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Retirement is still risky

By Jennie L. Phipps ·
Tuesday, December 3, 2013
Posted: 3 pm ET

Despite a 45 percent increase in the stock market since 2010 and a 6 percent increase in housing values during the same period (in inflation-adjusted terms), about 50 percent of people older than 65 are still likely to be unable to maintain their standard of living in retirement, according to a study by the Center for Retirement Research at Boston College.

The center's calculation, known as the National Retirement Risk Index, is based on the Federal Reserve's Survey of Consumer Finance, a triennial survey of U.S. households. The most recent survey is 2010. The 2013 survey isn't available yet.

In 2010, the index showed that even if households headed by 65-year-olds annuitized all their income and took out reverse mortgages in an effort to maximize their resources, 53 percent of households were at risk. Given the improvement in housing values and stock portfolios, it would seem like the state of retirement planning would be significantly better in 2013. But the retirement picture improves only by 3 percentage points, so that 50 percent of households are at risk instead of 53 percent, the center found.

The explanation is simple, says Anthony Webb, a research economist for the center.

  • About 89 percent of all stocks are owned by people in the top third of the income spectrum, so average people didn't benefit from the rising stock market.
  • Social Security's full retirement age has risen for an increasing number of people compared to 2010, effectively lowering benefits. In other words, the further from full retirement age you are when you claim, the less you get.
  • Interest rates continue to be low, and that has an impact on how much income households can squeeze out of savings as well as the amount of money available from annuitization and from reverse mortgages.
  • Home values are much more significant for lower-income retirees than they are for wealthier older people, and even though they've risen 6 percent since 2010, that doesn't make up for the Great Recession's hefty decline.
  • People are living longer, so they'll need more total income to pay for that increased longevity.

What is the answer? Webb says most people have three choices. They can work longer, save more or accept a drop in their standard of living after they retire.

"The trouble is that some households don't have much choice. If they are in poor health or lose their jobs, these households may have unpalatable choices," Webb says.

"If you have a job and you are in good health,  there is a lot to be said for working longer," he adds.

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December 05, 2013 at 4:24 pm

One thing that has helped me to meet my retirement goals is that I have always maxed out my 401K contributions. Most companies match some portion and that is free money in your pocket. You can't spend what you don't have and if you contribute every paycheck you get used to living on what's left. It has really added up now that I am getting older.

December 05, 2013 at 4:21 pm

I am safely retired. We began saving 5% when married and increased it by just 0.5% each year. No excuses. We spent what we could afford for what we needed. No huge SUV's. No wasteful spending on cigarettes, booze (we do enjoy our casual drinks of course), expensive dinners out 3-4 times a week, outlandish items such as large diamonds (the kids get them anyway), etc.
We now get social security, a modest pension, our home is paid for, we have only expenses for our basics, such as food, taxes, cars, clothing, etc. AND, we travel and do indeed spend a little extra on occasion to celebrate at times. Anyone can do it if we can, but the key is to avoid peer pressure. You do NOT need the biggest SUV, 3 or 4 cars (or a new one every 2 years!), expensive clothes, etc.

December 05, 2013 at 4:09 pm

I will try to work till I drop, that is if work is available and my health continues to be good. My wife and I will have to live on around $1800 per month when retired in about five years give or take. I feel that's enough to pay essential household bills. Anything extra would be a prayer.

December 05, 2013 at 1:26 pm

You have to save money and invest it. Not CDs. While stocks are pretty flat a good investment counselor can find ones that pay dividends. You cannot spend everything you make. To retire you must have no personal debt, a paid off house then find a situation that costs a low amount like a condo or something. Don't live in a big house and no mortgage. Down size. You can do it but you can't start to think of retirement at 50. You must invest starting in your 20's even if it is $25.00 a month. For Steve, he can apply for disability if he is brain damaged. It is a long time consuming process be if he cannot work, he can get it. If he can work but not as effectively, probably not.

alice paige
December 05, 2013 at 12:17 pm

older people that need to work even part time and haven't been able to get a job .I'm now 77 and living on ss and to live on 1,035.00 as I was layed off my job in 2008

December 05, 2013 at 12:07 pm

I am a retired auto worker. Have been retired over 5 years now, and took a 25% hit on my social security as I took it early at age 62 because I had 30 years in with my company and thought I had better get out as the auto industry was looking shaky in '08. With my pension and social security after taxes I live on less than 30k a year and I feel I'm doing fine. It is appauling to me when I hear of city, county, state, and other government pensions being over 100k a year, and they don't know how they could manage on less. When I retired I had my car and house paid off. I watch my dollars and keep spending in the careful range. When people retire they have to realize they just can't have everything in the world and spend like there's no tomorrow, unless they managed to put away a million or two during their working years.

December 05, 2013 at 12:06 pm

LEE, And you'll have more ENTERTAINMENT in prison too!lol

December 05, 2013 at 11:47 am

Here is my retirement plan, I am 40 now. I'll rob a bank when I am 70 so I can get 3 meals and free health care in prison until I die...

December 05, 2013 at 11:26 am

Please read.

December 05, 2013 at 10:49 am

I'm 45 and have slowed down both physically and mentally. I had brain surgery in 2004 which has caused lingering effects. I'm sure I could make it to 62 but not much after that. Why would the government want people to work over 65 anyway? People should be encouraged to retire at 62 to lower the unemployment rate. I could never be as good a worker at 62 than somebody 22 years old. Our government needs to stop wasting our tax dollars on foreign aid and payoffs. I've witnessed all our past presidents carelessly spend our tax dollars so don't blame just one.