Retirement Income Security: Issues and Policies

Retirement Income Security: Issues and Policies

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February 17, 2023
Retirement Income Security: Issues and Policies
Older Americans are an economically diverse group with
income increased. Pensions and retirement savings
differing degrees of retirement preparedness. Median
provided between 18% and 33% of aggregate income for
household income for individuals ages 65 and older (or
aged individuals with relatively higher household income.
aged individuals) was $51,906 in 2017 (CRS analysis of
Asset income and earnings were important for those with
2017 income data from the Health and Retirement Study
higher household income. Public assistance accounted for a
linked with Social Security records). One-fifth of
small percentage of aggregate income for most aged
individuals ages 65 and older had household incomes of
individuals except for those with the lowest income.
less than $21,840, whereas another one-fifth had household
Retirement Income Adequacy
incomes of at least $110,897. Many in Congress have
Whether people are financially adequately prepared for
expressed interest in improving retirement income security
retirement is the subject of debate and research. While no
for groups that are not adequately prepared for retirement.
standard definition exists, income adequacy in retirement
Retirement Income Sources
could mean whether income can meet basic needs (e.g.,
being above the poverty line) or whether income is
Older Americans receive income from a variety of sources,
sufficient to maintain a preretirement standard of living.
including public programs such as Social Security and
SSI and other public assistance programs are designed to
Supplemental Security Income (SSI); pensions (e.g.,
ensure that eligible individuals have a minimum level of
employer-sponsored defined benefit [DB] and defined
resources. In contrast, Social Security and pensions, which
contribution [DC] plans) and retirement savings (e.g.,
are based on earnings, are designed to help workers amass
Individual Retirement Accounts or IRAs); asset income
enough resources to maintain their preretirement standard
(e.g., business income, interest, dividends, and rents); and
of living in retirement. Social Security benefits replace a
earnings. Social Security was the largest source of income
greater share of career-average earnings for low-paid
among the aged in 2017, accounting for 28.0% of aggregate
workers than for high-paid workers. Therefore, Social
income. Pensions and retirement savings constituted 25.8%
Security benefits generally comprise a higher share of
of income, and earnings accounted for 23.8%. The
retirement income for low earners than for high earners
remainder of aggregate income included income from
who have other retirement income.
assets, public assistance (mainly SSI), and other sources.
For lower-income households, Social Security and SSI may
The sources of income differed for aged individuals at the
account for the largest share of a household’s retirement
lower end compared to the upper end of the household
resources, in part because some low-income families are
income distribution (Figure 1). Social Security was the
typically unable to save for retirement after meeting regular
largest source of income for aged individuals with relatively
daily expenses during their working years. Because Social
low household income. The share of aggregate income from
Social Security significantly decreased as household
Figure 1. Share of Aggregate Income from Each Source Among Individuals Ages 65 and Older, by Household
Income Quintile, 2017

