Although most of today's retirees are financially secure, they may be living in a golden age that baby boomers and generation Xers largely won't enjoy when they quit working, researchers say.
Longer retirements and declines in retirement incomes as a percent of preretirement earnings will mean less comfortable retirements for many Americans, the Center for Retirement Research at Boston College says.
The CRR developed a National Retirement Risk Index to measure the share of working-age households at risk of being unable to maintain their preretirement standard of living after they stop working.
Target income is based on a complex formula that considers such factors as income level, number of earning adults in a household, availability of defined benefit pensions and home ownership.
The index defines at-risk households as those who are likely to have retirement income more than 10% below the target needed to maintain their preretirement living standard. It defines retirement income to include the usual sources, such as 401(k)s and defined-benefit plans as well as Social Security. It also includes reverse mortgages on the value of people's homes.
For example, among all households, the average target income replacement rate would be 73% under the CRR formula. In other words, to continue to live comfortably, the average household would need retirement income equal to 73% of its preretirement income. That target would range from 81% for those in the bottom third of income groups to 67% of those in the top third, according to CRR.
Based on its index, CRR concluded that even if people retire at age 65 and annuitize all their household wealth, 43% would be at risk of having inadequate retirement income.
For early boomers, born from 1946 through 1954, 35% of all households would be at risk. The at-risk share rises to 44% for the late boomers (1955-1964) and 49% for generation Xers (1965-1972), according to the CRR.
Their ominous predictions reflect the trend toward longer retirements and likely declines in retirement incomes compared to preretirement earnings–otherwise known as income replacement rates.
The CRR says it developed the index in the hope it would increase Americans' awareness of these troubling trends.
