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Data & Research October 26, 2010
Report Examines Non-Annuitized Retirement Income
The percentage of households at risk for not meeting their
retirement goals jumps from 51% to 60% when they live off of the interest from
their assets instead of purchasing an inflation-indexed annuity, according to a report by the Center for Retirement Research at Boston College.
Reported by Fred Schneyer
A news release said that was a key conclusion of an analysis of the National Retirement Risk Index (NRRI) by the Center for Retirement Research at Boston College, and sponsored by Nationwide Mutual Insurance Company, an annuity provider. The project examined what would happen if households did not purchase an annuity to provide lifelong income.
The study examined two alternative scenarios to annuitization. The first alternative was that households drew down their assets at an annual rate of 4%. The percent at risk increased from 51% to 53% for those that drew down their assets at 4% a year.
The second scenario examined what would happen if households lived off the interest on their accumulated wealth (estimated at 1.9% annually).
The study also found that, when examining households by income level, individuals with a high-net worth were most impacted by not annuitizing their assets. The percent ‘at risk’ increased from 42% to 47% for those who drew down their assets at 4% a year and increased from 42% to 57% for those who lived off the interest of their assets (estimated at 1.9% annually).
The NRRI measures the share of American households at risk of being unable to maintain their pre-retirement standard of living in retirement. The Index uses the conservative assumptions that people work to age 65, receive income from reverse mortgages on their homes, and annuitize all of their financial assets.