Source: CRS analysis of data from the 2018 Health and Retirement Study (HRS), reflecting income received in 2017.
Notes: Each household income quintile represents 20% of the individuals. The first quintile includes those with the lowest household income.
The fifth quintile includes those with the highest household income. Household income upper limits for quintiles one through four are $21,840,
$39,700, $64,295, and $110,897, respectively. (Dollar amounts shown in figure refer to medians within quintile range.) Pensions and retirement
savings include DB and DC pension plans and IRAs. Asset income includes business income, interest, dividends, and rent. Other income
includes veteran benefits, workers’ compensation, unemployment compensation, alimony, child support, and financial assistance from outside
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Retirement Income Security: Issues and Policies
the household. Public assistance includes SSI and other welfare income. Values have been adjusted for population weights provided by the HRS.
Individual quintiles may not sum to 100% due to rounding.
Security replaces a sufficient portion of their preretirement
benefit rate of $914 for individuals and $1,371 for couples
earnings, some low-income households may have less
in 2023. Countable resources must not exceed $2,000 for
incentive to save for retirement than high-income
individuals and $3,000 for couples. In January 2023, SSI
households do. Policy changes in Social Security or SSI
provided $1.3 billion to 2.4 million seniors ages 65 and
might better target these families to ensure they are able to
older. The average monthly payment for recipients ages 65
meet their basic needs in retirement. (Since 2000, the
and older was $554.
official poverty rate for aged individuals has ranged from
In 2017, about 14% of aged individuals with the lowest
8.7% to 10.4%.)
household incomes received SSI, accounting for about 4%
Some households with the ability to save for retirement
of the group’s aggregate household income. Over half of
might have little or no retirement savings beyond Social
aged SSI recipients also received Social Security benefits,
Security because they do not have access to employer-
and over one-third had no other source of income.
sponsored pensions and do not save elsewhere (e.g.,
Recent reform options to improve the retirement income
through IRAs). These households might benefit from
security of SSI recipients include increasing the federal
policies designed to increase access to, participation in, or
benefit rates to equal the poverty guidelines, updating the
contributions to retirement plans.
resource thresholds and income exclusions and indexing
Policy Considerations
them to inflation, and excluding certain retirement savings
accounts from countable resources.
Social Security. Old-Age, Survivors and Disability
Insurance (OASDI, or Social Security) is a mandatory
Pensions and Retirement Savings. A pension is a
federal social insurance program that replaces income lost
voluntary, tax-advantaged benefit that employers may offer
to a family as a result of the retirement, death, or disability
to assist employees in providing for their financial security
of an insured worker. Insured status is earned by working in
in retirement. The two types of pension plans are DB
jobs covered under Social Security and subject to payroll
plans—in which benefits are generally funded by
taxes that finance Social Security benefits. Once individuals
employers and paid according to a specified formula
work long enough in covered jobs to be insured, they and
throughout retirement—and DC plans, such as 401(k)
their families become eligible for benefits based on a
plans, in which employee and/or employer contributions are
worker’s earnings and paid without a test of economic need.
made to an individual’s account and used as a source of
In January 2023, Social Security paid approximately $112
retirement income. IRAs are retirement savings accounts
billion to about 66 million beneficiaries. The average
established outside of the workplace. Workers can roll over
monthly retired worker benefit was $1,828.
DC savings or lump sum payments from DB pensions (if
available) into IRAs at job change or retirement. Income
Social Security income was particularly important for aged
from DB plans and distributions from DC plans and IRAs
individuals with relatively lower household income. In
can be used to finance spending in retirement. In 2017,
2017, about 62.7% of aged individuals with the lowest
about 59.8% of individuals ages 65 and older received
household incomes relied on Social Security for 90% or
household income from pensions and retirement savings,
more of household income. Some argue that Social Security
with a median amount of $18,000 (or $1,500 monthly).
could be redesigned to provide more protection for
vulnerable groups, such as lifetime low earners, widowed or
Over the past five decades, private sector employers have
divorced beneficiaries, and the oldest old. Reforms could
increasingly offered DC plans instead of DB plans. Unlike
include changing the minimum benefit and survivor benefit,
DB plans, DC plans require many decisions on the part of
enhancing the progressivity of the benefit formula, and
participants (e.g., whether to participate, how much to
increasing the cost-of-living adjustment.
contribute, and how to invest) and do not guarantee lifetime
income to retirees. Some Members of Congress have
The OASDI trust funds are projected to be depleted in
expressed concern that households without access to
2035, at which point continuing program tax revenue is
pension plans or with limited DC plan or IRA savings may
projected to cover approximately 80% of scheduled
not be adequately prepared for retirement. Recently enacted
benefits. For the trust funds to remain solvent, an increase
legislation focused on increasing pension plan sponsorship
in revenue, a decrease in benefits, or some combination of
and savings in these plans (e.g., see the Setting Every
these approaches would be needed. No consensus has
Community up for Retirement Enhancement Act of 2019
emerged on how best to approach reform. Reform may
[SECURE Act; P.L. 116-94] and the SECURE 2.0 Act of
involve some combination of tax increases, benefit
2022 [P.L. 117-328]). For example, SECURE 2.0 included
protections for low-earners, benefit cuts for high earners or
a provision aimed at promoting retirement savings among
high-income individuals, general revenue transfers, or an
low-income households by repealing the Retirement
increase in the rate of return on Social Security revenues.
Savings Contribution Credit and replacing it with a Saver’s
Supplemental Security Income (SSI). SSI is a federal
Match, effective starting in 2027.
means-tested program that provides monthly cash payments
to aged, blind, and disabled individuals (including disabled
Zhe Li, Analyst in Social Policy
children) with low incomes and limited resources to meet
Paul S. Davies, Specialist in Income Security
basic needs such as food and shelter. The maximum SSI
Elizabeth A. Myers, Analyst in Income Security
benefit is below the poverty level. Recipients must have
IF12330
countable monthly income less than the monthly federal
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Retirement Income Security: Issues and Policies

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