Americans are concerned and even afraid for their retirement security. And the news headlines often don’t make them feel better. According to the National Institute for Retirement Security, the most recent assertion is that “A plurality of older Americans, 40 2 percent, only receive income from Social Security in retirement. ” If true that’s very worrying. But does this frightening factoid hold up?.
The research and communications division of the defined benefit pension sector is called the National Institute for Retirement Security (NIRS). NIRS regularly releases reports on a range of topics related to retirement incomes and savings, and these reports typically receive positive media attention.
NIRS’s new report is no exception. “A New Report Warns That Retirement Security Is On A Treacherous Path,” writes Ted Knutson, a fellow Forbes contributor. Citing the report, Helaine Olen of The Washington Post argued that Democratic politicians who support reducing Social Security benefits are susceptible to President Trump, who is against Social Security reductions, because Social Security “is the only income source for 40 percent of retirees over the age of 60.” CNBC and other media outlets also reiterated the assertion that 60% of retirees have no assets other than Social Security.
However, is the NIRS report accurate in stating that 4 out of 10 retirees genuinely only receive Social Security income?
The Census Bureau’s Survey of Income and Program Participation, also known as the SIPP, is the source of data for the NIRS report. The sources of a household’s income are among the many questions posed by the SIPP survey to households. From the SIPP, NIRS declares that 40. Social Security provides all of the income for 2% of retirees.
However, a 2017 study conducted by Social Security Administration researchers, who also used the SIPP, discovered that just 19 Six percent of Americans (65% and above) obtained at least 90% of their total income from social security. That indicates that E2%80%99s is less than half the share of retirees than NIR claims and SSA measures dependency with a lower bar%20E2%80%93%2090%%20of total income%20rather%20than%20NIRS%E2%80%99s%20100% Clearly, there’s a conflict. Furthermore, from a policy standpoint, it is not a major issue that one-fifth of retirees rely primarily on Social Security; after all, the poorest fifth of workers are, in fact, extremely impoverished, and Social Security was created to offer retirement benefits to those who are unable to save on their own.
Additionally, a second 2017 study conducted by two economists with the Census Bureau used IRS tax records—which are more accurate than survey responses from households—to analyze retirement incomes. The Census Bureau study discovered that only 2012 percent of Americans over 65 received 90% or more of their income from social security. Once more, it is unclear how this is compatible with NIRs. However, it is claimed by E2%80%99s that over 20% of retirees get all of their income from Social Security.
The%20Census%20Bureau%20study%20shows%20that%20even%20if%20you%20combine%20Social%20Security%20benefits%20with%20Supplemental%20Security%20Income%20(SSI),%20a%20means-tested%20welfare%20benefit%20paid%20to%20very%20low-income%20retirees,%20retiree%20households%20in%20the%20bottom%2040%%20of%20the%20income%20distribution%20%E2%80%93%20the%20ones%20the%20NIRS%20report%20would%20have%20you%20think%20are%20receiving%20pretty%20much%20all%20of%20their%20incomes%20from%20Social%20Security%20%E2%80%93%20received%20only%2079%%20of%20their%20total%20incomes%20in%20combined%20Social%20Security%20and%20SSI%20benefits Dependency on Social Security/SSI decreases even more as we go up the income distribution, while reliance on other sources of income rises.
On the basis of these results alone, I believe it is fair to acknowledge NIR’s claim that 100% of retirees get all of their income from Social Security, which is a failing grade on the Biggs Factcheck.
The more intriguing query is why: Without reconstructing NIRS’s data from scratch, it’s difficult to say how or why it produced such a figure.
The way that NIRS defines “retirees” is one way that its calculations differ from those made by the SSA, the Census Bureau, and other organizations. The majority of research on retirees’ reliance on Social Security examines all citizens 65 and older. NIRS examined Americans sixty years of age and older who work fewer than thirty hours a week instead. Since everyone who works earns money outside of Social Security, the number of retirees with non-Social Security income is lowered by NIRS’s definition of retirees. However, based on a cursory review of 2013 data from the Current Population Survey, only 8% of Americans aged 60 and older reported working more than 30 hours per week. So I doubt that’s the driving factor.
The fact that NIRS relies on SIPP pensions and retirement supplements, where survey participants indicate whether they receive different kinds of retirement income, could also be a contributing factor. Theoretically, this ought to improve the accuracy of NIRS’s report, but research has shown that retirees struggle to disclose their various income sources. For example, they could assert that they are not getting a pension benefit even though tax information indicates otherwise. According to a Census Bureau study, 28% of Americans aged 65 and above said they were unable to receive income from a private retirement plan, even though their tax returns indicated otherwise. Out of all retirees, only 4% claimed to have benefits from a private retirement plan. Errors in household surveys therefore often distort the truth about the state of affairs. This is one of the main reasons research has shifted away from household surveys and toward administrative data from the IRS or SSA.
