More than half of working-age households are at risk of falling more than 10% behind replacement rate targets, according to one retirement readiness measure presented in a report released Tuesday.
In “Are Retirees Falling Short? Reconciling the Conflicting Evidence,” authors from the Center for Retirement Research at Boston College examine two approaches at gauging retirement readiness. The first uses the National Retirement Risk index, which calculates retirement income as a percentage of pre-retirement income among today’s working-age households. It assumes the same level of consumption in both periods (before and after retirement).
The most-recent findings show that about half of all households (52%) are at risk of falling more than 10% below target replacement rates, with the number of households at risk decreasing as age increases.
A second approach to assessing retirement readiness (the optimal savings approach) assumes declining consumption as people age (when children leave home and in retirement). The most recent findings under this model show that only 8% of households in their 50s had less than “optimal wealth.”
The authors say they are “not surprised” by the target replacement results, citing an overall decline in wealth-to-income ratios over the last three decades.