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Prudential-sponsored National Retirement Risk Index shows modest decline from 2013 to 2016; remains substantially higher than 1986

By Michael Sillup

January 09, 2018

Half of Americans won’t be able to maintain their standard of living after retirement, according to the most recently compiled National Retirement Risk Index. Fortunately, they can take steps to avert a cash-strapped future.

The Prudential Financial, Inc.–sponsored (NYSE: PRU) index, calculated by the Center for Retirement Research at Boston College using 2016 statistics from the Federal Reserve’s Survey of Consumer Finances, showed that the percentage of Americans who are projected to be unable to maintain their standard of living upon retirement declined 2 percentage points to 50 percent from 2013. It remains 19 percentage points higher than the results in 1986.  

Even with the slight decrease — which the researchers attribute to strong stock market growth and rising home values — a combination of factors including a dwindling number of pensions, declining wage growth, and having to wait longer to get full Social Security benefits means that people now in their 20s, 30s and 40s are more at risk than their older neighbors.

“This trend is unlikely to change,” said Jim Mahaney, vice president of Strategic Initiatives at Prudential. “These younger age groups are going to have to save more for retirement, resist the temptation to tap into those funds for other uses and make wise investment decisions. It can be done, it will just be different from how their parents planned for retirement.”

Unlike pension plans, where an employer’s plan assumes the investment and longevity risks, the individual assumes those risks with a 401(k) plan, Mahaney noted. Further, younger generations have to work longer to collect full Social Security benefits. Individuals born before 1937 reached the full retirement age at 65; those born after 1960 aren’t eligible until they are 67.

Mahaney offers several strategies to address these challenges:

INDIVIDUALS

  • Use one of the widely available retirement income calculators to make sure that you are saving at the proper rate to ensure adequate retirement income.
  • Consider purchasing an annuity, which can provide guaranteed lifetime income similar to a pension.

EMPLOYERS

  • Enhance 401(k) plans to help workers achieve more-certain outcomes. For example, add features such as automatic enrollment, automatic escalation of contributions and in-plan guaranteed income products.
  • Encourage employees to focus on a retirement income goal rather than a savings goal while targeting a realistic retirement age.

POLICYMAKERS

  • Adopt regulations requiring defined contribution plans to project monthly income on participant statements.
  • Encourage more employers to offer a workplace retirement savings plan by eliminating existing hurdles.

 

For the National Retirement Risk Index research, click here. For Prudential’s perspective, download “Planning for Retirement: A Generational Perspective.” To arrange an interview, contact Monique Freeman, at monique.freeman@prudential.com or call 973-802-3745.
 

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The Prudential Insurance Company of America, Newark, NJ.