Do Households Have A Good Sense of Their Retirement Preparedness?

The National Retirement Risk Index (NRRI) measures the percentage of working-age households who are at risk of being financially unprepared for retirement. The calculations show that even if households work to age 65 and annuitize all their financial assets, including the receipts from reverse mortgages on their homes, 52 percent will be at risk of being unable to maintain their standard of living in retirement. This brief examines whether households have a good sense of their own retirement preparedness — do their retirement expectations match the reality they face? Do people at risk know they are at risk? Have perceptions changed before and after the financial crisis? The discussion proceeds as follows. The first section summarizes the NRRI. The second section compares households’ self-assessed preparedness – at an aggregate level – to the objective measure provided by the NRRI in 2004 and 2013. The third section moves from the aggregate to individual households to determine the share of households with and without accurate perceptions. The fourth section identifies the characteristics of the households with inaccurate perceptions – those that are either “too worried” or “not worried enough.” The final section concludes that, on a household-by-household basis, almost 60 percent of self-assessments agree with the NRRI predictions and that the 40 percent of households that get it wrong do so for predictable reasons. The question remains, however, whether unprepared households that recognize their situation are any more likely to take corrective action than those that do not.