However, it is still reasonable to conclude that NIRS’s assertion that “A majority of older Americans, 40 2 percent, only collect Social Security benefits in retirement” is untrue. According to government agencies’ analysis, only roughly half of that amount is received by people, even though social security accounts for 90% of their income.
The Importance of Retirement Income Diversification
Retirement planning is a crucial aspect of ensuring financial security in your later years. While Social Security plays a vital role in providing income for many retirees, relying solely on this source can leave you vulnerable to financial hardship. This article explores the findings of a report by the National Institute on Retirement Security (NIRS), which highlights the importance of diversifying your retirement income sources.
Key Findings of the NIRS Report
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40% of older Americans rely solely on Social Security for retirement income. This highlights the significant dependence on Social Security among older adults, underscoring the need for alternative income sources to supplement Social Security benefits.
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Only 7% of retirees achieve the ideal retirement income situation. This situation involves receiving income from three sources: Social Security, a defined benefit pension, and a defined contribution account. This emphasizes the rarity of achieving a well-diversified retirement income portfolio.
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Social Security plays a critical role in preventing elder poverty. The report estimates that without Social Security income, the number of poor older households would have increased by over 200% in 2013. This underscores the importance of Social Security in ensuring basic financial security for many retirees.
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Defined benefit pensions are more effective than defined contribution plans in reducing poverty. The report finds that defined benefit pensions have a greater impact on reducing poverty among older adults compared to defined contribution plans. This highlights the importance of traditional pensions in providing a stable and reliable source of retirement income.
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Expanding Social Security benefits could be a potent tool for fighting elder poverty. The report suggests that increasing Social Security benefits could significantly reduce poverty among older adults. This underscores the potential of Social Security to play a more significant role in ensuring financial security for retirees.
Recommendations for Diversifying Retirement Income
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Start saving early and consistently. The earlier you begin saving for retirement, the more time your money has to grow through compound interest. Aim to contribute regularly to your retirement savings plan, even if it’s just a small amount.
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Consider a variety of retirement savings options. Explore different retirement savings options, such as employer-sponsored plans (401(k), 403(b)), individual retirement accounts (IRAs), and Roth IRAs. Each option has its own advantages and disadvantages, so choose the ones that best fit your financial goals and risk tolerance.
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Invest in a diversified portfolio. Diversifying your investments across different asset classes, such as stocks, bonds, and real estate, can help mitigate risk and potentially increase your returns over the long term.
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Seek professional financial advice. A qualified financial advisor can help you create a personalized retirement plan that considers your individual circumstances, goals, and risk tolerance. They can also guide you in choosing the right retirement savings options and investments to achieve your financial objectives.
While Social Security plays a vital role in providing retirement income for many Americans, it’s crucial to recognize the importance of diversifying your income sources. By starting early, saving consistently, and investing wisely, you can build a secure retirement nest egg that will help you maintain your financial independence and enjoy your golden years.
The fact that NIRS relies on SIPP pensions and retirement supplements, where survey participants indicate whether they receive different kinds of retirement income, could also be a contributing factor. Theoretically, this ought to improve the accuracy of NIRS’s report, but research has shown that retirees struggle to disclose their various income sources. For example, they could assert that they are not getting a pension benefit even though tax information indicates otherwise. According to a Census Bureau study, 28% of Americans aged 65 and above said they were unable to receive income from a private retirement plan, even though their tax returns indicated otherwise. Out of all retirees, only 4% claimed to have benefits from a private retirement plan. Errors in household surveys therefore often distort the truth about the state of affairs. This is one of the main reasons research has shifted away from household surveys and toward administrative data from the IRS or SSA.
NIRS’s new report is no exception. “Retirement Security Is On A Treacherous Path, New Report Warns,” writes my fellow Forbes contributor Ted Knutson. The Washington Post’s Helaine Olen cited the report, arguing that because Social Security “is the only income source for 40 percent of retirees over the age of 60,” Democratic politicians who favor Social Security benefit cuts are vulnerable to President Trump, who opposes Social Security reductions. CNBC and others also repeated the claim that 40% of retirees have nothing except for Social Security.
The more intriguing query is why: Without reconstructing NIRS’s data from scratch, it’s difficult to say how or why it produced such a figure.
However, it is still reasonable to conclude that NIRS’s assertion that “A majority of older Americans, 40 2 percent, only collect Social Security benefits in retirement” is untrue. According to government agencies’ analysis, only roughly half of that amount is received by people, even though social security accounts for 90% of their income.
