creator: Golub-Sass, Francesca
description- – This paper addresses how much individuals are saving for retirement. The standard measure, the personal saving rate reported in the official U.S. National Income and Product Accounts (NIPA), has fallen dramatically and in 2004 stood at a dismal 1.8 percent of disposable personal income. But is this indicator an accurate measure of saving behavior? NIPA combines the saving of the working-age population with the dissaving of retirees. This study attempts to separate the saving of these two groups.Three conclusions emerge from the analysis. First, adjusting the NIPA personal saving rate shows that personal saving by the working-age population is significantly higher than the reported national rate. Moreover, allocating a portion of business saving to workingage households further raises their saving rate. Second, commentators should be careful not to double count saving through employer-sponsored plans by referring to pension saving and personal saving as if they were different components. In fact, for most of the time between 1980 and 2003, pension saving accounted for all of personal saving. Finally, the analysis (inadvertently) helps explain the puzzle surrounding the collapse of the total NIPA personal saving rate beginning in the early 1980s. While capital gains were part of the story in the 1990s, most of the downward trend can be explained by changes in the saving rate of those 65 and over.
collectiondatepublishercreatorformat description- – In June 2006, the Center for Retirement Research released the National Retirement Risk Index (NRRI). The results showed that even if households work to age 65 and annuitize all their financial assets, including the receipts from reverse mortgages on their homes, 43 percent will be at risk of being unable to maintain their standard of living in retirement. Households are more likely to be 'at risk' if they are young, have low incomes, or lack pension coverage. This brief looks at the three major factors that have caused the Index to increase since the early 1980s. These factors are: 1) a decline in Social Security replacement rates due to the decline in one-earner couples and the increase in Social Security's Normal Retirement Age; 2) lower pension replacement rates as a result of the shift from defined benefit to defined contribution plans; and 3) lower annuity payments due to the dramatic decline in real interest rates. These negative factors have been only partially offset by a modest increase in financial assets, and an increase in the retirement income that homeowners could potentially obtain through reverse mortgages. Having identified the key movers, this brief also updates the Index from 2004 to 2006. During this period, the run-up in housing prices was cancelled out by a corresponding surge in mortgage debt, which resulted in no change in the 'at risk' status of any of the Index's age cohorts. However, compared to the 2004 Index, the 2006 Index has more Generation Xers and fewer Baby Boomers. Since Generation Xers are more likely to be 'at risk,' this change increased the Index slightly to 44 percent.
collectiondatepublishercreatorformat description- – The Center's National Retirement Risk Index (NRRI) provides a measure of the percentage of households that will be unable to maintain their standard of living in retirement. Issued in June 2006 with numbers based on the 2004 Federal Reserve's Survey of Consumer Finances, the Index shows that 43 percent of the population will be 'at risk.' 'At risk' means different things, however, for households in different parts of the income distribution. For those in the top third, 'at risk' may require cutting back on some of the normal amenities enjoyed before retirement, but for those in the bottom third 'at risk' may mean foregoing essentials. This brief takes a closer look at the NRRI for the bottom third of the population. The brief focuses on three issues. The first is the relative change in the NRRI for the bottom third as opposed to the upper two-thirds over the period 1983-2004. Although the percent 'at risk' remains consistently higher for the bottom third, the situation for those at the low end of the income scale deteriorated less over the period than it did for the top two-thirds of households. The reason is that two of the main drivers -- the shift from defined benefit to defined contribution plans and the decline in real interest rates -- were less relevant for those at the low end of the income scale. The second issue pertains to the outlook for the bottom third going forward. Because the bottom third of households relies almost entirely on Social Security in retirement, the continued increase in the Normal Retirement Age (NRA) will raise the percentage 'at risk.' The final section explores the implication of the increase in the percentage of households in the bottom third 'at risk' for poverty among the elderly in the future.
collectiondatepublishercreatorformat
