still-falling-short/
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    Cited by:

    1. Benjamin W. Veghte, 2015. "Social Inequality, Retirement Security, and the Future of Social Security," Poverty & Public Policy, John Wiley & Sons, vol. 7(2), pages 97-122, June.
    2. Goldin, Jacob & Reck, Daniel, 2020. "Optimal defaults with normative ambiguity," LSE Research Online Documents on Economics 105863, London School of Economics and Political Science, LSE Library.
    3. Florina Salaghe & Dimitra Papadovasilaki & Federico Guerrero & James Sundali, 2020. "Temptation and Retirement Accounts: A Story of Time Inconsistency and Bounded Rationality," Athens Journal of Business & Economics, Athens Institute for Education and Research (ATINER), vol. 6(3), pages 173-198, April.
    4. Beirne, Keelan & Nolan, Anne & Roantree, Barra, 2020. "Income adequacy in retirement: Evidence from the Irish longitudinal study on ageing (TILDA)," Research Series, Economic and Social Research Institute (ESRI), number RS107.

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