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Report: 40% of Older American's Rely on Social Security for 100% of Income
USAgNet - 01/17/2020

Only a small percentage of older Americans, seven percent, receive income from Social Security, a defined benefit pension, and a defined contribution account. Retirement income from these three sources is widely considered to be the ideal situation to ensure retirement security, particularly for the middle class. 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. Typically, benefits from Social Security replace approximately 40 percent of pre-retirement income. Most financial planners recommend at least a 70 percent income replacement rate for retirees, while others say this should be even higher given longer lifespans and rising health costs. In fact, the analysis indicates that if Social Security income had been ten percent greater in 2013, there would have been about 500,000 fewer older households in poverty.

These findings are contained in a new report from the National Institute on Retirement Security (NIRS), Examining the Nest Egg: The Sources of Retirement Income for Older Americans. The report is co-authored by Tyler Bond, NIRS manager of research, and Dr. Frank Porell, University of Massachusetts Boston professor emeritus.

The analysis also finds that without income from Social Security in 2013, the number of poor older U.S. households would have increased by more than 200 percent to 11 million households. Absent income from defined benefit pensions, the number of poor older households would have increased by 19 percent to more than four million households in 2013.

Defined contribution plans, however, are less powerful at keeping older households out of poverty than pensions and Social Security because fewer near-poor households have assets in 401(k)-style defined contribution accounts and income from those accounts provided a smaller portion of total income. Without income from defined contribution accounts, the estimated number of poor older households would have increased by five percent.

This report examines the sources of retirement income for older Americans to determine how many older Americans achieve the "three-legged stool" of retirement savings: Social Security; a DB pension plan; and individual savings, typically through a DC account. Additionally, this report considers how sources of retirement income vary by gender, race and education. The study also estimates how different sources of retirement income impact poverty status, hardship, and public assistance and Medicaid costs.

More specifically, the impact of retirement income on public assistance and Medicaid costs, Social Security again had the strongest impact. Without Social Security income in 2013, the number of older households receiving public assistance would have increased by nearly 45 percent, while the number of older persons receiving Medicaid would have increased by more than 40 percent. Without income from pensions, the number of older households receiving public assistance would have increased by almost 19 percent, and the number of older persons receiving Medicaid would have increased by more than 15 percent. The impact of defined contribution income receipt was smaller for both measures.


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