2010 SCF Suggests Even Greater Retirement Risks

People often ask how baby boomers compare with their parents in terms of being prepared for retirement. The easiest way to answer that question is to look at the ratio of wealth to income from the 2010 Survey of Consumer Finances (SCF), the Federal Reserve’s comprehensive triennial survey of household wealth in the United States, and compare it to earlier surveys. The notion is that the wealth-to-income ratio is a good proxy for the extent to which people can replace their pre-retirement earnings in retirement. This brief proceeds as follows. The first section shows the wealth-to-income ratio for each SCF survey from 1983 through 2010. The ratio in 2010, in the wake of the financial crisis and ensuing recession, was way below that for all the other survey years. The second section identifies four reasons why people need a higher wealth-to-income ratio to be as well off as their parents – increased life expectancy, the shift to 401(k)s, higher health care costs, and lower real interest rates. The third section concludes that the constant ratio of wealth to income between 1983 and 2007 should never have been a source of comfort. The world has changed in important ways that all require more wealth to sustain living standards in retirement. Thus, the sharp decline in the wealth-toincome ratio reported in the 2010 SCF signals even more serious problems for future retirees.