Retirement security—being able to transition out of the workforce without severe financial devastation or serious risks to health—was first formed in the U.S. by the New Deal programs enacted in the 1930s which included Social Security and unemployment insurance. Assistance for older people prior to the New Deal was largely absent save for the old age and poor houses. Contrary to other retirement security programs being developed around the same time in Europe made available to virtually all citizens, the U.S. tied most of its programs to employment. Non-whites were deliberately excluded from early retirement security programs by policymakers who made only certain types of employment (e.g., non-agricultural) eligible for benefits. Women were eligible for benefits, but only if they were tied to a male breadwinner employed in a qualifying occupation (Albiston & Fisk, 2020). These policy decisions, “… ensured that social insurance would not provide a disincentive to take low-wage jobs, and would therefore not destabilize the racialized labor regimes (especially in agriculture), traditional family structures, or labor relations in industry” (Albiston & Fisk, 2020; p. 3).
Over 30 years later, Medicare and Medicaid were enacted in 1965 to provide health care coverage. Medicare, a social insurance program, provides hospital (Part A) and medical coverage (Part B) to those who are 65 and older and to those who are younger and living with certain medical conditions. Medicaid is a means tested program that provides healthcare to those living below a certain income threshold (CMS.gov, 2020). The Affordable Care Act signed into law in 2010 was the last major reform to retirement security. The ACA reduced the cost of prescription drugs and closed the donut hole, lowered Medicare Part B premiums, added preventative services with no out of pocket cost, and made several reforms to the Medicare Advantage program (Woolhandler & Himmelstein, 2017).
The future of U.S. retirement security is untenable given the prioritization of federal debt reduction over public spending, reduced taxes especially on wealth, wage stagnation, fewer private pensions, outdated policy, and the push to privatize several key retirement security programs (Grenier et al., 2017; Polivka and Lao, 2020; Streeck, 2016). This brief provides a snapshot of the state of retirement security in the U.S. among current workers and of those already in retirement.
Retirement security is tied to employment, making the time and events during the working years critical to ensuring the transition out of the workforce and into retirement. Success in achieving retirement security is based on several factors including income and other demographic factors, type of retirement savings, and health insurance coverage. Workers in the private sector make up 70 percent of those formally employed, working primarily in trade, transportation, utilities, education, and healthcare (BLS.gov, 2019). The current federal minimum wage is $7.25 (DOL.gov, 2021). Median household income is at $68,703 (Census.gov, 2020). Large disparities exist among the employed with women making 85 cents for every dollar that men make, white men having median incomes greater than all other men except Asian American Pacific Islander men, and the earning gap between those with college degrees and those without being the largest that it’s been in decades (BLS.gov, 2019). With regard to generational differences in retirement security, Millennials, or those born between 1981 and 1999, are predicted to be far behind older cohorts due to the heavy student loan debt they are carrying, low retirement savings, few employer-sponsored retirement plans, a difficult job market following the Great Recession, their increased life expectancy, and their lower predicted future income from Social Security (Chen & Munnell, 2021). These trends for Millennials are likely to be exacerbated by the COVID-19 pandemic, especially for women and racial/ethnic minorities who tend to be concentrated in employment sectors vulnerable to layoffs and temporary closures.
Retirement savings account types have changed dramatically over the last several decades (Albiston & Fisk, 2020). The U.S. Department of Labor estimates that contributions to 401(k) pensions, a defined contribution plan, has increased 900% between the 1980s and 2000 (2018, p. 25). By contrast, defined benefit contribution plans are on the decline. Defined contribution plans are market driven and thus more volatile, while defined benefit contribution plans are employer provided, more stable, and provide a fixed dollar amount in retirement. Additionally, most workers don’t earn enough to make 401(k) plans worthwhile as a retirement income strategy (Albiston & Fisk, 2020).
Employer provided health insurance is declining and more than 2 out of 5 working people are under insured (Commonwealthfund.org, 2020). Half of the U.S. population has employer sponsored health insurance (KFF.org, 2021) and premiums for coverage have been increasing (see Figure 1). Of those employees with employer sponsored health insurance, a quarter are underinsured (Commonwealthfund.org, 2020). One in 10 people in the U.S. are uninsured, with many living in a state that failed to expand Medicaid (Albiston & Fisk, 2020).
Retirement Security at Ages 65 and Older
Medicare is the primary payer for medical care to those 65 and older in the U.S. Medicare was enacted in 1965 under Title XVIII of the Social Security Act as an entitlement program to provide hospital and medical insurance to those 65 and older. Later, benefits were expanded to those younger than 65 living with certain medical conditions like end-stage renal disease. Medicare Part A covers hospital visits and is funded through payroll taxes; Medicare Part B covers physicians’ visits and is paid for by general revenue and premiums. Controlling for a number of factors, KFF found that Medicare beneficiaries are more satisfied with their care and have better access compared to those ages 50-64 with private insurance (see: https://www.kff.org/report-section/medicare-covered-older-adults-are-satisfied-with-their-coverage-have-similar-access-to-care-as-privately-insured-adults-ages-50-to-64-issue-brief/). Although satisfaction with the program is high, Medicare doesn’t cover the entire cost of healthcare, which increases with age—especially, the need for long-term care (Albiston & Fisk, 2020). Figure 2 shows the percentage of Medicare beneficiaries with supplemental coverage. Nineteen percent of beneficiaries have no supplemental coverage. Employer-sponsored and Medigap plans provide the largest share of supplemental coverage.
