Retirement income worries often overblown, survey shows

Americans have a lot of worries about their income situation in retirement, but data from a survey published today hint that they often end up doing better than they thought they would.

That’s even the case as many point to concerns about the future of the Social Security system and start filing for benefits earlier than they know is optimal.

Nearly 80 percent of retirees told Gallup in a recent poll that they have enough money to live comfortably. Among the same cohort, people who today are 65 to 80 years old, only about half told the polling group 20 years ago that they would have enough money to retire.

“This retirement reality versus expectations gap has persisted since Gallup began systematically collecting this information in 2002, although there has been some variation over the decades in nonretirees’ expectations,” the group said in its report. Outlooks on retirement have been lower based on swings of “the national economic climate.”

This year, 45 percent of nonretired workers told Gallup that they are confident about having enough money by the time they retire.

The reasons why expectations can be worse than reality in retirement may include lower costs of living, the benefits of Medicare, and the role of Social Security, the group said.

“An analysis of aggregated data from 2019-2024 (involving interviews with 2,087 retirees and 3,935 non-retirees) shows that an average of 58 percent of retired Americans say Social Security is a ‘major source’ of their retirement income, making it the important bedrock of their financial security,” the Gallup report stated. “This is much higher than those who say pension plans (34 percent) and 401(k) and retirement plans (29 percent) are major sources of their retirement incomes.”

A separate report today from Schroders found that 51 percent of American workers are concerned about outliving their assets in retirement. That is coupled with fears about Social Security, a factor that motivates some to claim before 70.

Among the 2,000 people that firm had surveyed in March and April, 43 percent said they plan to start claiming Social Security before the full retirement age of 67. Only 10 percent said they would wait until 70 or later, the age for the maximum monthly benefit, Schroders found.

“The decision to sacrifice Social Security income is not an oversight for most, as 74 percent of non-retired investors are aware that waiting longer earns higher payments,” the firm stated.

Some of the reasons they listed for early claiming were needing the money (39 percent), worrying about the Social Security system (38 percent), wanting money as soon as possible (36 percent), and being advised to claim before 70 (12 percent).

But most respondents with workplace plans like 401(k)s said that they would be interested in retirement income options that protect against losses while still offering returns above those of cash products, according to Schroders.

It has become more common for 401(k)s and other defined-contribution plans to include payout options, such as annuities, that make the plans function more like traditional pensions. However, such features are not the norm, and saving for retirement is still very much a burden placed on individuals.

As the private sector has mostly eliminated traditional pension plans in favor of 401(k)s, income inequality has risen, according to a paper this summer by the National Conference on Public Employee Retirement Systems.

There is an inverse correlation between the demise of corporate pensions and the income gap, that group found. Other factors include regressive tax policies, a lack of funding for public education, and a reduction in union membership, according to that paper.

“The private sector represents about 85 percent of all employment in the US. And the vast majority of employees in the private sector unfortunately do not have access to a defined-benefit plan,” said Hank Kim, executive director of the group.

Recent moves by numerous states in developing automatic IRA “secure choice” systems have helped improve retirement security, but it would be more beneficial for workers to again have wider access to DB plans, Kim said. That would require legislative changes to the 1974 Employee Retirement Income Security Act to increase incentives and reduce burdens for employers to offer pensions, he said.

“There needs to be some recognition that 1974 is 50 years ago, and a lot has changed in the US workforce,” he said.

For most workers, the so-called “three-legged stool” of retirement security – pensions, Social Security, and private savings, such as DC plan assets – has been cut down to two, said Michael Kahn, director of research at NCPERS. Some countries have addressed the move away from pensions by pooling DC plan assets, something that could be done here, he noted. Expanding pension coverage could help reduce income inequality, which in turn would have positive effects on the economy, he said.

“The US is the richest country in the world,” he said. “I don’t know why we can’t do this.”