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Published: Jun 14, 2023 5 min read
Illustration of a person with retirement thoughts following him everywhere
Rangely García for Money

From shrinking Social Security benefits and longer lifespans to macroeconomic factors like inflation, Americans have plenty to worry about when it comes to planning their retirements.

New analysis, however, suggests many people should actually be more worried than they are about their retirement preparedness.

The National Retirement Risk Index (NRRI) report from the Center for Retirement Research at Boston College found that over a quarter of U.S. households overestimate their ability to maintain their lifestyles in retirement, especially those with higher incomes.

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What the data says

  • Most households assessed in the NRRI have a pretty accurate idea of whether they’re retirement ready: 40% are on track for retirement and reported as such, and 20% are in danger of not being prepared for retirement and know it. The remaining 40% are either “not worried enough” or “too worried.”
  • While the NRRI predicts that nearly half of households are at risk of not having enough money for retirement, only about a third self-reported being at risk.
  • Comparing the self-assessment data to the NRRI’s predictions, 28% of households overall think they’re not at risk of being financially unprepared for retirement even though the index predicts they are.
  • While the NRRI found that households across income levels underestimate their level of risk in relation to retirement preparedness, wealthier households were the most likely to be “not worried enough.” Almost a third (32%) of high-income households fell into this category, compared to 26% for both middle- and low-income households.
  • “Those ‘not worried enough’ are more likely to have higher incomes and may misjudge how much their assets can provide,” the report says.
  • Another 15%, meanwhile, are “too worried,” believing they will not have enough for retirement even though the index predicts that they’re on track. Lower-income households were the more likely to fall into this category.

Who should be more worried about retirement?

What characteristics made households more likely to be “not worried enough” about retirement? Researchers used a variety of factors to explain the likelihood of households ending up in a given category, like retirement plan participation, retirement savings, property ownership and more

Households that fell into the “not worried enough” category tended to have higher debt-to-asset ratios and lower asset balances in 401(k)s and other defined contribution plans. Two-earner households with only one saver were also more likely to be “not worried enough.”

The analysis found that “too worried” households were not aware of how much income they’ll have in retirement and may have less confidence in asset markets. Other characteristics that made households more likely to be “too worried” include owning a home, increased risk aversion, being married with one earner and low self-reported financial knowledge.

“Households that are not worried enough about their retirement income may not save enough even if they have the opportunity; households that are too worried may unnecessarily sacrifice their pre-retirement standard of living,” the report says.

Retirement preparedness: How to NRRI is calculated

The NRRI measures the percentage of working households at risk of being financially unprepared for retirement using data from the Federal Reserve's Survey of Consumer Finances, which was last conducted in 2019.

The survey asks individual households to rate the adequacy of their expected retirement income from one to five, with one being “totally inadequate,” three being “enough to maintain living standards” and five being “very satisfactory.” Households that answer one or two consider themselves “at risk.”

The index then predicts actual retirement readiness across income groups — low, middle and high — based on expected household retirement assets reported in the survey, including Social Security, household wealth, pensions, home value and company-sponsored retirement accounts like 401(k)s.

The income groups are defined by marital status and age, according to a spokesperson for the Center for Retirement Research. Married households ages 45 to 47 with median incomes of $50,000, $110,000 and $248,000 are considered low, middle, and high income, respectively.

Keep in mind that the index defines "at-risk" differently across the income groups. For low-income earners, "at risk" means not be able to cover the cost of basic necessities in retirement, while higher-income households that are at-risk may just have to lower their expectations for their lifestyle in retirement.

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