Medicare Advantage (MA), the private alternative to traditional Medicare, has gained in popularity among consumers over the last decade and today, almost 40 percent of those who are eligible for Medicare are enrolled in MA (see Figure 3 below). MA attracts consumers by offering additional benefits like dental, health club memberships, prescription eye glasses, and others in addition to providing traditional Medicare Part A and Part B. Several reports, however, have questioned the relative value of MA (GAO, 2014; GAO, 2017; OIG, 2019).
Well over half of those 65 and older will need long-term care and almost 50 percent receive paid care (Urban Institute, 2019). Most will receive unpaid care, provided primarily by family and approximately 15 percent spend over 2 years in a nursing home—although those with fewer financial resources are more likely to have lengthier nursing home stays due to a greater number of comorbidities (Urban Institute, 2019). The average annual cost of nursing home care is over $80,000 and Medicaid is the primary payer (KFF.org, 2017).
Most people 65 and older (80 percent) own their homes, although over the last decade, the number of older people with mortgages has increased (Consumerfinance.gov, 2014; Census.gov/housing, 2020). Older renters are facing an increasingly dismal rental market. The last several decades have brought a lack of affordability to older renters who largely rely on fixed incomes. At the federal level, there has been a divestment of affordable housing and at the market level, the new construction of high-end rental units and the shrinking publicly subsidized housing unit market is leaving older renters with few options (Justice in Aging, 2021). Justice in Aging (2021) also notes that older people in many regions are becoming the fastest growing segment of the homeless population.
Income, Assets, Expenditures, and Debt
This section presents data relating to income, assets, and debt by age.
Median income rises through young adulthood, peaks in middle-age, and then steadily declines. Figure 4 shows that those ages 25-34 have a median income of $70,000, by ages 45-54 median income peaks at $91,000, and significantly declines thereafter with those ages 64-74 having a median income of $58,000 and those 75 and older having a median income of only $39,000.
Figure 5 shows that 10 percent of those 65 and older are impoverished while 5 percent are near impoverishment. Women have higher poverty rates (12 percent) compared to men (7 percent). This is in part, explained by the economic cost of providing care for family members and a lifetime of lower earnings (Burn et al., 2020). Among those who are not married, 16 percent are poor and almost 9 percent are near poor. Asian American Pacific Islander (15 percent), Hispanic (18 percent), and Black (19 percent) older people have higher poverty rates, compared to White (9 percent) older people. The higher poverty rates among racial/ethnic minorities are partially explained by their concentration in low wage employment (Burn et al., 2020).
Figure 6 shows that median household net worth increases steadily with age until ages 75 and older where it declines slightly. Median household net worth is lowest ($13,900) for families whose head of household is less than 35 years old. It rises dramatically to over $91k for households headed by those aged 35-44 to almost $169k for those aged 45-54, and peaks at $266k for households headed by individuals ages 65-74. Median household net worth for those headed by individuals aged 75 and older was lower at almost $255k.
Social Security is overwhelmingly the primary source of income for those aged 65 and older, with 84 percent receiving benefits (see Figure 7), making up 33 percent of total income (see Figure 8). Over sixty percent receive income from assets, however, assets make up only 10 percent of total income. Forty-four percent receive retirement benefits other than Social Security, accounting for 20 percent of total income. Twenty-nine percent receive income from earnings, making up 32 percent of total income older people receive.
Figure 9 shows that the likelihood of receiving pensions (public and private) is roughly equal across older age groups but that the likelihood of receiving income from earnings declines significantly by age 80.
Figure 10 shows that Asian American Pacific Islander, Hispanic, and Black older people are less likely to receive Social Security, pensions, and income from assets, compared to Whites (65 percent, 72 percent, 80 percent, respectively; compared to 86 percent of Whites). Income from earnings is similar across racial/ethnic groups. The percentage of White older people receiving SSI is lower than other racial/ethnic groups.
Figure 11 shows that housing and out of pocket expenditures among older people increases with age while expenditures on transportation, food, entertainment, and apparel remain steady across age groups.
Most debt is carried by people aged 38-52, however, the percentage of those 65 and older who are carrying all forms of debt (e.g., credit card, mortgage, etc.) is steadily increasing (Consumerfinance.gov, 2020). Among older borrowers, mortgage debt makes up the lion’s share. Figure 12 shows the age of the head of household, the percentage of households in debt, and the median debt held by households. A larger share of households in the 35-44 and 45-54 age ranges are holding debt (86 percent and 87 percent, respectively) and have higher median levels ($93,700 and $89,900, respectively).
While median debt declines with age, researchers have noticed a troubling trend—an increase since the early 1990s in older people filing for bankruptcy—nearly doubling during that time (Thorne et al., 2019). The median debt was substantial among older filers at over $100,000. The researchers also found that older filers were more likely to have been carrying the debts for years, significantly decreasing their wealth (Thorne et al., 2019).
This brief provided a snapshot of the financial situation of individuals headed towards retirement and of those close to or currently in retirement. It shows just how precarious retirement security can be, especially as its currently designed, with a heavy reliance on long-term, stable employment. Without employer sponsored pensions and health insurance and carrying high levels of student debt, the maintenance of financial well-being and health could be unattainable, especially for Millennials and for future generations. The Great Recession and COVID-19 pandemic further eroded retirement security, especially among women and racial/ethnic minorities who were disproportionately impacted by temporary job closures and unemployment (CNBC.com, 2021). The pandemic may be coming to an end, however, the lost jobs, wages, and blow to Social Security will lead to a long road to recovery without solid policy interventions aimed at assisting displaced workers to find jobs, providing universal healthcare coverage (a policy that would also benefit those currently in retirement and those who will need long-term care), universal child care, and other benefits more closely tied with citizenship and less with employment (see Albiston & Fisk, 2020). As it currently stands, the state of retirement security is untenable.