While the
National Retirement Risk Index
(NRRI) published earlier this year by Boston College reported that
the vast majority of Americans will be able to retire comfortably
by age 70, a new analysis says that assumption is flawed.
The
report
, which the Employee Benefit Research Institute (EBRI) released
this week, compares the NRRI predictions to the EBRI's own
Retirement Security Projection Model. According to the EBRI, the
NRRI methodology ignores important factors, and workers considered
at-risk might actually have to work until age 84 to have the
retirement funds they need.
Why the EBRI disagrees with the NRRI
The EBRI claims that the NRRI is based upon outdated
wealth-to-income patterns. The NRRI used data from 1983-2007
Federal Reserve Surveys of Consumer Finances to form its
projections, while the EBRI says its data have been updated based
on recent trends in 401(k) and savings rates.
In addition, the NRRI and EBRI have different definitions of
when a household will be ready for retirement. The EBRI says its
retirement model takes additional measures to determine the amount
of savings retirees will need to retire securely.
To make its calculations, the EBRI looked at factors related
to:
- Longevity
- Investment risk
- Possibility of catastrophic health care costs, such as
nursing home care
The NRRI findings relied solely on replacement income figures to
determine retirement readiness. That meant that once households
reached a certain benchmark level to continue their standard of
living, they were considered ready to retire for the purposes of
the study.
When will you be able to retire?
The EBRI report looked at the findings of the NRRI against its
own as they related to households who were between the ages 50-59
in 2007. The report then compared the percentage of households that
will be able to retire at different ages according to each
model.
The NRRI came to these conclusions:
The EBRI came back with different findings, particularly in
regard to Americans' readiness to retire at age 70:
- 52 percent of households will be ready to retire by age
65
- 64 percent of households will be ready to retire by age
70
- Households with pre-retirement income in the lowest quartile
will have to work until age 84 before 90 percent of these
households have a 50 percent probability of success
When the EBRI adjusted its data to eliminate calculations for
health-care costs, it said its projections came more in line with
the NRRI projections.
"It would be comforting from a public policy standpoint to
assume that merely working to age 70 would be a
panacea to the significant challenges of assuring retirement income
adequacy," said Jack VanDerhei, EBRI reearch director and author of
the study, in a statement. "But this may be a particularly risky
strategy, especially for the vulnerable group of low-income
workers."
The EBRI report also says that those who continue working and
are enrolled in a defined compensation program at age 65 are more
likely to be able to retire earlier.
The competing findings highlighted by the NRRI and the EBRI
highlight the difficulty that today's workers face in determining
when they should expect to retire. Perhaps the best advice for
these workers may be to take these broader predictions with a grain
of salt and to focus instead on their individual
retirement savings situation
.