Retirement Savings Shock: IRAs and 401(k)s Provide Less Than 20% of Retirees’ Income
Retirement savings plans like IRAs and 401(k)s are often seen as key to a secure financial future. However, a 2024 study by the Employee Benefit Research Institute (EBRI) reveals these plans play a smaller role in retirees’ income than many might expect. Let’s dive into the surprising findings and explore how retirees manage their income.
How Much Do IRAs and 401(k)s Contribute?
According to EBRI’s survey of 3,600 retirees aged 62-75:
- IRA Income: Only 20% of retirees get income from IRAs, contributing just 10% to their total income.
- 401(k)-Style Plans: Just 17% benefit from these accounts, which make up 15% of their income.
These figures highlight that while helpful, these accounts aren’t the main sources of retirement income.
Where Does Most Retirement Income Come From?
The modest role of IRAs and 401(k)s means retirees rely on other sources:
- Social Security: 92% of retirees depend on it, and it makes up 40% of their total income.
- Pensions: 56% receive pensions, though their contributions vary.
- Investments: 42% earn from interest, dividends, or rental income.
- Wages or Self-Employment: 32% continue working part-time for extra income.
The Income vs. Expense Gap
One of the biggest challenges retirees face is balancing income and expenses.
- Average Income: $50,290 annually for retirees aged 65 and older.
- Average Expenses: $57,818 per year, leaving a $7,528 gap.
Social Security alone is not enough, covering only about 40% of pre-retirement income. Experts recommend replacing 70-80% of pre-retirement income to maintain your standard of living.
Why Are Savings Accounts Falling Short?
Several factors limit the growth of IRAs and 401(k)s:
- Contribution Limits: Caps on annual contributions restrict savings.
- Market Volatility: Investment risks can reduce returns.
- Early Withdrawals: Taking money out early decreases account balances.
Planning for a Better Retirement
To secure a comfortable retirement, consider these strategies:
- Diversify Your Income: Rely on more than just savings. Look into investments, pensions, and part-time work.
- Consult a Financial Advisor: Tailor a plan to your needs.
- Delay Social Security: Waiting to claim benefits can increase payouts.
- Regularly Review Plans: Adjust for changing circumstances and market trends.
FAQs
1. Why do IRAs and 401(k)s contribute so little to retirement income?
Limits on contributions, market changes, and early withdrawals reduce their impact.
2. What are the main income sources for retirees?
Social Security, pensions, investments, and part-time work are primary sources.
3. How can I increase my retirement income?
Diversify income streams, delay Social Security, and maximize account contributions.
4. How much income should I aim for in retirement?
Aim to replace 70-80% of your pre-retirement income to maintain your lifestyle.
5. Are part-time jobs common for retirees?
Yes, about 32% of retirees work part-time or are self-employed for extra income.
