The temporary’s key findings are:

  • Households ages 62-75 have substantial earnings.
  • The Nationwide Retirement Threat Index, which assumes all households declare Social Safety – and retire – at 65, doesn’t depend earnings after 65.   
  • So, about half of all earnings for these 62-75 are excluded from the Index and will distort the outcomes.  
  • Introducing extra sensible claiming ages for low-, middle-, and high-income households solves two issues:
    • Will increase the earnings within the Index to two-thirds, with the remaining going primarily to excessive earners the place it has little impression.
    • Produces a extra wise sample of share “in danger” by earnings group. 
  • One factor that doesn’t change is the general share of as we speak’s working households in danger: that’s nonetheless about 50 p.c. 


The Nationwide Retirement Threat Index (NRRI) measures the share of working-age households that can be unable to take care of their pre-retirement way of life as soon as they retire.  The Index is predicated on information from the Federal Reserve’s Survey of Client Funds and compares family projected substitute charges – retirement earnings as a share of pre-retirement earnings – with goal charges.  These households whose projected substitute price falls greater than 10 p.c under the goal are characterised as being “in danger.”  

The NRRI, which has been estimated repeatedly since 2006 and most lately completely revamped, persistently reveals that – even when households work to age 65 and annuitize all their monetary belongings, together with the receipts from reverse mortgages on their houses – virtually half of households are vulnerable to being unable to take care of their way of life.

Regardless of the consistency of the NRRI, we’re at all times on the lookout for methods to enhance the measure.  In a overview of the revamped NRRI, our favourite colleague and critic – Andrew Biggs of the American Enterprise Institute – argued {that a} critical flaw with the Index is that it omits a serious supply of earnings in retirement – particularly, earnings.  Certainly, the Index doesn’t embody the earnings of older individuals as soon as they retire, however roughly half of combination earnings of these ages 62-75 happen earlier than the assumed retirement age of 65 and due to this fact are already integrated within the mannequin as a part of wealth accumulation.  Nevertheless, given the significance of the connection between Social Safety claiming ages and the inclusion of earnings, this temporary explores the extent to which assuming extra sensible claiming ages reduces the “excluded-earnings” drawback.  

The dialogue proceeds as follows.  The primary part describes the nuts and bolts of the NRRI, as at present constructed.  The second part explores the significance of earnings and the connection between earnings and Social Safety claiming age amongst older households for low-, middle-, and high-income teams.  The third part reveals that an NRRI that varies claiming ages by earnings group incorporates about two-thirds of earnings within the mannequin and produces very comparable total outcomes to the unique NRRI.  The ultimate part concludes that whereas the prevailing NRRI produces illustration of danger for the entire inhabitants, an index that varies Social Safety claiming ages contains the majority of earnings by older employees and gives a greater image of outcomes by earnings group.  So these parameters can be used to assemble the NRRI going ahead.

Nuts and Bolts of the NRRI

The NRRI is constructed with information from the Federal Reserve’s Survey of Client Funds (SCF), a triennial nationally consultant family survey.  Calculating the NRRI includes three steps: 1) projecting a substitute price – retirement earnings as a share of pre-retirement earnings – for every SCF family ages 30-59; 2) establishing a goal substitute price that will enable every family to take care of its pre-retirement way of life in retirement; and three) evaluating the projected and goal charges to seek out the proportion of households “in danger.”

The substitute price calculation begins with a projection of retirement earnings, at present at age 65.  This measure is outlined broadly to incorporate earnings from Social Safety, outlined profit (DB) plans; monetary belongings each in outlined contribution (DC) plans and saved straight; and housing, which incorporates imputed hire in addition to house fairness.  As famous within the introduction, the NRRI doesn’t embody earnings from work, as a result of the main target is retired households and labor power participation declines noticeably after 65.  

The values for DC belongings, non-DC monetary belongings, and housing fairness are derived from reported wealth within the SCF.  They’re every projected individually to age 65 based mostly on their respective wealth-to-income ratios by age, which have been remarkably steady over time.  The NRRI then assumes that households convert all their belongings, together with monetary belongings, 401(ok)/IRA balances, and proceeds from a reverse mortgage, right into a stream of earnings by buying an inflation-indexed annuity.    

Sources of retirement earnings that aren’t derived from reported wealth within the SCF are estimated straight.  Particularly, Social Safety advantages are calculated based mostly on estimated earnings histories for every member of the family, listed to nationwide common wage progress.  DB pension earnings is predicated on the quantity reported by survey respondents.

The remaining step is to calculate common lifetime earnings previous to retirement.  Pre-retirement earnings for owners contains earnings and imputed hire from housing.  Common lifetime earnings (with earnings, once more, listed to common wage progress) then serves because the denominator for every family’s substitute price.  This measure excludes earnings from belongings.

To find out the share of the inhabitants that can be in danger requires evaluating projected substitute charges with a benchmark price.  A generally used benchmark is the substitute price wanted for households to take care of their pre-retirement way of life in retirement.  Individuals usually want lower than their full pre-retirement earnings since they typically pay much less in taxes, not want to save lots of for retirement, and infrequently have paid off their mortgage.  Thus, a higher share of their earnings is on the market for spending.  The Index estimates the goal substitute charges for various kinds of households utilizing a consumption-smoothing mannequin, which assumes that households need the identical stage of consumption in retirement as that they had earlier than they retired. 

The ultimate step is to check every family’s projected substitute price with the goal from the consumption-smoothing mannequin.  These whose projected substitute charges fall greater than 10 p.c under the goal are deemed to be vulnerable to having inadequate earnings to take care of their pre-retirement way of life.  The Index is just the proportion of all working-age households that fall greater than 10 p.c wanting their targets. 

