Higher-Income Americans Aren't Worried Enough About Retirement: Study

The data shows about a third of households self-report being at risk, while the NRRI predicts that approximately half are at risk of not having enough for retirement.

“Interestingly, higher-income households are most likely to underestimate their risk,” the report warns.

When comparing individual household assessments with the NRRI, 28% think they are not at risk while the NRRI predicts they are. This group is “not worried enough.” At the same time, 15% think they will fall short while the model predicts they will have enough. They are “too worried.”

As noted, results by income show that high-income households — perhaps overreacting to the impact of the strong economy on housing and stock prices — are the most likely to be “not worried enough” and low-income households are the most likely to be “too worried.”

“The remaining 57% get it right,” the analysis notes, “with 19% correctly rating they are at risk and 38% correctly rating they are not at risk.”

Predictive Characteristics

According to the CRR, households that were overly optimistic about the economic recovery after the Great Recession or overestimated how much income their assets could provide appear more likely to be not worried enough.

“Their overconfidence may lead them to underestimate possible risks,” the report warns. “Therefore, it is not surprising that households with higher housing debt-to-asset ratios, relatively low asset balances in 401(k)s and other defined contribution plans, and ‘two earners but only one saver’ households were more likely to be not worried enough.”

On the other hand, unlike overly optimistic households, those who are “too worried” are not aware of how much income they will have in retirement and often have less optimism in the asset markets.

“Characteristics that capture these factors — such as risk aversion, married one-earner households, homeowner, and low self-assessed financial knowledge — predicted households’ likelihood of being too worried,” the analysis explains.

Key Conclusions

According to the CRR, overall, the results suggest that households with incorrect perceptions get it wrong for predictable reasons, and a little education about the value of various sources of retirement income could reduce the size of both the group that worries too much and the group that doesn’t worry enough.

“Despite research showing households have large gaps in financial knowledge, nearly three out of five have a good gut sense of their financial situation,” the analysis concludes. “This share has remained relatively constant despite a 2016 change in the SCF survey. However, classifying households by the accuracy of their perceptions about retirement security does not answer the question of whether they are likely to take remedial action.”

According to the CRR, households that are not worried enough are the least likely to change their saving or retirement plans.

“This group accounts for 28% of households, so a significant portion of the population needs to get a better assessment of their retirement income needs,” the analysis warns. “The additional one-fifth of households that do understand their plight may need less convincing to act, but they still must act.”

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