Americans age 65 and older are nearing the years in which retirement funds are expected to be relied upon. Based on data pulled from the U.S. Census Bureau’s Current Population Survey Annual Social and Economic Supplement*, the overall finding for this age group is that income from retirement accounts is modest. Effects of market fluctuations and retirement savings trends of the last few decades have contributed to this outcome.
There are multiple sources of income available to seniors, though Social Security remains the most essential and evenly distributed source of income of those in and approaching their retirement years. Social Security contributes 35% of total income for this age group. The dollar amounts of Social Security benefits differ between income classes, though the lower income earners are receiving only somewhat less in Social Security. However, the share of income Social Security fills is larger for these lower income groups and therefore more essential to their retirement than for those in the higher income classes. Other forms of income affect gaps in retirement savings between classes of seniors, as savings distributions from retirement savings accounts are also contributing factors for the top income group.
While retirement savings accounts are more prominent as a share of retirement funds for higher income groups, overall the data shows that 401(k)s and IRAs are not an important source in the big picture. In fact, a more diverse group of retirees depend on pension benefits. As we looked at in our last blog, the difference between defined-benefit plans (pensions) and defined-contribution plans (401(k)s and similar) can have a significant effect of the state of retirement for many Americans. Today’s seniors were more likely to participate in a pension during their working years than workers are today, resulting in this more significant role for pensions in current retirement savings.
In addition to these trends, Americans have been increasingly delaying retirement. Therefore, earned income is the second most important income source for seniors following Social Security. Of course, numbers fall more heavily on those still in the 60-69 age range rather than those 70+, and examination from data collected by the Bureau of Labor Statistic suggests that the number of Americans 65 and older who are employed is now higher than it has been in over half a century. Due to this movement towards higher amounts of senior workers, in some social classes income-earning exceeded Social Security benefits as a form of income.
With many American seniors working well into their mid-to-late sixties and the average retirement savings for older individuals in a modest state, the analysis of current retirement options may result in a desire for savings alternatives. A decline in the value of employer-based retirement plans may be emerging with no indicator of any counteraction to this trend. While Social Security, 401(k)s, and pensions are not necessarily poor retirement, collecting this information from our current American seniors can shed a light on the reality of these options when the time comes to depend on them.
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*The State of American Retirement (Part 2), Economic Policy Institute