National Retirement Risk Index Shows Modest Improvement in 2016

Alicia Munnell, Wenliang Hou and Geoffrey Sanzenbacher

Issues in Brief from Center for Retirement Research

Abstract: The release of the Federal Reserve’s 2016 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. This Index is constructed using the SCF, a triennial nationally representative survey of household finances. Since the last SCF was conducted in 2013, the U.S. economy enjoyed a period of low unemployment, rising wages, strong stock market growth, and rising house prices. These factors should have improved households’ preparedness for retirement. At the same time, longer-term trends – such as the gradual rise in Social Security’s Full Retirement Age and low interest rates – served as headwinds that made it more difficult to achieve retirement readiness. The question is what is the net impact of these disparate factors. The discussion proceeds as follows. The first section describes the nuts and bolts of the NRRI. The second section updates the NRRI using 2016 SCF data and shows that the share of households at risk dropped from 52 percent to 50 percent, largely due to rising home values. The third section presents results by age, income, and pension coverage. The fourth section takes a step back and assesses the overall reasonableness of the NRRI’s findings. The fifth section concludes that retirement readiness remains a major challenge for many of today’s workers; they need to save more and/or work longer to improve their prospects for a secure retirement.

Pages: 10 pages
Date: 2018-01
New Economics Papers: this item is included in nep-age
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