Do households have a good sense of their retirement preparedness?

Abstract

The National Retirement Risk Index (NRRI) measures the percentage of working-age households who are 'at risk' of being financially unprepared for retirement today and in coming decades. The calculations show that even if households work to age 65 and annuitize all their financial assets, including the receipts from reverse mortgages on their homes, 44 percent will be 'at risk' of being unable to maintain their standard of living in retirement. An extension of the analysis to account explicitly for health care costs in retirement raises the share of 'at risk' households from 44 percent to 61 percent. This brief examines whether households have a good sense of their own retirement preparedness — do their retirement expectations match the reality that they face? Do people 'at risk' know that they are 'at risk?' The first section summarizes the NRRI and compares households' self-assessed preparedness to the objective measure provided by the NRRI. The second section describes the characteristics of households associated with being too optimistic or too pessimistic. The last section of this brief introduces health care costs into the analysis.