The [tag]Center for Retirement Reseach[/tag] at [tag]Boston College[/tag] today unveiled its new [tag]National Retirement Risk Index[/tag] (NRRI). Following is a brief summary of the NRRI:

The National Retirement Risk Index in a Nutshell

WHAT IS THE NATIONAL RETIREMENT RISK INDEX?
• The National Retirement Risk Index (NRRI) measures the percentage of workingage households who are at risk of being unable to maintain their pre-retirement standard of living in retirement.

WHAT ARE THE KEY FINDINGS OF THE NRRI?
• Almost 45 percent of U.S. households are “at risk.”
• Younger households are more likely to be at risk.
• Other vulnerable groups are those with low incomes or no pension coverage.

WHY ARE SO MANY HOUSEHOLDS AT RISK?
• Social Security will replace less pre-retirement income in the future.
• Traditional pensions are disappearing, and 401(k)s have only modest balances.
• Outside of 401(k)s, households save nothing.
• People are living longer.

WHAT CAN BE DONE TO IMPROVE THE PICTURE?
• Save more – even 3 percent of income makes a big difference over time.
• Work longer – staying in the labor force even two extra years has a big payoff.

[tag]Reverse mortages[/tag] play an important role in constructing and understanding the [tag]NRRI[/tag]. The Index assumes that retired households will take full advantage of potential retirement resources - including tapping home equity through a reverse mortgage:

The Index’s base case scenario assumes that households retire at 65, annuitize their financial assets, and tap their housing wealth through a reverse mortgage. The notion is that these assumptions would allow households to take full advantage of their potential retirement resources.

Of course, this notion doesn’t necessarily reflect today’s retirement environment - and that’s the point. The author’s note that today we’re still in a “Golden Age” of retirement with many retirees benefitting from defined benefit pensions. As these disappear and life expectancies rise, more households will need to take full advantage of their potential retirement resources and, even with this, the NRRI indicates for many there won’t be nearly enough.

Social tagging: Reality Retirement Planning

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