Examining the Nest Egg: The Sources of Retirement Income for Older Americans

A new report finds that a large portion (40 percent) of older Americans receives Social Security income in retirement, but does not receive income from either a defined benefit pension or a 401(k) plan. Only a small percentage of older Americans (seven percent) receives 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.

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.

The report’s key findings are as follows:

1. Only a small percentage of older Americans, 6.8 percent, receive income from Social Security, a defined benefit pension, and a defined contribution plan.
2. A plurality of older Americans, 40.2 percent, only receive retirement income from Social Security and do not receive income from defined benefit or defined contribution plans.
3. Roughly equal numbers of older Americans receive income from defined benefit pensions as from defined contribution plans. This is likely to change in the future as fewer private sector workers have access to defined benefit pensions now than in the past.
4. Defined benefit pensions have a much greater poverty- reducing effect than defined contribution plans. This may be partly due to the fact that recipients of defined contribution income tend to have much higher net worth than the recipients of defined benefit income.
5. Unmarried older men and unmarried older women receive retirement income from similar combinations of sources, but the older men consistently have higher incomes than the older women. Both unmarried men and women have lower retirement incomes than married older men and women.
6. Race and educational attainment both have very strong roles to play in determining retirement outcomes. Whites have consistently higher retirement incomes than blacks or Hispanics, and those with a college degree have significantly higher retirement incomes than those with only a high school education. Race and educational attainment also intersect in meaningful ways.
7. Expanding Social Security benefits would be a potent poverty-reducing tool for policymakers to implement to fight elder poverty.

The study data were drawn from the first wave of the re-engineered 2014 Survey of Income and Program Participation (SIPP) and the 2014 Social Security Administration (SSA) Supplement on Retirement, Pensions, and Related Content.  It includes an analysis of all respondents to both the SIPP and SSA Supplement who were age 60 years or older, and who worked fewer than 30 hours per week or not at all. It also includes all households with a householder age 60 or older, where neither the householder nor the spouse/partner worked 30 or more hours per week or didn’t work at all.