The Savings Game

Half of Americans at risk for not having enough in retirement, survey says

By Humberto Cruz
Globe Correspondent / December 1, 2009

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The numbers are dismal. But worse still is our reaction - actually, our lack of action.

I’m talking about the latest reading of the National Retirement Risk Index, calculated by the Center for Retirement Research at Boston College. Battered by a lengthy recession, a record 51 percent of US households are now considered at risk of not having enough money to sustain their standard of living in retirement.

That’s the case even if they work until 65 - two years beyond the current average retirement age - and take a reverse mortgage on their home and use all their assets, including the mortgage proceeds, to buy an inflation-adjusted lifetime annuity to maximize their income.

In 2004, about 43 percent of households were considered at risk, based on the center’s analysis of a triennial Federal Reserve survey of consumer finances. In 2007, the number rose to 44 percent, the center now estimates, based on that year’s Fed survey. Without waiting for 2010 survey, the center’s researchers decided to update the index in response to the recent recession and economic crisis.

The index needed updating because the 2007 survey “reflects a world that no longer exists,’’ the center’s report says, with the Dow Jones Industrial Average near 14,000 and housing prices only slightly off their peak.

Admittedly, the new 51 percent figure is based not on actual Fed survey results but on the center’s projections of what they would have been in the second quarter of 2009. Since then, financial conditions have improved. The index does not factor in possible income from work in retirement.

Still, while stocks are bouncing back, home prices are unlikely to shoot up again. With people living longer, the Social Security full-retirement age increasing gradually to 67, and low interest rates keeping annuity payouts low, the analysis “clearly indicates that this nation needs more retirement savings,’’ the center’s report says.

“We are clearly facing a retirement crisis - one that will continue to grow as younger workers age,’’ said Alicia Munnell, director of the center. “To overcome today’s retirement challenges, people need help understanding financial topics so they can make reasonable financial choices throughout their lives.’’

Many Americans are reacting to the economic downturn not by resolving to save more but by no longer actively planning for retirement. A survey by Nationwide Insurance, which underwrites the retirement risk index, found the number of such “disengaged’’ Americans increasing by more than a third. “That’s exactly the opposite of what they should be doing,’’ said Paul Ballew, senior vice president at Nationwide.

Also, the percentage of Americans in employment-based retirement plans decreased from 41.5 percent to 40.4 percent in 2008, according to the Employment Benefit Research Institute.

Humberto Cruz can be reached at