Americans’ retirement income comes from several sources. For most, Social Security income (Old Age, Survivors, and Disability Insurance) is the foundation of financial security in retirement. Older Americans may also have income from employer-sponsored pensions and personal savings. A large and growing number of older people either need or want to work during what is typically considered the retirement years. For some of those below the poverty line, public-assistance programs provide an income floor.
The economic status of older Americans, as measured by the official poverty rate, has improved dramatically over the past several decades. In 1959, more than one in three older Americans lived in poverty. Today fewer than one in ten do. This drop is a testament to the success of Social Security. However, it is important to strengthen Social Security so it can provide an adequate level of benefits to those who would otherwise suffer economic hardship—notably women, racial and ethnic groups that have experienced discrimination, and people living alone.
It is also important to ensure adequate protections for workers with employer-sponsored retirement plans, expand access to such coverage, encourage and facilitate saving, and enable and encourage work. Several trends have made it more challenging for future generations of retirees to achieve and maintain an adequate income in retirement. First, employer-sponsored coverage has been eroding as employers who once sponsored defined-benefit pension plans shift to defined-contribution plans, such as 401(k)s. These plans usually require workers to actively contribute to receive employer contributions and place greater risk on employees to save adequately and invest well. Second, few new or small employers offer any type of plan so these workers have no way to save at the workplace. Both trends have led to many people approaching retirement with only a modest amount of retirement assets.