Multiple Sources of Retirement Income Key to Retirement Security

Having multiple sources of income is key to security during retirement, says a recent report.

 

In “Examining the Nest Egg: The Sources of Retirement Income for Older Americans,” Frank Porell, a University of Massachusetts professor emeritus and Tyler Bond, the National Institute on Retirement Security’s Manager of Research, write that while many older Americans have retirement income from only one source, those who have three are much more likely to be financially secure during retirement. The data reported and analyzed in the study come from the 2014 Survey of Income and Program Participation and the 2014 Social Security Administration Supplement on Retirement, Pensions, and Related Content. 

 

Porell and Bond write that 40% of older Americans rely on only Social Security as a source of income during their retirement. A smaller percentage have income from Social Security, a pension and a defined contribution account. That arrangement, they argue, best provides retirees financial security. “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,” they write.

 

Porell and Bond show what would have happened in 2013 without these sources of income:

 

 

Income Source	What Would Happen in its Absence
Social Security	The number of older U.S. households that were poor would have increased by more than 200%
Pension Plans	The number of older U.S. households that were poor would have increased by 19%
DC Plans	The number of older U.S. households that were poor would have increased by 5%

 

It has long been conventional wisdom that DB plans are waning as DC plans grow in number and importance, but the NIRS findings suggest that pension plans still have vitality and worth. Porell and Bond write that DB plans are more effective at reducing poverty than DC plans, a conclusion they attribute at least in part to the fact those who receive income from DC plans “tend to have much higher net worth than the recipients of defined benefit income.” They also write that NIRS found that the number of older Americans who receive income from pension plans was roughly equal to those whose support comes from DC plans. They do add a caveat of sorts, however, saying that they think that parity is “likely to change in the future,” since fewer employees in the private sector have access to pension plans than had before.

Porell and Bond also suggest expanding Social Security, which they argue “would be a potent poverty-reducing tool for policymakers to implement to fight elder poverty.”