Retirement readiness drops on housing slump, Nationwide says

NEW YORK: Fewer US households are prepared for retirement after the value of their homes and investment portfolios declined in the recession, Nationwide Mutual Insurance Co said.

Fifty-one percent of Americans would be unable to maintain their standard of living if they retired at age 65, compared with 44% in 2007, the insurer said on Oct 27 in a statement, citing the National Retirement Risk Index it developed with the Center for Retirement Research at Boston College. The estimate is “conservative” because it doesn’t include medical costs or long-term care, the insurer said.

“The real problem behind this is that so many households were dependant on their home values,” Paul Ballew, a senior vice-president of customer insights and analytics at Nationwide, said in an interview. “Once home prices came back down to normal levels, we wake up one day and realise we don’t have adequate savings.”

Americans are facing a decline in the value of their homes and other assets at the same time the US government is pushing back the age that retirees qualify for full Social Security benefits. The average 401(k) retirement savings account fell by almost one-third in 2008, and people aren’t saving enough to make up the difference, Ballew said.

The US median price of existing homes was US$174,900 (RM595,534) in September, 24% less than its peak in July 2006, according to the National Association of Realtors. The average balance of 401(k) accounts at the end of 2008 was US$45,519, compared with US$65,454 a year earlier, reflecting market losses, according to data collected by the Employee Benefit Research Institute, based in Washington.

Equity markets have improved in 2009, with the Standard & Poor’s 500 Index climbing 18% this year before Oct 27. Individuals in higher-income brackets with more stock holdings will benefit most from the index’s recovery, Ballew said. “For non-upper income Americans, they were just housing-dependent,” he said.

The US personal savings rate fell to 3% of disposable income in August from 4% in July, compared with 8.9% at the end of 1992. The saving rates needs to increase to 8% to 10% to compensate for the drop in retirement funds, Ballew said.

Social Security statistics show that 2.57 million people requested social security benefits in the 12 months ended in September, up from 2.1 million applications in the same period a year earlier, as the first baby boomers -- those born right after World War II -- are starting to retire. Applications for the benefits rose almost 50% more than expected this year because of the recession. – Bloomberg LP