The decline of pensions as a source of retirement income leaves newly minted retirees in a precarious position: They are potentially more dependent on Social Security to make ends meet.
New research from an employee benefit nonprofit seems to provide a stark illustration of that trend.
The Employee Benefit Research Institute, or EBRI, surveyed 3,600 retirees in 2024 about their spending. The survey found younger retirees were much more reliant on Social Security than older ones. The oldest retirees, ages 74 and 75, reported that 52% of their income came from Social Security. The youngest, ages 62 and 63, said they drew 67% of their income from the retirement trust fund.
The finding appears in the institute’s 2024 Spending in Retirement Survey, published in November.
“The reliance on Social Security as an income source declines with age, or at least that’s what the retirees are telling us,” said Bridget Bearden, research and development strategist at EBRI and author of the study.
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Do younger retirees rely more on Social Security?
Other research also suggests that the youngest retirees, typically born in the 1960s, are relying more on Social Security to get by.
In one recent survey, the nonprofit Transamerica Center for Retirement Studies found that retirees in their 60s were more likely than retirees in their 70s to cite Social Security as their primary income source, by a margin of 63% to 55%.
Retirees are leaning more on Social Security amid the decline of the traditional workplace pension, a dependable source of retirement income for generations of Americans.
The number of Americans participating in defined benefit pensions in the private sector dropped from a peak of 42.3 million in 2008 to 30.2 million in 2022, federal data show.
“Defined benefit pensions have really gone away,” said Evan Potash, executive wealth management advisor at TIAA, the financial services company. “It’s now up to us to save for our future.”
With pensions in retreat, workers are expected to finance their retirement through a combination of Social Security and savings, primarily the 401(k) and Individual Retirement Account.
Social Security was never meant to fully fund retirement
Social Security was never intended to fully fund retirement. On average, the benefit covers about 40% of a worker’s preretirement earnings. And that figure could drop: Social Security faces a shortfall by 2034, according to the Congressional Budget Office.
Financial advisers suggest workers aim to save as much as 10 times their annual income to supplement Social Security in retirement.
But most Americans don’t save nearly that much. In the 65-to-74-year-old age group, for example, the typical family with a retirement account has about $200,000 saved, according to the federal Survey of Consumer Finances. Only about half of those households have retirement accounts at all.
“The net effect is that workers have become increasingly expected to self-fund a greater portion of their retirement income, but many have lacked the awareness and access to workplace retirement plans to do so,” said Catherine Collinson, CEO of the nonprofit Transamerica Center for Retirement Studies.
The new EBRI report finds retirees increasingly struggling with credit card debt and spending more than they can afford. Half of retirees surveyed said they saved less than they would need to fully fund their retirement.
Younger retirees may live on a tighter budget
The survey found younger retirees living on a tighter budget than their older peers. Only 21% of the youngest respondents, ages 62 and 63, reported monthly spending of $3,000 or more. Among retirees ages 74 and 75, by contrast, 45% reported at least $3,000 in monthly spending.
Researchers also found that younger retirees had fewer income sources than older ones: Roughly two income streams for the average retiree born in 1962, and three for those born in 1949.
Those economic factors – less income, from fewer sources — may help explain why younger retirees are more dependent on Social Security, Bearden said.
Researchers caution that it’s tricky to compare retirees of different ages. People who retire earlier tend to have lower incomes than those who retire later, said Gal Wettstein, a senior research economist at Boston College. And retirees who claim Social Security at 62 or 63 may be under more financial duress than those who claim it later. Both facts may partly explain why the youngest retirees in the EBRI survey are more dependent on Social Security.
Despite those limitations, Wettstein said, the survey results probably show a real trend.
‘Beatlemania’ boomers face a retirement crisis
Other research shows the latest generation of retirees, the so-called “Beatlemania” boomers, facing a looming fiscal crisis.
Late boomers, born in the early 1960s, have less retirement wealth and less retirement savings than older boomers, according to a 2023 paper from the Center for Retirement Research at Boston College.
To compare wealth, Boston College researchers examined different generational groups in the same age range. They found that the youngest boomers had less wealth, chiefly from the economic effects of the Great Recession.
The decline of pensions is one reason why younger boomers are struggling in retirement, researchers say. It will be an even bigger factor for Generation X, born between 1965 and 1980. The oldest Gen-Xers turn 60 this year.
The oldest people in the EBRI survey, retirees in their 70s, are “the last significant group of people who actually do have a pension,” said David John, a senior strategic policy adviser at the AARP Public Policy Institute.
Younger retirees came of age in the era of the 401(k). But workers were slow to embrace the tax-advantaged retirement savings program.
“People who are retiring now, say at age 62, this group of people is much more likely to have had only about 20 years, at best, in the 401(k) retirement system,” John said. “And that doesn’t give them the same amount of time for those savings to build up.”
In a sense, John said, the latest wave of retirees was caught between two eras of retirement planning: too late for pensions, too early for 401(k)s.