Retirement for Baby Boomers and Generation Xers (those born after 1965) will be a very different experience from that of the previous generation of retirees because of the financial crisis, says Alicia Munnell, the director of the Center for Retirement Research at Boston College. The Center came up with a National Retirement Risk Index that would “quantify the impact of this security crunch” and found that in 2009, 51% of households were projected to be “‘at risk’ of being unable to maintain their pre-retirement standard of living in retirement.”
The NRRI shows that even before the financial crisis, in 2004, a projected 43% of households were ‘at risk,’ and those projections increased to 48% for Late Boomers and 56% for Generation Xers by 2009.
“This gloomy forecast is due to the changing retirement income landscape,” says Munnell. These changes include living longer, falling replacement rates from Social Security, increased out-of-pocket healthcare expenses, and declines in retirement asset returns.
Munnell notes that the NRRI is based on “conservative assumptions” and that it may, in fact, understate future challenges for upcoming retirees. The index is based on the assumption that seniors will not retire until they reach the age of 65, when in fact many will retire before then. Additionally, says Munnell, the index assumes everyone will utilize their home’s equity through a reverse mortgage, although only a small percentage will actually do so.
The Center recently partnered with the National Reverse Mortgage Lenders Association with a plan of working together to pool resources and seek common ground.
Written by Alyssa Gerace