America’s retirement picture improved slightly during the presidential tenure of Donald Trump, according to research from the Center for Retirement Research at Boston College, but not by much.
Then the Covid-19 pandemic came.
According to the center, the percentage of households at risk of losing their standard of living after retirement fell from 50% to 49% from 2016 to 2019. This decline was driven by gains in stock and house prices (offset by lower interest rates and Social Security replacement rates).
However, in 2020, the percentage of households at risk rebounded to 51%, largely because of increases in unemployment caused by the coronavirus outbreak, though that rebound was also offset by continued gains in stock and real estate prices.
The score, known as the National Retirement Risk Index, has hovered around 50%. The 2020 score implies that more than half of today’s workers are unprepared for retirement. More specifically, it suggests that 51% of Americans are failing to save adequately and will experience lifestyle decline after they separate from employment.
The researchers said the greatest improvement in the 2019 score was among workers age 40 to 49, for whom the index declined six percentage points over three years, from 54% in 2016 to 48% in 2019. During the same period, retirement readiness actually worsened for workers in their 30s, whose index score increased from 57% to a 58% rate of households unable to maintain pre-retirement living standards. Those in their 50s also saw their readiness score worsen, increasing from 40% to 42%.
When researchers divided workers by wealth into thirds roughly equivalent by population, the only group whose retirement chances improved between 2016 and 2019 were middle-income Americans, whose index scores declined from 49% to 45%. The wealthiest third of Americans saw their retirement prospects worsen, with an index score increasing from 28% to 29%, while the poorest third of Americans saw no change, with their score steady at 73%.
The researchers note that the 2020 estimate may look mild considering the financial “calamity” caused by the pandemic, but they note that the index only measures what proportion of households are “at risk” of not being able to sustain their lifestyle in retirement; it does not reflect the gap between adequate and actual savings. Thus, the full impact of the pandemic isn’t reflected in the index, said the researchers, because the households most affected were likely already at risk.
In other words, the pandemic has added relatively few new Americans into the cohort at risk for lifestyle decline in retirement, but it likely has made the retirement picture worse for those already behind in their retirement preparations.
The score is constructed using the Federal Reserve’s “Survey of Consumer Finances,” and is typically updated every three years. The researchers at the Center for Retirement Research estimated what the results of the Fed survey would have been had it been taken in 2020.