Americans Not Ready for Retirement

A new retirement index released in late June 2006 estimates that 43 percent of working-age households are not likely to have enough retirement income to maintain their current standard of living.

According to CNN Money, the Center for Retirement Research (CRR) at Boston College created the index and defines "at risk" to mean those households projected to fall at least 10 percent short of their income target in retirement.

The organization assumed a base target of 73 percent of one's pre-retirement income for all households. A household with $100,000 in annual income before retirement should be able to generate $73,000 from all sources, including savings, Social Security and pensions. That varies according to marital status, gender and income.

Most at risk...

• Those born between 1965 and 1972 (Gen X-ers), 60 percent are at risk of not having enough funds at retirement.
• Of the late Baby Boomers, born in 1955 to 1964, 54 percent are at risk.
• Of the middle-income Gen X-ers, 46 percent are at risk.
• Among two-earner Gen X couples, 53 percent are at risk, as they often receive less in Social Security benefits.
• Of single Gen X women, 52 percent are at risk; they are most likely to be in the bottom third of income earners.

"…working two extra years or saving three percent more can substantially improve retirement security," said CRR director Alicia Munnell.

Several reasons why so many working-age households are at risk, as noted by CRR---

- Life expectancy is on the rise.
- Defined-benefit pensions are on the rise.
- Social Security benefits will replace a smaller percentage of one's pre-retirement income as the age at which workers become eligible for full benefits rises from 65 to 67.
- 401(k) balances are not high. The median balance is $60,000 among households nearing retirement.
- Most workers don't save for their retirement outside of their 401(k)s.

CRR researchers assumed that in retirement you will need less income than you do while working. Why? Because your taxes are likely to be lower and you will no longer need to save for retirement and your mortgage is more likely to be paid off.