The release of the Federal Reserve’s 2010 Survey of Consumer Finances 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 households who are “at risk” of being unable to maintain their pre-retirement standard of living in retirement. The Index compares projected replacement rates – retirement income as a percentage of pre-retirement income – for today’s working households 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 constructed using the Federal Reserve’s 2004 Survey of Consumer Finances (SCF). The SCF is a triennial survey of a nationally representative sample of U.S. households, which collects detailed information on households’ assets, liabilities, and demographic characteristics. The 2007 SCF did not allow for a meaningful update, because stock market and housing prices plummeted right after the survey interviews were completed. Thus, the 2010 survey is the first opportunity to see how the financial crisis and ensuing recession have affected Americans’ readiness for retirement. The discussion proceeds as follows. The first section describes the nuts and bolts of constructing the NRRI and how the new SCF data were incorporated. The second section updates the NRRI using the 2010 SCF, showing that the percentage of households at risk increased by nine percentage points between the 2007 and 2010 surveys – 44 percent to 53 percent. The third section identifies the impact of various factors on the change. 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 of being unable to maintain their standard of living in retirement.
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