How Widespread Unemployment Might Affect Retirement Security

Jul 17, 2020 / Amanda Chase, Horsesmouth Assistant Editor

The National Retirement Risk Index (NRRI) measures the share of working-age households that are at risk of being unable to maintain their pre-retirement standard of living. The NRRI, which is constructed by comparing households’ projected replacement rates—retirement income as a percentage of pre-retirement income—with target rates, has recently shown about half are at risk. A new study shows that the pandemic is likely to have increased the NRRI by 5 percentage points—with a 7-percentage-point increase for older households and a 3-percentage-point increase for younger ones. The pandemic has worsened an already bleak outlook for retirement security.

Widespread unemployment would increase the NRRI from 50.2 percent to 54.9 percent of all working-age households, resulting in an additional 4.7 percent of households at risk in retirement. Of course, the results for the 30 percent of households that experience the job loss are much more dramatic. The NRRI for this group increases from 54.4 percent to 75.4 percent, a 21-percentage-point jump.

Ensuring retirement security for an aging population was one of the most compelling challenges facing the nation before the onslaught of COVID-19. The unemployment associated with the pandemic has made the situation worse across the board. The NRRI has most likely increased from 50 percent to 55 percent, and changes in asset prices and further declines in the interest rate would only make the increase larger. Furthermore, the NRRI does not fully capture the harm done to a population with so many households already at risk, as the pandemic has made the savings gap larger.

You can find the full Center for Retirement Research Center research brief here.


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