Retirement Readiness Lags, Especially for Hispanics

The retirement readiness of Americans took a hit from the Great Recession and has yet to recover, according to study by the Center for Retirement Research. CRR researchers assessed retirement readiness by race and Hispanic origin using the National Retirement Risk Index (NRRI) and found Hispanics to be worse off than Blacks or non-Hispanic Whites.

The National Retirement Risk Index is calculated by comparing a household's pre-retirement income with the income they are projected to have in retirement based on Social Security benefits, retirement savings, and the hypothetical annuitization of all their assets including housing. Households whose estimated retirement income falls at least 10 percent below their pre-retirement income are considered at risk of having insufficient funds to maintain their pre-retirement standard of living. CRR determined NRRI for households headed by 30-to-59-year-olds by race and Hispanic origin using data from the Federal Reserve Board's Survey of Consumer Finances. In 2016, 50 percent of the nation's households fell below the target, meaning half of households are at risk of not being able to maintain their current standard of living in retirement. The 2016 NRRI is lower than the 53 percent of 2010 but significantly higher than the 44 percent of 2007.

National Retirement Risk Index by race and Hispanic origin in 2016 (and 2007)
Total: 50% (44%)
Black: 54% (52%)
Hispanic: 61% (51%)
Non-Hispanic White: 48% (42%)

Regardless of race or Hispanic origin, more households were at risk of running short of money in retirement in 2016 than in 2007. But Hispanics were worse off than Blacks or non-Hispanic Whites, the CRR study found. "The deterioration for Hispanics reflects their buying housing in the wrong places at the wrong time," explain the researchers. Fully 40 percent of Hispanic households live in the states hardest hit by the Great Recession (Nevada, Florida, Arizona, and California) compared with only 20 percent of non-Hispanic White or Black households. Consequently, the value of the homes owned by Hispanics took a bigger hit, losing twice as much in value between 20017 and 2016 (41 percent) as the homes of non-Hispanic Whites or Blacks (21 and 22 percent, respectively). The stability in the NRRI for Black households, the researchers say, is due to Blacks' relatively low pre-retirement standard of living, which is easier to achieve in retirement because of Social Security's progressive benefit formula.

Source: Center for Retirement Research at Boston College, Trends in Retirement Security by Race/Ethnicity