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National Retirement Risk Index

Planning for Retirement: The Impact of Interest Rates on Retirement Income

Originally published June 2013

The National Retirement Risk Index (NRRI) is published by the Center for Retirement Research (CRR) at Boston College, and measures the percentage of households at risk of being unable to maintain their pre-retirement standard of living during retirement. The October 2012 update to the NRRI indicated that 53% of households are at risk. These results represented a spike of nine percentage points over a three-year period, signaling an increasing retirement security problem in the U.S. A number of factors drove the increase, including a sharp decline in equity values, a decrease in housing wealth, a decline in interest rates, and an increase in Social Security’s Full Retirement Age.

In this research, the CRR takes a closer look at the impact of interest rates and concludes that interest rate levels alone have only a modest effect on the NRRI. A key reason for this is that Social Security and defined benefit pension income, which are not impacted by interest rate changes, make up the majority of total wealth for most Americans. Further, the NRRI assumes households annuitize their financial and housing wealth at retirement, thereby protecting the income generated from those assets against interest rate risk as well as equity market and longevity risks. For those who do not protect their retirement income, however, these risks can have a significant impact on their retirement prospects.

Prudential is the exclusive sponsor of the National Retirement Risk Index.

 

 

 

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