Bad News about Wealth-to-Income Ratios

"People often ask how baby boomers compare with their parents in terms of being prepared for retirement," writes Alicia H. Munnell, director of the Center for Retirement Research at Boston College. The answer is, not well.

In a new report, Munnell looks at wealth-to-income ratios over time using data from the Survey of Consumer Finances. The wealth-to-income ratio was stable between 1983 and 2007, but this was not good news. The ratio should have been growing, says Munnell, because of the increase in life expectancy, the shift to 401(k)s, the rise in health care costs, and the decline in interest rates. The stability in the wealth-to-income ratio, she writes, "suggested that people were increasingly unprepared for retirement."

Then, in 2010, the wealth-to-income ratio fell sharply. The decline in the ratio in 2010 is "truly alarming," she concludes.

Source: Center for Retirement Research at Boston College, 2010 SCF Suggest Even Greater Retirement Risks