Earnings and Retirement for Households Ages 62-75

The primary query at hand is the significance of earnings amongst households with a head ages 62-75 – a bunch eligible for Social Safety, a lot of whom could possibly be presumed retired.  As proven in Desk 1, earnings characterize an amazingly excessive share of complete earnings for these older households – 19 p.c for low-income households, 37 p.c for the middle-income group, and 55 p.c for high-income households.  Furthermore, a comparability with 1995 reveals that earnings have been a significant factor of the earnings of older households for a while, and have develop into extra essential lately.  The share elevated by 10 share factors for middle-income households and by 13 share factors for high-income households.  It seems that phrase has gotten out that working longer is the important thing to a safe retirement, and people with probably the most schooling and assets have modified their habits.

Table showing the share of income from various sources for households ages 62-75, 1995 and 2019, by income

The present Index assumes that each one households cease working and declare Social Safety advantages on the similar age – particularly, 65.  SCF information on the claiming age for the family head, nevertheless, counsel that extra cheap claiming ages for the three teams could be 62, 66, and 67.  Various claiming ages by earnings group incorporates about two-thirds of the entire earnings of employees 62-75.   

One third of earnings stays outdoors of the NRRI calculations as a result of the standard hyperlink between claiming and retirement has damaged down – notably for high-income households.  Receipt of Social Safety advantages was a surefire option to classify a family as retired, however high-income households – even when each spouses have claimed – nonetheless obtain greater than a 3rd of their earnings from earnings (see Desk 2).  Earnings proceed till each the pinnacle and the partner self-report being retired.

Table showing the earnings as a share of total income for households ages 62-75, by retirement status, 2019

Utilizing differential claiming ages has a significant impact on households’ retirement readiness throughout earnings teams.  The impression works by means of three channels:

  • Social Safety advantages.  Claiming at 62 as a substitute of 65 for the low-income group includes a big actuarial discount in advantages; claiming at 66 for middle-income households and at 67 for high-income households – as a substitute of 65 – considerably will increase advantages. 
  • Wealth accumulation.  Claiming at 66 or 67 relatively than 65 gives households with extra time to build up DC belongings, different monetary belongings, and housing wealth.  In distinction, retiring at 62 relatively than 65 leaves much less time to build up wealth. 
  • Annuity components.  As famous, the NRRI assumes that households convert all their belongings and proceeds from a reverse mortgage right into a stream of earnings by buying an inflation-indexed annuity.  The funds from that annuity enhance with the age at which the annuity begins.

Utilizing differential claiming ages additionally modifications the goal substitute charges in the identical course as projected substitute charges, however the modifications within the targets are a lot smaller.  Consequently, modifications within the projected charges dominate.

Re-estimating the NRRI

The duty is then to re-estimate the NRRI utilizing Social Safety claiming ages that change by earnings group.  Mechanically, the method includes working the mannequin 3 times – as soon as assuming the claiming age is 62 for all earnings teams, as soon as assuming 66 for all, and as soon as assuming 67 for all.  The proportion of low-income households in danger is derived from the age-62 run; for middle-income households from the age-66 run, and for high-income households from the age-67 run.  These outcomes are then mixed to supply the revised total Index, which is proven in Determine 2 with the standard NRRI.  The important thing discovering is that the sample is an identical and the numbers are extraordinarily shut – roughly half of households usually are not ready for retirement underneath every measure.

Bar graph showing the National Retirement Risk Index: Historical and with different Social Security claiming ages, 2004-2019

What argues for utilizing the NRRI model with various claiming ages is that it contains extra earnings within the calculation, permits for a extra applicable Social Safety actuarial adjustment, and produces a extra wise sample by earnings group.  As proven in Desk 3, various claiming ages reduces the proportion in danger for high-income households and will increase it for these within the low-income tercile.  The upper share of low-income households in danger confirms findings from different research. 

Table showing the percentage of households at risk, by income, 2019: Historical NRRI and NRRI with different Social Security claiming ages

The remaining query is whether or not persevering with to exclude one-third of earnings for employees ages 62-75 is prone to distort the NRRI.  One would assume not.  SCF information present that roughly 80 p.c of the excluded earnings accrue to high-income households, so the exclusion seemingly has no impact on the proportion of households in danger within the low- and middle-income terciles.  Therefore, the query narrows as to if some high-income households are mistakenly categorized as in danger – that’s, lower than 32 p.c could be in danger if all earnings had been included.  Answering that query, requires distributing the excluded earnings amongst high-income households nonetheless working at age 68 and annuitizing these quantities over their remaining lifetimes.  This train solely reduces the proportion of high-income households in danger from 32 p.c to 30 p.c., which means that the remaining excluded earnings usually are not distorting the NRRI.    


The NRRI is an try to mix all elements of the retirement panorama right into a single quantity to gauge the adequacy of our system for households at completely different factors within the earnings distribution and at completely different moments in time.  It requires an infinite quantity of knowledge, many assumptions, and quite a few choices – all of that are open for debate.  The factor that offers us coronary heart is the soundness of the outcomes regardless of in depth stress testing.  Various the Social Safety claiming ages is a living proof.  The NRRI headline quantity nonetheless hovers round 50 p.c.  However the truth that the outcomes produce a greater sample by earnings group argues for utilizing the brand new strategy as we replace the NRRI to include information from the 2022 Survey of Client Funds. 


Biggs, Andrew. 2023. “Will Retirees’ Incomes Be Enough? It Depends on What You Count as Income.” (June 19). New York, NY: Forbes.

Tan, Fu, Fiona Greig, Andrew S. Clarke, Kevin Khang, Kate McKinnon, and Victoria Zhang. 2023. “The Vanguard Retirement Outlook: A National Perspective on Retirement Readiness.” Retirement Outlook Report. Valley Forge, PA: Vanguard.    


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