New Findings Show IRAs and 401(k)s Contribute Less than 20% of Retirees’ Income

Retirement savings plans such as IRAs and 401(k)s are often promoted as primary means of securing security. financial stability in retirement. But new findings from the Employee Benefit Research Institute (EBRI) reveal that these accounts play a surprisingly limited role in retirees’ total income.

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The 2024 EBRI Retirement Expenditure Survey, conducted among 3,600 American retirees ages 62 to 75, offers new insights into the income landscape of this demographic.

According to the research, IRAs provide income for 20 percent of retirees, while 401(k)-style workplace retirement plans provide income for 17 percent. However, the contribution of these plans to total revenue is modest. On average, IRAs contribute 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 of these funds to total retirement income reveals the importance of other income sources in retirement.

Social Security Approximately 92% of people age 65 and older benefit from this program, according to Federal Reserve data, and it is a critical source of income for many retirees. Other sources of retirement income from this data include (along with the percentage of retirees with that source of income):

• Retirement (56%)

• Interest, dividend or rental income (42%)

• Wages, salaries or self-employment (32%)

• Cash transfers outside of Social Security (9%)

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Income and Expenses

Retirees face financial difficulties when their income does not match their expenses. Motley Fool, average annual income Americans ages 65 and older $50,290, and their average annual expenses are around $57,818.

The average Social Security check is close to $1,900 and typically covers only 40% of the beneficiary’s pre-retirement income. There is a significant gap to be filled by retirees who are mainly dependent on this source of income. Financial experts recommend having a goal of saving or finding enough sources of retirement income to cover 70-80% of your pre-retirement income; That means Social Security alone won’t be enough.

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What Does Limited Savings Mean for Retirees?

Small role played by IRAs and 401(k)s retirement income can lead to financial difficulties for many older Americans. According to the National Council on Aging, approximately 45% of people age 60 and older struggle to cover basic expenses. Pew Research estimates that by 2040, approximately 32.6 million retirement-age households will have annual incomes below $75,000. These households will have an average difference of $7,050 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 approaching 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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This article New Findings Show IRAs and 401(k)s Contribute Less than 20% of Retirees’ Income originally appeared Benzinga.com

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