While many U.S. households hold misperceptions about their retirement readiness, those who fall into the high-income category tend to be the most likely to “not be worried enough” and least likely to change their savings or retirement plan contributions, according to a new report from the Center for Retirement Research at Boston College. 

The report analyzes households by income group, and 32% of high-income households are “not worried enough” about their retirement risk, as opposed to 26% of low- and middle-income earners, according to authors Anqi Chen, Yimeng Ying and Alicia Munnell.

The study defines married couples ages 45 to 47 as low-, middle- and high-income if their median income is $50,000, $110,000 and $248,000, respectively. 

Households surveyed that were overly optimistic about the economy’s recovery or overestimated how much income their assets could provide in retirement are more likely to be “not worried enough,” according to the report.

The Center for Retirement Research used data from the Federal Reserve’s Survey of Consumer Finances to construct the National Retirement Risk Index where each household was asked to rate the adequacy of its anticipated retirement income. This index measures retirement readiness based on a range of assets like Social Security, pensions, home equity and employer-sponsored retirement plans. 

“[Higher-income households’] overconfidence may lead them to underestimate possible risks,” the report states. “Therefore, it is not surprising that households with higher debt-to-asset ratios, relatively low asset balances in 401(k)s, and other DC plans, and two earners but only one saver were more likely to be ‘not worried enough.’” 

With the housing debt-to-asset ratio, some households may have seen the value of their assets rise, as the housing market improved, but they may not be considering how much they still owe. The correlation between the housing debt-to-asset ratio and the “not worried enough” group was especially strong for high-income households, who tend to own more expensive homes, the report found. 

In addition, the Center for Retirement Research pointed out that DC plan assets can portray a “wealth illusion.” For example, $100,000 can appear to be a lot of money to many people even though it only provides about $617 per month in retirement income. 

“This wealth illusion may have been exacerbated by the strong market performance,” the report stated. “Having only a modest DC balance is associated with a higher probability of being ‘not worried enough’ for low and middle-income households.” 

Many dual-earner households also may not realize that they will have to replace both spouses’ earnings to maintain their standard of living in retirement. Therefore, the authors found that dual-earner households where only one spouse has a retirement plan are more likely to be “not worried enough.” 

Because Social Security replaces a small share of pre-retirement income for high earners, the probability that dual earners are not worried enough increases further, the report argues. 

Besides high-income earners, the report found that Black and Hispanic households are more likely to not be worried enough about retirement, likely due to racial and ethnic gaps in financial literacy.  

In general, accumulating adequate income in retirement is especially difficult for Black and Hispanic families in the U.S., as the racial wealth gap and inequity of the housing market persists, according to recent research conducted by the Wharton School of the University of Pennsylvania.  

The National Retirement Risk Index found that in 2019, 47.1% of American households were at risk of not being able to maintain their standard of living in retirement. That is only down slightly from the years following the 2008 financial crisis. 

It is important to note that the meaning of “at risk” differs by income, the report explains. For example, at-risk households with very low income may have trouble affording necessities, whereas at-risk householders with high income are not in danger of falling into poverty. However, they do face the prospect of not being able to maintain their current lifestyle in retirement.  

The NRRI also found that 20% of low-income households are “too worried” about their retirement readiness. Those who fall into this category are unaware of how much income they will have in retirement and perhaps have less optimism in the asset markets.  

Households that are risk-averse, have only one earner, own a home and rate themselves as having low financial knowledge are most likely to be “too worried” about their retirement readiness, the report showed. 

“Overall, the results suggest that households with incorrect perceptions get it wrong for predictable reasons,” the report stated. “A little education about the value of various sources of retirement income could reduce the size of the ‘too worried’ group.”