Will the recent rebound in the stock market and housing prices be enough to save the nest eggs of those in the workforce?
According to the Center for Retirement Research (CRR) at Boston College, it may help, but not very much. Individuals will still need to work longer and save more. In a report issued today, "Will the Rebound in Equities and Housing Save Retirement?," the CRR takes a look at the National Retirement Risk Index (NRRI) and finds that, as of 2010, even if households worked until age 65 and annuitized all of their financial assets, 53 percent were still at risk of not having enough money for retirement.
Since 2010, both the stock market and the housing market have made gains (45 percent and 6 percent, respectively). That fact, however, does little to help retirement savings. CRR states this is so because the increases in house prices have been modest and the growth in the equities market mainly benefits the top third of households.
Percent of households "at risk" at age 65 by income group
Essentially, CRR is saying that the reitrement landscape in 2010 was no better than it was in 2007. In fact, it may be worse.
"The most obvious reason is that while stocks are slightly higher than their pre-crisis peaks, house prices are still substantially lower in real terms than in 2007," the report states. "And the house is a much more significant asset than stock holdings for most households, making trends in house prices a major influence on the NRRI results."
CRR points to two other factors that are also depressing the NRRI: Social Security's full retirement age and the decline in interest rates.
So what can we make of this? Today's retirement landscape seems to be no better than 2007 or 2010. According to CRR, the fundamental message is that "half of today's working-age households are unlikely to have enough resources to maintain their standard of living once they retire."
Therein lies the mantra we've been hearing since the financial collapse: Work longer and save more.