Retirement Risk Index: Up as Investors Disengage

For financial advisors, there is an opportunity to reengage households by demonstrating an understanding of the frustration being felt, consistently offering relevant solutions and appropriately rebuilding balance sheets.

If some of your retirement-planning clients seem to be giving up on their plans, your impression might be correct.

A recent update of the National Retirement Risk Index (NRRI) quantifies the impact of the recession of 2008 and 2009 on retirement readiness for households across the United States.

The Center for Retirement Research at Boston College has released an update of the NRRI that shows a seven percentage-point drop in the share of households that are positioned to maintain their current standard of living in retirement.

At the same time, the NRRI underwriter, Nationwide Mutual Insurance Company, says its own research is showing signs that many who were actively preparing before the downturn have now disengaged from the process.

The updated National Retirement Risk Index includes assumptions accounting for the economic turmoil. It finds that 51 percent of Americans are not prepared to retire at age 65 compared to 44 percent in 2007.

This is a conservative estimate, considering the latest update does not factor in the costs of health care or long-term care. The update underscores how plummeting asset values and the continuing rise in Social Security's full retirement age combine to negatively affect retirement readiness.

"Our research shows that the financial turmoil has driven up the share of households 'at risk' of being able to maintain their standard of living in retirement," says center director Alicia H. Munnell. "We are clearly facing a retirement crisis - one that will continue to grow as younger workers age. To overcome today's retirement challenges, people need help understanding financial topics so they can make reasonable financial choices throughout their lives."

Investors Disengage

Along with the new NRRI data, Nationwide's senior vice president of Customer Insights and Analytics, Paul Ballew, says the company's own research is showing that a significant number of investors who were actively planning for retirement before the recession are disengaging from the process. Those insights are confirmed by existing market conditions.

"We're really looking at a one-two punch right now," Ballew says. "We're seeing the number of disengaged households increasing by more than a third. Many of these individuals felt the brunt of the economic downturn to a greater degree than others and have moderated their expectations toward retirement. It's clear that many of these people who were planning before the downturn are now pulling away from the table. That's exactly the opposite of what they should be doing."

Ballew adds, "The situation isn't hopeless, but now more than ever Americans need to take a more active role in achieving retirement stability. The key is to keep working at it or to start preparing now if they haven't already."

Nationwide released some limited findings from recent proprietary market research that underscores the disengagement issue. The results include a comparison of recent responses to those provided by the same individuals in 2007 that would now be considered "newly disengaged." Findings for this group include:

? A 60 percent drop in agreement with the statement that creating a retirement income source is important.

? A 25 percent drop in those who say they would seek advice before making investment decisions.

"The big question is if this increase in disengagement will be long lasting or not," Ballew says. "For financial advisors, there is an opportunity to reengage these households. Demonstrate an understanding of the frustration being felt. Be consistent by offering relevant solutions that help cynical clients preserve remaining assets and appropriately rebuild balance sheets."

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