Ready for retirement? Likely not, study says
More than 40 percent of working-age households face a lifestyle shock, researchers say.
By HELEN HUNTLEY
Published June 6, 2006
If you don’t have a pension or serious savings, don’t count on maintaining your current lifestyle in retirement.
Millions of Americans — 43 percent of all working-age households — are at risk of lower living standards when they reach 65, according to a new National Retirement Risk Index released Tuesday by the Center for Retirement Research at Boston College.
Cyndi Cheek Cartelli of Gulfport counts herself among those facing a rough retirement.
“Slim to none is how I’d describe my preparedness,’’ she said.
The 44-year-old actor and teacher is currently unemployed, recuperating from major surgery. Her husband Vincent, who is 57, is a manager at a Denny’s restaurant. The couple’s finances took a major hit last year after Hurricane Wilma destroyed their home in Fort Lauderdale, where they were living at the time.
“We’ll both be working for the foreseeable future,” Cartelli said. “Unless you’re a two-income family, it’s impossible to put something away.’’
But two-earner couples also are at risk because Social Security replaces less of their preretirement income.
“I don’t think people out there understand the nature of the challenges ahead,” said Alicia Munnell, director of the center, which came up with the index as a way to track retirement preparedness over time. It is drawn primarily from analysis of the federal government’s Survey of Consumer Finances, which is updated every three years. Applying their research methods to the federal surveys since 1983, the center found we’re in substantially worse shape than we used to be.
Dig into the numbers and the future looks really grim.
The retirement risk index is based on a best-of-all-possible worlds scenario. It assumes workers don’t retire until they are 65, that they spend down the equity in their homes by getting a reverse mortgage and that they create their own pensions by putting all their savings in an inflation-adjusted annuity at retirement — three things most Americans don’t do.
Change those assumptions to workers retiring at 63, not tapping into home equity and investing their assets themselves, and a whopping 66 percent of working-age households are at risk.
More sobering: Even some of those deemed not at risk will still have to trim back their lifestyles. The index assumes you’ll be okay if you come within 60 percent of your preretirement income for upper income households and 73 percent for lower-income households. And rapidly rising health care costs are not addressed.
“To avoid having a big decline in standard of living at retirement, they’re going to have to do something,” Munnell said. “The two obvious things to do are to work longer or save more. Working longer is a really powerful antidote to inadequate retirement income.”
She said workers tell pollsters they plan to retire at 65, but most quit sooner. “Some new jerky boss comes in and they say 'I’m out of here.’ ” Working until 67 would make a huge difference, she said.
Saving just 3 percent more of your income a year also would have a big impact for young workers, she said.
Some young workers have gotten that message and acted on it.
“I save so I won’t get in trouble later in life,” said Rocio Ungaro, 34, of Tampa, a research associate with the University of Miami. “I saw what was happening to my parents, who raised five kids and sent us to private schools and weren’t really prepared for retirement. Now the running joke among us is who’s going to take our parents in.”
One reason retirement readiness has declined over the last two decades is that fewer workers can count on a traditional pension plan Instead, many have retirement savings plans, such as 401(k)s, which they have to fund and manage themselves.
“In theory there’s no reason why 401(k) plans couldn’t work perfectly, but in fact they don’t,” Munnell said.
She said people approaching retirement have an average of about $60,000 in their 401(k)s when they need to have $300,000. “All age groups are falling short.”
She said the study also highlights how important Social Security is to low-income households, which aren’t likely to be able to save for retirement.
One point of the index is to encourage national discussion of solutions to the income shortfall millions will soon be facing. Businesses and the government both will need to be involved, she said.
“Older people are going to have to work longer and businesses have to be more flexible, offering part-time work and seasonal work,” she said.
Munnell also encourages businesses to make enrollment in 401(k) plans automatic with regular increases in savings unless workers opt out.
She also favors raising the minimum age for Social Security and says “down the road we have to add another tier to the retirement system, but I don’t know what it will look like.”
Nationwide Mutual Insurance Co. gave the center $580,000 to develop the index, saying it hoped to provide Americans with a more accurate picture of the future.
So far most of us seem oblivious to the problem. Outside of retirement savings plans, our savings rate is negative, meaning we spend more than we earn.
Keith Wilkins, 32, said he saves diligently for retirement and expects to have his mortgage paid off in 10 years. But as manager of the Sun Cruz casino boat at John’s Pass, he gets a chance to observe some big spenders.
“Some of the people who gamble it away are filthy rich already,” he said. “But I often wonder about the ones who aren’t.”
Times staff writer Kris Hundley contributed to this report. Helen Huntley can be reached at hhuntley@sptimes.com or (727) 893-8230.