Almost 30% of Households ‘Not Worried Enough’ About Retirement (And Why it Matters)
By: Courtney Jorstad
July 31, 2023 • 6 minute read
A recent survey found that nearly 30 percent of Americans are “not worried enough” about retirement, and that’s not a good thing, retirement experts say.
While not being a worrier is typically touted as an admirable quality in a person, economists and retirement researchers from the Center for Retirement Research at Boston College (CRRBC) say that’s not the case when it comes to retirement savings.
When people aren’t worried about their financial situation, that typically means that they aren’t very likely to do anything about it, the researchers explain in their analysis.
“Households that are not worried enough about their retirement income may not save enough even if they have the opportunity,” wrote economists Anqi Chen and Yimeng Yin, and retirement expert Alicia H. Munnell, Peter F. Drucker Professor of Management Sciences at Boston College’s Carroll School of Management.
Their analysis is based on the data included in the National Retirement Risk Index (NRRI), which looks at how Americans perceive their retirement risk compared to how “on track” they are. This is what their findings revealed:
- 40 percent are in good shape and know they are in good shape
- 20 percent are in bad shape and know they are in bad shape
- 28 percent are not worried enough about retirement
- 12 percent are too worried about retirement
Collectively those who are in bad shape and those who aren’t worried enough about retirement make up almost 50 percent of households.
The NRRI evaluates what kind of financial shape working-age households believe they are in for retirement, specifically it is looking for those who are not prepared financially.
Those who are not prepared for retirement are defined as those who will not be able to maintain their pre-retirement standard of living based on their current savings rate.
The information used for the NRRI is from the Survey of Consumer Finances (SCF), which is a national survey conducted by the Federal Reserve every three years.
According to the NRRI, if a household is not within 10 percent of the defined “target” then it is considered “at risk.”
While nearly half of all households are considered at risk for not being prepared for retirement, only about one third of households know it, according to the SCF.
When the SCF asked households to self-report the sufficiency of their retirement income, 34 percent said they were at risk.
One interesting finding from the analysis is that while households within various income levels all underestimate their retirement preparedness, “higher-income households are most likely to underestimate their risk.”
One possible reason for the optimism is that households are now asked to include non-retirement assets in their assessment such as real estate and stock market investments. Given that the housing and stock markets have demonstrated a strong rebound since the Great Recession in 2008, this contributes to households feeling more confident about their retirement preparedness.
According to the researchers, some of the reasons for households “not being worried enough” about their retirement savings includes the following:
- A misunderstanding of their housing debt-to-asset ratio. While housing prices have gone up, which may provide comfort to households, it doesn’t change how much they still owe on their mortgages.
- Account balances. While someone may look at an account balance of say $100,000 and think that looks like a lot of money, in reality $100,000 will only give households roughly $600 per month in monthly income.
- Two earners. In the case where there are two earners, it’s not uncommon for only one of the earners to be contributing to a retirement account.
When evaluated according to racial and ethnic groups, the researchers also added that Black and Hispanic households are more likely to “not be worried enough.”
How to Make Sure You’re Prepared for Retirement
The retirement experts at CRRBC say that households who aren’t prepared for retirement “must act.”
If you think you might be in the “not worried enough” category or in the “bad shape” category, you may be wondering what action you need to take.
The Department of Labor says to start by making sure you know your retirement needs.
“Experts estimate that you will need 70 to 90 percent of your preretirement income to maintain your standard of living when you stop working,” the DOL explains.
The DOL recommends contributing to an employer retirement savings plan such as a 401(k), if one is offered.
In addition to a retirement plan offered by your employer, it is also recommended that you contribute to an Individual Retirement Account (IRA) and avoid touching your retirement savings as much as possible.
If you want to invest in the stock market, The New York Times money columnist Ron Lieber says to stick with index funds, which work by purchasing “every stock or bond in a particular category or market.”
And if you haven’t started saving for retirement yet, the best time to start is now, he adds.
Other Retirement Tools Available to You
If you are near retirement or already in retirement and finding that you didn’t save enough, one place to look is where you lay your head every night — your home.
If you’ve lived in your house for several years or decades, you very likely have a large amount of equity that can be converted into cash in the form of a home equity conversion mortgage (HECM), also known as a reverse mortgage.
A reverse mortgage used to be seen as an option to turn to as a last resort, but retirement experts now say that a reverse mortgage should be seen as “a retirement income tool.”
“Financial planning research has shown that coordinated use of a reverse mortgage starting earlier in retirement outperforms waiting to open a reverse mortgage as a last resort option once all else has failed,” writes Dr. Wade Pfau, founder of Retirement Researcher.
A reverse mortgage helps retirees in two ways. First, it pays off the current home mortgage, if there still is one, which also eliminates any monthly mortgage payments. Second, it allows homeowners to receive the remaining funds as a lump sum, monthly payments, and/or a line of credit.
There are no rules about how the funds from a reverse mortgage must be used, but homeowners do have to keep the home as their primary residence, stay current on property taxes and homeowner’s insurance, and maintain the home.
A reverse mortgage “allows homeowners to borrow against the value of their home, creating liquidity from an otherwise illiquid asset, and grants the flexibility to defer repayment until they have permanently left the home,” Pfau explains.
Pfau says that it’s “important to shop around and talk to different lenders.”
If a reverse mortgage sounds like it may be an option for you, check out these featured reverse mortgage lenders to get started.
- Inflation and Retirement: What are Your Options?
- How to Use a Reverse Mortgage as a Retirement Tool
- Most Children Who Inherit Their Parents Homes Plan to Sell: Report
This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement.