Cost of Future Retirement Income Increased over the Past 12 Months
but Stock Market Gains Helped Retirement Savers Stay on Track
55-Year-Olds Better Prepared for Retirement Than Workers Closer to
Retirement Age, According to Data from BlackRock’s CoRI™ Retirement
Indexes
NEW YORK--(BUSINESS WIRE)--
The estimated cost of generating future retirement income is more
expensive than a year ago. However, the good news is that American
pre-retirees – those ages 55, 60 and 64 with median income and
retirement savings1 – are on track to replace as much as
two-thirds of their on-the-job earnings each year in retirement from
savings and Social Security payments, according to new data from
BlackRock that examines Americans’ retirement readiness.
The new analysis, which the firm unveiled in its inaugural “CoRI
Retirement Indexes Analysis,” uses BlackRock’s proprietary CoRI
Retirement Indexes (“CoRI Indexes”), which are designed to measure the
estimated cost of future retirement income, and also incorporates data
regarding U.S. workers’ median income and retirement savings (based on
the ratio of combined 401(k) and IRA savings to income at the median
level) provided by the Employee Benefit Research Institute (EBRI), one
of the nation’s leading retirement research organizations.
“For the first time, investors and financial planners have a unique lens
into how Americans across the board are doing on one of the most urgent
financial planning issues facing investors,” said Chip Castille, head of
BlackRock’s U.S. Retirement Group. “Our goal in creating this analysis
is to further reinforce how essential it is for individuals to
understand their retirement income need and goal, and to save and invest
appropriately in seeking to generate the income they want in retirement.”
According to BlackRock’s analysis, 55-year-olds with median income and
retirement savings are best positioned for income replacement compared
to 60- and 64-year-olds, having already saved enough, when combined with
savings and Social Security payments, to generate an estimated 69% of
median workplace income after retirement. However, 64-year-olds with
median income and retirement savings face a more daunting challenge,
with enough saved today to replace only about 59% of their
pre-retirement income. Individuals age 60 with median income and
retirement savings have the potential to replace about 64% of their
income.
This is particularly striking given that the CoRI Indexes, which
BlackRock launched one year ago, indicate that the estimated cost of
future retirement income has increased for investors ages 55, 60 and 64.
For example, for someone age 55, every $1 of lifetime retirement income
was estimated to cost $14.09 as of June 30, 2014 – a 7.15% increase from
a year ago. At the same time, because workers’ investments, and in some
cases contributions, have increased in value due to the continued bull
market over the past 12 months, the level of pre-retirement income they
may be able to maintain after they quit working has stayed steady.
“With the S&P 500 up 22% year-over-year, investors may look at their
retirement portfolios, see positive investment performance and think
they are doing quite well,” Castille added. “However, investors still
have to be saving – pure investment returns alone may not tell the
complete picture when it comes to retirement preparedness. Understanding
how the cost of retirement income changes and how that may impact your
income stream in retirement completely transforms the entire retirement
conversation.”
"The reality for investors is that you can’t plan your future if you
don’t know where you are today," said Robert Fairbairn, global head of
BlackRock’s Retail and iShares businesses. "As a firm, we are committed
to helping investors answer the question, ‘Do I have enough money to
retire?’ and providing the guidance and solutions designed to help
generate enough income from those savings, no matter what age you are.”
Additional findings from the analysis include:
-
The youngest pre-retirees (55-years-old) are best positioned to close
their income gap compared to 60- and 64-year-olds. For example, to
reach the 80% income replacement rate2 typically
recommended by financial advisors, a 55-year-old with median
retirement savings ($263,755.84) and median income ($57,961.13) is
likely to have an income-replacement gap of approximately 14%.
-
This is compared to a 64-year-old worker with median retirement
savings ($251,142.49) and median income ($48,972.05), who would have a
gap of approximately 26%, according to the analysis. As a result, many
of these older pre-retirees are expected to work longer or attempt to
cut their living expenses.
About the BlackRock CoRI Retirement Indexes
The BlackRock CoRI Retirement Indexes began tracking the estimated cost
of future, cost-of-living-adjusted lifetime income as of June 28, 2013,
one year ago. The series of 11 fixed income indexes, specifically
designed for individuals in the pre- and early-retirement years, use
several factors, including interest rates and inflation adjustments, to
generate estimated future retirement income costs. An individual can use
the indexes to determine either how much estimated annual lifetime
income their savings may provide beginning at age 65, or the appropriate
level of savings they would need today to generate a desired amount of
annual retirement income. For more information on planning for
retirement income, visit the CoRI tool at www.BlackRock.com/CoRI.
About BlackRock
BlackRock is a leader in investment management, risk management and
advisory services for institutional and retail clients worldwide. At
March 31, 2014, BlackRock managed $4.401 trillion on behalf of clients.
BlackRock helps clients meet their goals and overcome challenges with a
range of products that include separate accounts, mutual funds, iShares®
(exchange-traded funds), and other pooled investment vehicles. BlackRock
also offers risk management, advisory and enterprise investment system
services to a broad base of institutional investors through BlackRock
Solutions®. Headquartered in New York City, as of March 31, 2014, the
firm had approximately 11,500 employees in more than 30 countries and a
major presence in key global markets, including North and South America,
Europe, Asia, Australia and the Middle East and Africa. For additional
information, please visit the Company’s website at www.blackrock.com.
1Based on the ratio of combined 401(k) and IRA savings to
income at the median level.
2Aon Hewitt’s 2008 Replacement Ratio Study, which finds that
an 80% income replacement rate is needed for single people with $50,000
in pre-retirement income who retire at age 65 to maintain their standard
of living.
The BlackRock CoRI Retirement Indexes, allocations and data are subject
to change.
This information should not be relied upon as investment advice,
research, or a recommendation by BlackRock regarding (i) the use or
suitability of the indexes or (ii) any security in particular. Investors
should consult their financial advisor to evaluate their investment
needs.
The CoRI Retirement Indexes do not guarantee future income or protect
against loss of principal. There can be no assurance that an investment
strategy based on the CoRI Retirement Indexes will be successful.
Indexes are unmanaged and one cannot invest directly in an index.
Examples shown in this material are for informational purposes only and
do not represent an actual account. The CoRI Retirement Indexes do not
reflect the fees, expenses and cost that may be associated with an
annuity or any other retirement income product that an individual may
purchase, or any assumption that such a product will be available for
purchase at the time of retirement. Actual investment outcomes may vary.
A number of factors may contribute to variations in retirement income.
Investing involves risk, including possible loss of principal. Past
performance is no guarantee of future results.
The opinions expressed may change as subsequent conditions vary.
Reliance upon information in this material is at the sole discretion of
the reader. Historical data and analysis should not be taken as an
indication or guarantee of any future performance, analysis, forecast or
prediction.
This information is the property of BlackRock, Inc. and /or its
subsidiaries (collectively, "BlackRock"). It is provided for
informational purposes only. The CoRI Retirement Indexes are supported
by proprietary BlackRock research about annuity pricing and income
generation; the methodology of the CoRI Retirement Indexes are supported
by assumptions about the relationship between annuity pricing and fixed
income markets, the accuracy of third party reporting and compilation of
current annuity pricing, and the predictive nature of the components of
the methodology. There is no assurance that these assumptions are
correct or will perform in the manner that they have in the past.
Although BlackRock obtains information from sources which BlackRock
considers reliable, neither BlackRock nor its subsidiaries or any other
third party involved in, or related to, compiling, computing or creating
the information (collectively, the "BlackRock Parties") guarantees the
accuracy and/or the completeness of any of this information. All
BlackRock indices and data are the exclusive property of BlackRock and
may not be used in any way without the express written permission of
BlackRock.
The CoRI Retirement Indexes are maintained by BlackRock Index Services,
LLC (the “Affiliated Index Provider”), a subsidiary of BlackRock, Inc.,
that designs, sponsors and publishes indices for use in portfolio
benchmarking and portfolio management. While the Affiliated Index
Provider publishes descriptions of what the CoRI Retirement Indexes are
designed to achieve, the Affiliated Index Provider does not provide any
warranty or accept any liability in relation to quality, accuracy or
completeness of data in respect of the CoRI Retirement Indexes, and does
not guarantee that the CoRI Retirement Indexes will not deviate from
their stated methodologies. The Affiliated Index Provider does not
provide any warranty or guarantee for Affiliated Index Provider errors.
Prepared by BlackRock Investments, LLC (“BRIL”), member FINRA. BRIL is a
subsidiary of BlackRock, Inc.
©2014 BlackRock, Inc. All rights reserved. BLACKROCK and CoRI are
registered and unregistered trademarks of BlackRock, Inc. or its
subsidiaries. All other trademarks are those of their respective owners.
DC-1365-0714
BlackRock, Inc.
Media:
Jessica Greaney,
212.810.5498
Jessica.Greaney@BlackRock.com
or
Farrell
Denby, 212.810.8034
Farrell.Denby@BlackRock.com
Source: BlackRock, Inc.