Americans’ retirement income comes from several sources. For most, Social Security income is the foundation of financial security in retirement. The economic status of older Americans has improved dramatically over the past several decades. In 1959, more than one in three older Americans lived in poverty. Today less than one in ten do. This drop is a testament to the success of Social Security.
Social Security benefits provide an essential foundation for retirement income. Most people supplement their Social Security benefits with income from other sources. This can include employer-sponsored retirement plans and personal savings. Moreover, a large and growing number of older people may work during some of their retirement years.
Many people approach retirement without enough resources to maintain their standard of living in retirement. Several factors make it more challenging for future generations of retirees to achieve and maintain an adequate income in retirement.
First, the Social Security system needs adjustments to make it financially stable. Second, few employers still sponsor defined-benefit pension plans. Most that offer plans have shifted to defined-contribution plans, such as 401(k)s. These plans usually require workers to actively contribute to receive employer matching contributions. This approach shifts some of the burden and risk from employers to workers since they are responsible for determining adequate savings amounts of their investment strategies. Third, few small employers offer any type of retirement savings plan. Finally, the tax incentives in place to subsidize and encourage retirement savings are not effective enough for people with low and moderate incomes.