Americans’ Reluctance to Use Home Equity to Help Fund RetirementIncreases Number ‘At Risk’ by 10 Percentage Points
COLUMBUS, Ohio–(BUSINESS WIRE)– More than 60 percent of households are ‘at risk’ of being financially unprepared for retirement, according to new research from the Center for Retirement Research (CRR) at Boston College. The latest analysis of the National Retirement Risk Index (NRRI), released today by the CRR and underwritten by Nationwide Mutual Insurance Company, examines how not taking full advantage of housing equity affects the share of U.S. households ‘at risk.’ The result is a 10 percentage-point rise in the Index compared to just a seven-point increase from the 2008 stock market crash.
The NRRI is a percentage measurement of how many working Americans are ‘at risk’ of being unable to maintain their standard of living in retirement. The NRRI uses very conservative assumptions in its baseline scenario. One of those assumptions is that consumers access their home equity through a reverse mortgage and invest the proceeds in an inflation-indexed annuity to help generate retirement income. The new research removes that assumption.
“Even after the bursting of the housing bubble, our research shows that home equity remains a major financial asset and can significantly impact retirement security,” said Center Director Alicia H. Munnell. “The impact of home equity on the percent of households ‘at risk’ is greater than that of the recent stock market crash. How baby boomers and future generations decide to use their home equity could determine how well many fare in retirement.”
The full report is available at the Center for Retirement Research at Boston College.
Creating Retirement Income
“Given the loss of pension plans and the uncertainty of Social Security, retirees are undoubtedly going to shoulder more responsibility for funding their retirement,” said Brad Davis, vice president of retirement income solutions for Nationwide Financial Services. “If the last 18 months have taught us anything, it’s that consumers need to resist becoming overly dependent on any one asset, especially when taking into account the unpredictable nature of the stock and real estate markets.”
Davis added, “To face today’s retirement challenges, consumers must be open to utilizing all of their assets and consider working with a financial professional who is prepared to handle the task of developing a comprehensive retirement income strategy.”
Davis noted that financial professionals understand they need to be prepared to help clients transition from asset accumulation to income generation in retirement. According to research from the Financial Planning Association, more than 89 percent of financial professionals say they are likely to obtain more training on ways to generate retirement income.1
“We encourage financial professionals to seek out the education and support they need to deal with this very critical phase of an investor’s life by partnering with financial institutions that have the strategies and resources to help them manage the challenges retirees will face in the upcoming decades,” said Davis.
To help financial professionals with income planning, Nationwide created RetireSense®. RetireSense is an innovative investment and draw-down strategy that helps investment professionals address their clients’ individual needs. It provides them with a clear road map for retirement income planning that helps identify which investments to consider harvesting for income, and when to do so.
About the National Retirement Risk Index
The NRRI was developed by the Center for Retirement Research at Boston College and underwritten by a grant from Nationwide.
The Index projects how much income households are expected to have in retirement relative to their pre-retirement income. It then compares this ‘replacement rate’ to a target rate that would allow a household to maintain its pre-retirement standard of living. Households that fall more than 10 percent short of the target are considered ‘at risk.’
The Index produces conservative estimates by assuming that people work to age 65, annuitize all of their financial assets, and receive income from reverse mortgages on their homes. More realistic assumptions regarding earlier retirement and the reluctance of people to annuitize their assets or tap housing equity – as illustrated in the new research – would put the percentage of workers ‘at risk’ higher.
Nationwide, based in Columbus, Ohio, is one of the largest and strongest diversified insurance and financial services organizations in the U.S. and is rated A+ by A.M. Best. The company provides a full range of personalized insurance and financial services, including auto insurance, motorcycle, boat, homeowners, life insurance, farm, commercial insurance, administrative services, annuities, mortgages, mutual funds, pensions, long-term savings plans and health and productivity services. For more information, visit nationwide.com.
Brad Davis is a registered representative of Nationwide Investment Services Corporation, member FINRA. In MI only: Nationwide Investment Svcs. Corporation.
Nationwide, the Nationwide Framemark, RetireSense and On Your Side are service marks of Nationwide Mutual Insurance Company.
Please remember, no product, rider, service or strategy is suitable for all clients.It is your responsibility as a registered representative of a broker/dealer to carefully consider the client’s needs, objectives, risk tolerance and overall suitability before recommending any product, rider, service, or implementing any strategy.
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