Either directly or through a spouse, 71% of Americans over age 70 receive income from retirement plans such as a 401(k) or IRA, according to new research released this week from the Investment Company Institute (ICI).
More impressively, that share increases rapidly with income—to nearly 90% for those outside the bottom quartile of the income distribution, write ICI Senior Economic Adviser Peter Brady and ICI Economist Steven Bass in the latest ICI Viewpoints blog, titled, A Closer Look at the Facts Shows a More Optimistic Outlook for the US Retirement System.
Brady and Bass write that these statistics, and other results from their new research analyzing tax data, challenge assertions that the voluntary component of the US retirement system is failing and leaving retirees too reliant on Social Security.
“These misleading narratives rely on official government income statistics, which are derived from household surveys. But studies comparing household surveys with administrative tax data, by us and others, have shown that these surveys substantially undercount income from employer plans and IRAs,” the blog states.
Actual tax data, they say, provides a more accurate and optimistic assessment of the current state of the US retirement system—which they contend is working as designed. Brady and Bass note that most retirees rely on a combination of Social Security benefits and income from retirement plans, but the relative importance of the two varies considerably across the income distribution.
At age 75, for example, the typical individual gets about half their income from Social Security. The median Social Security income share, however, ranges from 100% for the bottom 15% of the population to less than one-third for the top 15%, the blog states.
“Not surprisingly, higher-earning workers rely more on retirement plan distributions because Social Security benefits replace a lower share of their pre-retirement earnings,” Brady and Bass write.
The Viewpoints blog concludes by reiterating that the voluntary retirement plan system, in combination with Social Security, is working as designed, buoying American seniors’ finances and preventing steep drops in their spendable income.
“As policymakers consider future reforms, they should start with an accurate assessment of how the system is currently working.”
Read the full blog for more details.
SEE ALSO:
• Protecting the Rights of Retirement Investors with ICI Leader Eric J. Pan
• What Experts are Saying About the State of Social Security
• ‘Help U.S. Retire’ Advocacy Campaign Launched by ICI
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
