New Findings Show IRAs And 401(k)s Contribute Less Than 20% Of Retirees' Income

Retirement savings plans like IRAs and 401(k)s are often promoted as key tools for securing financial stability in retirement. However, new findings from the Employee Benefit Research Institute (EBRI) reveal that these accounts play a surprisingly limited role in retirees’ overall income.

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The 2024 EBRI Spending in Retirement Survey, conducted among 3,600 American retirees aged 62 to 75, offers fresh insights into the income landscape for this demographic. 

According to the study, IRAs provide income for 20% of retirees, while 401(k)-style workplace retirement plans are an income source for 17%. However, these plans’ contribution to total income is modest. On average, IRAs account for 10% of retirees' income and 401(k)-like plans contribute 15%.

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Retirement Income Sources

IRAs and 401(k)s are just one part of the complex retirement income picture. The relatively small contribution these funds make to total retirement income demonstrates the importance of other income sources in retirement. 

Social Security is a critical income source for many retirees, with nearly 92% of those aged 65 and older receiving benefits from this program, according to Federal Reserve data. Other sources of retirement income from this data include (with the percentage of retirees that have that income source):

• Pensions (56%)
• Interest, dividends or rental income (42%)
• Wages, salaries or self-employment (32%)
• Cash transfers, other than Social Security (9%)

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Income Versus Expenses

Retirees face financial challenges when their income doesn't align with their expenses. The Motley Fool reports that the median annual income for Americans aged 65 and older is $50,290, while their average annual expenditures are about $57,818.

The average Social Security check is close to $1,900, often only replacing about 40% of the beneficiary's preretirement income. Retirees primarily relying on this income source have a substantial gap to fill. Financial experts recommend having a goal of saving or finding enough retirement income sources to replace 70-80% of your preretirement income, meaning Social Security alone won't be enough. 

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What Limited Savings Mean for Retirees

The small role that IRAs and 401(k)s play in retirement income can lead to financial struggles for many older Americans. According to the National Council on Aging, nearly 45% of people aged 60 and up have trouble covering basic expenses. Pew Research estimates that by 2040, about 32.6 million retirement-age households will have yearly incomes below $75,000. On average, those households will face a $7,050 gap between their income and needs.

While IRAs and 401(k)s are great tools for growing savings and offering tax advantages, they're not always enough to carry you through retirement on their own.

For those nearing retirement, now is a good time to review your financial plan and consider where your income will come from. A financial advisor can help you review and plan for a comfortable retirement. 

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