Does Grandma need to downsize?
If you are psyched to spend half a fortune on a fortune worth of stuff on Black Friday, you should read this entry later.
Today, I present a report from the Center for Retirement Research at Boston College. They do the National Retirement Risk Index. It measures the share of American households who are ‘at risk’ of being unable to maintain their pre-retirement standard of living in retirement. The report is very readable, if you want to see for yourself.
The news is not really news.
Since 2004, the percentage of households who are projected to not be able to retire at 65 with a stable standard of living has increased. Here's the breakdown by age group: Early baby boomers went from 35 percent to 41 percent. Late baby boomers went from 44 percent to 48 percent. Gen Xers went from 49 percent to 56 percent.
The reasons for the instability are not news either.
Almost three quarters (73 percent) of the increase in the percent ‘at risk’ was the result of the decline in house prices, reflecting the fact that housing is most households’ largest asset.
The study outlines all the factors:
1) the increase in the Social Security Full Retirement Age,
2) the decline in the stock market,
3) the decline in the housing market, and
4) the decline in annuity rates,
less 5) the increase in the percent of the value of the house that can be borrowed on a reverse mortgage.
Then in the conclusion, we find a gift for my furry and fanged readers -- the housing bears. This report just assumes that the housing bubble will not reinflate before we are all dead and gone.
Even if the stock market should bounce back, the housing bubble is unlikely to reappear. And as defined benefit plans fade in an environment where total pension coverage remains stagnant, Social Security’s Full Retirement Age moves to 67, and life expectancy increases, the outlook will get worse over time.
Yet, I find their concluding sentence daunting. “The NRRI clearly indicates that this nation needs more retirement saving.”
If housing has been our biggest asset and it has failed us, what are we supposed to invest in for our retirement savings?
Did housing equity fail future retirees or did those future retirees fail their housing equity by borrowing against their bubble-earned wealth?
