Work from the Center for Retirement Research at Boston College has produced something called the National Retirement Risk Index. The idea is to determine the “readiness” for a household to entire the retirement phase. Where do you stand?
If you have ever worked through a financial planning session, it quickly becomes evident the longer you save (i.e. work) then two things happen. First, you continue to build your investable wealth instead of drawing it down. Second, you reduce the years needed to draw it down.
The results from the 2010 survey (which is the last major survey discussed) is that about 50% of households are ready for retirement at age 65. As mentioned above — what should be evident is that by age 70, the percent increases to 86%.
Another key finding is that households aged 30-39 are not nearly prepared for retirement as the 50-59 cohort. The findings indicate that the 30-39 cohort group is likely required to work until age 70 to close the gap between the 50-59 cohort.
The reasons for the less preparedness of the 30-39 group:
* higher full-retirement age for Social Security
* less coverage by Defined Benefit Plans (traditional pensions)
* less savings through Defined Contribution Plans (401(k) plans)
It is critical therefore to remember the importance of saving today as a younger adult to be able to fund retirement without having to delay it significantly. At Smith Patrick we use a Monte Carlo simulation tool to better understand the dynamics of savings, cash flows, and time horizons to make a long-term plan.
For more information regarding the NRRI studies please refer to Center for Retirement Research