Americans are concerned and even afraid for their retirement security. And the news headlines often don’t make them feel better. The latest is a claim from the National institute for Retirement Security that “A plurality of older Americans, 40.2 percent, only receive income from Social Security in retirement.” If true that’s very worrying. But does this frightening factoid hold up?
The outlook for future retirees appears uncertain despite the seemingly modest changes in income by source mentioned above, as studies continue to show that American workers have low retirement savings (Munnell 2014; Ghilarducci 2014; Knoll, Tamborini, and Whitman 2012). For instance, estimates derived from the 2013 Survey of Consumer Finances show that 41% of American households led by people in their 55–64 age range do not have any retirement account savings. Even more striking is the sharp variation by household income. 9 percent of households headed by people in the lowest income quintile, 68 percent of households headed by people in the middle quintile, and 94 percent of households headed by people in the top income quintile have any retirement savings. The median amount saved for retirement among the 59% of households with some savings is approximately $104,000, and 25% of those households have saved less than $26,000 (Government Accountability Office 2015, Tables 1-3). These savings might not be sufficient to cover an annuity payment during retirement. All things considered, the change in the predominant kind of pension plan offerings and the ensuing change in the income they can produce is probably responsible for the change in the percentage of the retired population that receives pension income as well as the nature and significance of that income during retirement.
Estimates based on CPS data show that, among aged units (single people 65 or older or couples with at least one member 65 or older), the percentage of income received from public and private pensions (including IRAs) increased from 18% in 2000 to 21% in 2014, despite the growth in aggregate retirement assets and holdings in recent decades. During the same time frame, assets accounted for 10% of their total income, down from 18% (SSA 2002, Table 7). 1; 2016b, Table 10. 1); the latter trend might have been influenced by changes in interest rates during that time.
9 We compared the self-reported Social Security benefits of the HRS respondents with data from the administrative records in 2012 and discovered that, on average, there was a difference of approximately $255 between net and gross benefits. The latter sum is nearly equal to the median Medicare premiums and is roughly comparable to the difference that Iams and Purcell (2013) discovered using SIPP data.
The landscape of pension offerings changed, as expected, and as a result, traditional DB plans’ aggregate asset holdings drastically shifted toward tax-advantaged DC plans or IRAs. The assets held by Americans in 1981 included $673 billion in DB plans, $174 billion in DC plans, and $38 billion in IRAs. By 2014, traditional retirement plans held $8. 0 trillion in assets, DC retirement plans held $6. 3 trillion, and IRAs held $7. Table 11c of the Federal Interagency Forum on Aging-Related Statistics (2016) shows that 4 trillion. Remarkably, transfers from tax-favored DC retirement plans account for the majority of IRA assets (Holden and Schrass 2016).
We make use of information gathered from the CPS Annual Social and Economic Supplement in March 2015. Respondents from a nationally representative sample of the U. S. population was questioned in-depth regarding the income earned by each member of the household in the preceding year, including whether or not they received any Social Security income, how much they received, and what kind of benefits they received (retired worker, disabled worker, or dependent/survivor). Additionally, respondents were questioned about whether and how much Medicare premiums were subtracted from their Social Security benefits. The Census Bureau determined the Social Security income (which includes Medicare premiums) for each family member based on the answers to these questions, and then the total family income. The majority of Social Security income comes from retired worker, spouse, and survivor benefits because our sample is limited to individuals 65 years of age or older.
Living on Social Security Alone
FAQ
Do most retirees live comfortably on Social Security alone?
How many seniors live on Social Security?
What is the average income for retirees on Social Security?
What is the average Social Security check at age 65?
Is Social Security enough for a secure retirement?
Retirees with these three sources of income are far less likely to face poverty and economic hardship. A new report also finds that a large portion (40 percent) of older Americans rely only on Social Security income in retirement. Social Security alone is not considered sufficient for a secure retirement, and it was not intended to stand alone.
What percentage of retirement income is Social Security?
Key Findings Social Security is 40.12% of retirement income on average. Across the 100 cities we studied, Social Security represents 40.12% of all retirement income. This shows how important it is to save for retirement when you are young, as Social Security isn’t going to be able to make up most of what a person needs in retirement.
How much social security if you retire in 2023?
If you retire at full retirement age in 2023, your maximum benefit would be $3,627. If you retire at age 70 in 2023, your maximum benefit would be $4,555. More people (about 29%) claim benefits at age 62, the first year of eligibility. One in four people wait to draw Social Security benefits until age 66.
Can you live on social security alone?
Living on Social Security Alone: Can You Do It? Social Security is typically used as a supplement to retirement savings and income. At the very end of 2023, the average monthly retirement benefit is $1,767.03. Depending on where you live and your expenses, that may or may not be enough to live comfortably.