The traditional pension system has been on the decline, leaving newly retired Americans in a financially vulnerable position. Without the security of pension income, younger retirees are now relying heavily on Social Security to cover their expenses, a trend that raises concerns about the future stability of retirement income in the U.S.
A recent study by the Employee Benefit Research Institute (EBRI) sheds light on this issue. According to the survey conducted in 2024, younger retirees are significantly more dependent on Social Security than their older counterparts. The survey examined the spending habits of 3,600 retirees and found that individuals aged 62 and 63 receive 67% of their income from Social Security, whereas those aged 74 and 75 only rely on it for 52% of their income.
Bridget Bearden, research and development strategist at EBRI and the author of the study, pointed out that as retirees age, their dependence on Social Security tends to decline. This suggests that younger retirees are entering retirement with fewer financial resources than previous generations.
Why Are Younger Retirees Relying More on Social Security?
The shift toward Social Security dependency is not an isolated phenomenon. Other studies, including one by the Transamerica Center for Retirement Studies, support these findings. The research indicates that 63% of retirees in their 60s consider Social Security their primary income source, compared to 55% of retirees in their 70s.
This growing reliance stems from the decline of traditional workplace pensions. For decades, pensions provided a stable retirement income for many Americans. However, federal data reveals that the number of private-sector workers covered by defined benefit pension plans has dropped dramatically—from a peak of 42.3 million in 2008 to just 30.2 million in 2022.
Evan Potash, a financial expert at TIAA, emphasized the importance of individual savings for retirement. “Defined benefit pensions have really gone away. It’s now up to us to save for our future,” he stated.
Social Security Alone Is Not Enough for Retirement
One major issue is that Social Security was never designed to fully replace a worker’s pre-retirement income. Currently, Social Security benefits cover only about 40% of an average worker’s earnings before retirement. With projected shortfalls by 2034, experts warn that future retirees may receive even lower benefits unless policy changes are made.
Financial advisors recommend that individuals aim to save at least 10 times their annual income to ensure financial stability in retirement. However, many Americans fall short of this goal. According to the federal Survey of Consumer Finances, the median retirement savings for families aged 65 to 74 is around $200,000, and nearly half of households in this age group lack any retirement savings at all.
Catherine Collinson, CEO of the Transamerica Center for Retirement Studies, highlighted the issue: “Workers are now expected to self-fund a greater portion of their retirement, but many lack access to workplace retirement plans and financial literacy to do so effectively.”
Financial Struggles of Younger Retirees
The financial strain on younger retirees is evident in their spending habits. According to EBRI’s survey, only 21% of retirees aged 62 and 63 spend $3,000 or more per month, compared to 45% of retirees aged 74 and 75.
Moreover, younger retirees typically have fewer income sources. The study found that retirees born in 1962 had an average of two income streams, while those born in 1949 had three. This reduction in income diversity further contributes to their reliance on Social Security.
Early Retirement and Financial Hardship
Experts caution against making direct comparisons between different age groups of retirees. Gal Wettstein, a senior research economist at Boston College, noted that those who retire earlier often have lower lifetime earnings, which can explain their increased dependence on Social Security.
Additionally, individuals who claim Social Security benefits at 62 or 63 may be experiencing financial distress, forcing them to rely on government assistance rather than personal savings or other sources of income.
Despite these nuances, Wettstein believes the data reveals a real and growing concern: the increasing financial insecurity of younger retirees.
The Future of Retirement: What Can Be Done?
As pensions continue to disappear, financial experts emphasize the importance of planning ahead for retirement. Here are a few strategies that workers can adopt:
- Start Saving Early – Contributing to a 401(k) or an Individual Retirement Account (IRA) can provide a significant financial cushion.
- Diversify Income Streams – Relying solely on Social Security is risky. Investing in stocks, real estate, or annuities can help create additional income sources.
- Delay Social Security Benefits – Waiting until full retirement age or beyond can increase monthly benefits.
- Seek Financial Guidance – Consulting a financial planner can help create a customized retirement strategy.
Final Thoughts
The decline of pensions and the growing reliance on Social Security signal a shift in retirement planning that requires immediate attention. Younger retirees are finding themselves with fewer resources, leading to financial struggles that could worsen if action isn’t taken.
As experts urge workers to take proactive steps in securing their financial future, one thing remains clear: Social Security alone is not enough. Americans must start planning, saving, and investing early to ensure a comfortable and secure retirement.
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