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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.
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