Aug

20

Retirement Readiness

Posted by cameron

August 20, 2007 |

The National Retirement Readiness Index (NRRI) is a measure of the nations financial health as retirement approaches. It is a measure that estimates our ability to sustain our standard of living in retirement. In 1983 the NRRI was 31%, meaning that 31% of the population was at risk of a reduced standard of living in retirement. In 2004 that measure became 43%, even when retiring at age 65. Bear in mind that the average age of retirement is about 63. If the average age of retirement stays around 63 then that 43% will be higher.

During this same time period there has been a shift away from corporate pension plans towards company sponsored 401K plans. Companies match savings rate to some extent but only if an employee saves. I think everyone knows that there are many people who save nothing into their 401Ks meaning that employers provide nothing. So we have moved from employers providing benefits to employers providing nothing in many cases. Small businesses often don’t even offer 401Ks. All of this means that there are many people out there who have no savings and no employer support for retirement.

To make matters worse, real household incomes are in decline. Our ability to save has diminished. What took one wage earner to accomplish now takes two wage earners (or more). Social Security full benefits are moving back to 66 and 67 depending on your age and yet people are still retiring early. You don’t have to be a rocket scientist to see why the NRRI is increasing and why our standard of living in retirement is going into free fall.

The full impact of early retirement, minimal savings and increasing Social Security full retirement age is yet to be seen. The NRRI will get worse. Washington has a real problem on its hands. If 50% or more of the baby boomers become destitute then it will be very difficult politically for any party to reduce Social Security spending. It may well need to increase instead. They can only do that by printing more money, which of course devalues the dollar and drives up the cost of living for everyone.


Comments

Name (required)

Email (required)

Website

Speak your mind

<< Post Navigation >>

« « The Tale Of Two Bridges | Gardening in the Buff » »