Retirement as depicted on TV and by banks & brokers in advertising doesn’t really resemble reality. A fascinating new study of income sources among older Americans (age 50+, but particularly 65+) by Patrick Purcell at Congressional Research Service really shows this.
Americans aged 65 and older receive income from a variety of sources. Although Social Security,
pensions, and income from assets are the most common income sources, earnings also are
important, especially for those under age 70. Income from assets in the form of interest and
dividends makes up a significant percentage of the aggregate income of the elderly population.
However, most elderly individuals receive only modest amounts of interest and dividend income,
whereas a relatively small number of people receive large amounts of income from these sources.
Social Security is both the largest source of aggregate income among the elderly and the biggest
single source of income for a majority of Americans aged 65 and older. Compared to the disparity
in interest and dividend income, there is relatively little difference between the average monthly
Social Security benefit and the highest monthly benefit. This is because the Social Security
benefit formula limits the maximum amount paid to a retired high-wage earner to about 150% of the amount paid to a career-long average-wage worker.
Social Security and public assistance together provide more than 90% of all income for the
poorest 25% of the elderly population. These public programs have contributed greatly to
reducing poverty among the elderly. The reduction in poverty among older Americans is one of
the most significant public policy successes of the past half-century. Poverty among those aged 65 and older has fallen from one in three older persons in 1960 to fewer than one in ten today.
Nevertheless, the poverty rates remain high for older women, minorities, the less-educated, single
persons, and those over age 80.
Among the many, many insights here:
- income from assets (meaning dividends, interest, & capital gains) really only exists for the upper quartile of income earners.
- it takes a lot less to be relatively “rich” than people think. A household income of $60,000 + puts you in the top 25%. A personal income (one person) of $35,000 puts you in the top 25%.
- Social Security is absolutely essential. The lower 50% of income are mostly dependent on it, and even the top 25% depend on it for a very significant amount.