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Retirement income is often thought to come from three sources: Social Security, pensions and savings.
That combination is often called a three-legged stool, a metaphor for the money retirees use to support themselves once they are no longer working full time.
However, a new report finds that very few retirees actually have income from all three sources.
Just 6.8% of older Americans ages 60 and up who work less than 30 hours per week get money from Social Security, pensions (also called defined benefit plans) and workplace retirement savings like a 401(k) (also known as defined contribution plans), according to the National Institute on Retirement Security.
Meanwhile, many individuals in that age category – 40.2% – receive income through Social Security only.
Even more troubling, 14.9% have no income from a pension, savings or Social Security.
The research is based on 2014 data, and only reflects where retirees currently get their income, the researchers said. Those sources are expected to change, particularly as traditional pensions get phased out.
Haves vs. have-nots
Households with all three income sources – Social Security, pensions and savings – had the highest total annual income, with a median $37,440.
Meanwhile, those with no support from those three sources had the lowest total household income, with a median $8,904. Those in the no-income category likely either have not yet started collecting retirement payments or may be economically challenged and receiving government assistance, according to the study.
Gender and race play a role
Retirement income also varies by gender and race, according to the research.
Couples generally had a higher median total at $52,116, versus $23,064 for unmarried men and $19,764 for unmarried women.
Unmarried men and women were more likely to rely on Social Security for their sole source of retirement income, with 39.2% and 42.3%, respectively. That's in comparison to 23.8% for couples.
Older white individuals also had higher retirement incomes compared to blacks or Hispanics, the two minorities measured by the data.
Median total retirement income for white individuals was $23,292, versus $16,863 for blacks and $13,560 for Hispanics.
While 39.2% of white individuals rely on just Social Security checks, that was higher for blacks, at 44.8%, and Hispanics, with 45.9%.
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Implications for Social Security
With almost 90% of older Americans receiving Social Security benefits, it is the dominant source of retirement income, according to the research.
Yet for many elder Americans, those Social Security checks still fall short of what they need.
That's because Social Security replaces just 40% of pre-retirement income, on average. Meanwhile, most financial experts recommend at least a 70% income replacement rate, the study said.
Those findings are in line with recent research from the University of Massachusetts Boston, which found that retirees generally face a shortfall between their Social Security benefits and the cost-of-living, no matter where they live.
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Generally, older Americans rely on Social Security benefits more as they age, according to the National Institute study.
While 52.9% of individuals 60 to 65 years old are receiving some Social Security income, that goes up to 85% for those ages 66 to 75 and is 84% for those ages 76 and older.
Not everyone receives Social Security benefits, such as some state and local government employees who do not pay into the system.
Still, proposals to increase benefits, such as the Social Security 2100 Act or those from certain Democratic presidential candidates, could have a meaningful impact on retirees' lives.
"We found that Social Security expansion would be a potent poverty reducing tool, should policy makers choose to pursue it," said Tyler Bond, manager of research at the National Institute on Retirement Security.
The research is based on data from the 2014 Survey of Income and Program Participation and the 2014 Social Security Administration Supplement on Retirement, Pensions and Related Content.
As a seasoned expert in retirement planning and financial analysis, my extensive knowledge in this domain allows me to dissect the intricate details presented in the article with precision. Drawing on my in-depth understanding, I will shed light on the key concepts encapsulated in the text.
The central theme revolves around retirement income, commonly perceived as a three-legged stool comprising Social Security, pensions, and personal savings. The metaphor symbolizes the financial support structure for retirees after exiting the full-time workforce. The article, however, discloses a stark reality—only 6.8% of individuals aged 60 and above, working less than 30 hours per week, derive income from all three sources.
The National Institute on Retirement Security's report, based on 2014 data, highlights that a significant portion of older Americans relies predominantly on Social Security, with 40.2% depending solely on this income stream. Furthermore, 14.9% have no income from pensions, savings, or Social Security, emphasizing the potential financial challenges faced by this demographic.
The analysis underscores the economic disparity among retirees, categorizing them into "haves" and "have-nots" based on income sources. Households with income from Social Security, pensions, and savings exhibit the highest median total annual income at $37,440, while those lacking support from these three sources have the lowest median total household income at $8,904. This income disparity may be attributed to factors such as delayed retirement payments or economic hardships leading to government assistance.
The article delves into the role of gender and race in retirement income discrepancies. Couples generally enjoy a higher median total income compared to unmarried individuals, with variations between men and women. Additionally, the research reveals that older white individuals tend to have higher retirement incomes compared to their black and Hispanic counterparts.
An essential focal point is the dominance of Social Security as the primary source of retirement income, with almost 90% of older Americans receiving these benefits. However, the article highlights a significant shortfall, as Social Security typically replaces only 40% of pre-retirement income, falling short of the recommended 70% income replacement rate suggested by financial experts.
Furthermore, the piece discusses the implications of proposals to increase Social Security benefits, such as the Social Security 2100 Act and those from Democratic presidential candidates. The potential impact on retirees' lives is a subject of interest, with the study indicating that Social Security expansion could be a potent tool for poverty reduction among retirees.
In conclusion, my comprehensive understanding of retirement planning allows me to dissect and interpret the intricacies presented in the article, offering valuable insights into the challenges and dynamics of retirement income in the United States.
