Pandemic Puts More Households at Risk in Retirement

The National Retirement Risk Index (NRRI), calculated every three years, measures the share of American households that are at risk of not being able to maintain their pre-retirement standard of living in retirement.

“Since the Great Recession, the NRRI has shown that even if households work to age 65 and annuitize all their financial assets, including the receipts from reverse mortgages on their homes, roughly half of households are at risk,” according to the Center for Retirement Research at Boston College (CRR), which runs the risk index.

However, between 2016 and 2019, the economy grew and the stock and housing markets were strong, which helped create a better outlook for the NRRI. Nonetheless, the NRRI improved only slightly, from 50% of the households being at risk in 2016 to 49% in 2019.

“The reason for this modest change was that the positive impacts of rising stock and house prices were partially offset by a decline in interest rates and in expected replacement rates from Social Security for lower-income workers who experienced income gains,” the CRR says.

But last year, with the pandemic wreaking havoc on the economy, unemployment rose in the U.S. substantially, particularly among lower-paid workers, according to the center. Even though the NRRI is calculated every three years, because of the significance of the pandemic, the CRR estimated what the NRRI would have been in 2020, determining it would have ticked upward to 51%.

The CRR says the reason why the NRRI did not rise more was because housing and stock prices rose last year, an unusual occurrence during a recession.

“The bottom line is that half of today’s households will not have enough retirement income to maintain their pre-retirement standard of living,” the center says. “This analysis clearly confirms that we need to fix our retirement system so that employer plan coverage is universal. Only with continuous coverage will workers be able to accumulate adequate resources to maintain their standard of living in retirement.”