How close are today's pre-retirees to being retirement ready?
While there is still work to be done, the answer is closer than
we might have expected. That's the good news from a recent
analysis by BlackRock and the Employee Benefit Research Institute
). The less-than-good news is that U.S. workers closest to
retirement, and with the least amount of time left to bulk up
their savings, are the ones who have the most work to do.
Here is how we examined the question of retirement readiness.
According to many financial advisors, you will need to replace
about 80% of your income in retirement
. Many Americans have two primary sources of retirement income,
Social Security and retirement savings, usually in 401(k) plans
and individual retirement accounts (
). We focused on people in their last decade before the
traditional retirement age of 65 to find out if those sources
should be enough. And if not, how large is the gap?
We worked with EBRI to determine the median income for U.S.
workers currently ages 55, 60 and 64. We then used those
numbers to estimate their Social Security retirement benefits at
what's known as their "
full retirement age
." Next, we collected the median retirement savings balances of
people the same ages who have 401(k) accounts and IRAs in EBRI's
extensive database. Then, we used the
to estimate the retirement income that those savings could
provide. We introduced the
CoRI Retirement Indexes
a year ago specifically to help pre-retirees estimate the future
income potential of their savings.
We found that the median 55-year-old is already on track to
replace 69% of his pre-retirement income. But there is still a
14% gap that median worker needs to close to reach the goal of
replacing 80% of pre-retirement income. And the gaps are wider
for older pre-retirees. The results are shown in these three pie
Sizing Up The Gap
Percentage of investors' retirement-income goal estimated
to be replaced by income from savings and Social Security,
along with the gap, at different ages.
All retirement income estimates use a scenario that assumes
the median 401(k) and IRA savings of a U.S. investor in each
age group, the Social Security payment estimated for the median
income for each age group, and age-appropriate CoRI Retirement
Index levels as of June 30, 2014. Retirement income goal is 80%
of pre-retirement income, a figure commonly referenced by
financial planners and reflected in Aon Hewitt's 2008
Replacement Ratio Study. Retirement is assumed to begin at age
The fact that the median 55-year-old is already on track to
replace 69% of pre-retirement income is good news, especially
since younger pre-retirees should have more time to increase
contributions and improve their position. But the 26% gap that
the median 64-year-old faces to replace 80% of pre-retirement
income is more daunting. And for workers who expect to make up at
least some of the difference by staying on the job past age 65,
it's important to note that
EBRI's 2014 Retirement Confidence Survey
has found that 49% of retirees left their jobs
than they had planned.
One potential mitigating circumstance is that workers in their
60s are far more likely to receive some sort of traditional
pension to supplement their retirement. A more detailed review
can be found in our first
CoRI Retirement Indexes Analysis
Cost of Future Income Has Risen
It's worth noting that in the year since we began tracking the
cost of future retirement income, the estimated cost of income
. For someone age 55, for example, every $1 of lifetime
retirement income was estimated to cost $14.09 as of June 30 - a
7.15% increase from what that same income would have cost a
55-year-old a year ago.
The relationship between market returns and the price of
future income is a complex one, but in this case, strong market
returns may have helped keep many people on track.
Chip Castille, Managing Director, is head of the
BlackRock US Retirement Group. You can find more of his
Aon Hewitt's 2008 Replacement Ratio Study, which finds that
an 80% income replacement rate is needed for single people with
$50,000 in pre-retirement income who retire at age 65 to maintain
their standard of living. Data is as of 6/30/14 and is subject to
The CoRI Retirement Indexes do not guarantee future
income or protect against loss of principal. There can be no
assurance that an investment strategy based on the CoRI
Retirement Indexes will be successful.
Indexes are unmanaged and one cannot invest directly in
Examples shown in this material are for informational purposes
only and do not represent an actual account. The CoRI Retirement
Indexes do not reflect the fees, expenses and cost that may be
associated with an annuity or any other retirement income product
that an individual may purchase, or any assumption that such a
product will be available for purchase at the time of retirement.
Actual investment outcomes may vary. A number of factors may
contribute to variations in retirement income.
Historical data and analysis should not be taken as an
indication or guarantee of any future performance, analysis,
forecast or prediction.
This information is the property of BlackRock, Inc. and /or
its subsidiaries (collectively, "BlackRock"). It is provided for
informational purposes only. The CoRI Retirement Indexes are
supported by proprietary BlackRock research about annuity pricing
and income generation; the methodology of the CoRI Retirement
Indexes are supported by assumptions about the relationship
between annuity pricing and fixed income markets, the accuracy of
third party reporting and compilation of current annuity pricing,
and the predictive nature of the components of the methodology.
There is no assurance that these assumptions are correct or will
perform in the manner that they have in the past. Although
BlackRock obtains information from sources which BlackRock
considers reliable, neither BlackRock nor its subsidiaries or any
other third party involved in, or related to, compiling,
computing or creating the information (collectively, the
"BlackRock Parties") guarantees the accuracy and/or the
completeness of any of this information. All BlackRock indices
and data are the exclusive property of BlackRock and may not be
used in any way without the express written permission of
The CoRI Retirement Indexes are maintained by BlackRock Index
Services, LLC (the "Affiliated Index Provider"), a subsidiary of
BlackRock, Inc., that designs, sponsors and publishes indices for
use in portfolio benchmarking and portfolio management. While the
Affiliated Index Provider publishes descriptions of what the CoRI
Retirement Indexes are designed to achieve, the Affiliated Index
Provider does not provide any warranty or accept any liability in
relation to quality, accuracy or completeness of data in respect
of the CoRI Retirement Indexes, and does not guarantee that the
CoRI Retirement Indexes will not deviate from their stated
methodologies. The Affiliated Index Provider does not provide any
warranty or guarantee for Affiliated Index Provider errors.