Retirement
Most retirees reported that they retired from their job before typical ages for claiming Social Security benefits. While preferences played a role in the timing of retirement for the majority of retirees, unanticipated life events contributed to the timing of retirement for a substantial share. Many non-retired adults were struggling to save for retirement in 2019 and felt that they were not on track with their savings. While preparedness for retirement increased with age, concerns about inadequate savings were still common for those near retirement age.
Current Retirees
Retirees represent a sizeable portion of the adult population. More than one-fourth of adults in 2019 considered themselves to be retired, even though some also reported that they were still working in some capacity.44 Fifteen percent of retirees said that they had done some work for pay or profit in the prior month. Consequently, 4 percent of all adults considered themselves retired and were still working.
Most retirees reported that they retired from their job before the standard ages to claim Social Security benefits, although average retirement ages differed across demographic groups (table 28).45 In 2019, half of retirees said they retired before age 62, and nearly one-fourth retired between the ages of 62 and 64. Black and Hispanic retirees were more likely to have retired before age 62 (56 percent and 65 percent, respectively) than white retirees (48 percent). Retirees with a bachelor's degree or more were also slightly more likely to have retired before age 62, relative to those who have less education. However, this was somewhat offset by the fact that retirees with more education were also more likely to report that they were working in retirement.
Table 28. Retirement age (by race/ethnicity and education)
Percent
| Characteristic | 61 or earlier | 62–64 | 65+ |
|---|---|---|---|
| Race/ethnicity | |||
| White | 48 | 24 | 27 |
| Black | 56 | 23 | 17 |
| Hispanic | 65 | 19 | 15 |
| Education | |||
| High school degree or less | 50 | 24 | 24 |
| Some college/technical or associate degree | 50 | 25 | 24 |
| Bachelor's degree or more | 55 | 18 | 26 |
| Overall | 51 | 23 | 24 |
Note: Among retirees.
In deciding when to retire, most retirees indicated that their preferences played a role, but life events contributed to the timing of retirement for a substantial share (figure 35). Fifty-three percent of retirees said a desire to do other things or to spend time with family was important for their decision to retire, and 39 percent said they retired because they reached a normal retirement age. Nonetheless, 30 percent said that a health problem was a factor in their decision to retire, and 15 percent said they retired to care for family members. Eleven percent reported they were forced to retire or that work was not available. Collectively, health problems, caring for family, and forced retirements contributed to the timing of retirement for 47 percent of retirees.
Figure 35. Reasons for the timing of retirement
Note: Among retirees. Respondents could select multiple answers.
Economic well-being among retirees varied considerably by whether the reasons for retirement appeared to be voluntary and determined by preferences or were unanticipated and driven by life events (see box 4).
Even though Social Security was the most common source of income in retirement in 2019, 8 in 10 retirees had one or more sources of private income. This included 59 percent of retirees with income from a pension; 44 percent with interest, dividends, or rental income; and 32 percent with wage income.46 More than three-fourths of retirees received income from Social Security in the past 12 months, including 93 percent of retirees age 65 or older (table 29).
Table 29. Sources of income in the past 12 months among retirees (by age)
Percent
| Source | Retires age 65 and older | All retirees |
|---|---|---|
| Social Security | 93 | 77 |
| Pension | 68 | 59 |
| Interest, dividends, or rents | 49 | 44 |
| Wages, salaries, or self-employment | 25 | 32 |
| Cash transfers other than Social Security | 4 | 8 |
Note: Among retirees. Respondents could select multiple answers. Sources of income include the income of a spouse or partner.
Box 4. Reasons for Retirement and Retiree Financial Well-Being
Research on retirement expectations has shown that shocks like health problems, job-related changes, and family transitions are important for explaining why some people retire earlier than planned.1 These types of unanticipated or involuntary reasons for retirement may affect family finances in many ways, including reducing income and increasing expenses. Consequently, the reasons for retirement could contribute to financial well-being and financial challenges in retirement.
Retirees with less education disproportionately reported that they retired due to unanticipated or involuntary reasons like health problems and job loss (figure A).2 Twenty-eight percent of those of those with a high school degree or less said that they retired only because of these unanticipated reasons, compared to 13 percent of those with a bachelor's degree or more. The higher incidence of unanticipated or involuntary retirement among those with less education is consistent with research showing that these workers are more likely to apply for disability benefits and claim Social Security early.3 For some, the higher likelihood of health problems and employment transitions may have been related to employment in more physically demanding occupations and more cyclical industries.
Figure A. Whether reasons for retirement were unanticipated/involuntary or voluntary (by education)
Note: Key identifies bars in order from left to right. Among retirees.
The acceleration in the timing of retirement can contribute to lower financial well-being in a number of ways. Early retirement leads to the loss of wage income and employer-provided benefits like health insurance, shortens the time for accumulating retirement savings, and may necessitate that families spend down assets sooner than they had anticipated. Those who are eligible for Social Security can claim benefits beginning at age 62, but at a permanently reduced rate relative to what they could have received by starting benefits later.
Consistent with these expectations, retirees who cited unanticipated or involuntary reasons for the decision to retire express lower rates of well-being across multiple dimensions. Those forced into retirement were less likely to have income from private sources—including pensions, interest, dividends, or wages—relative to those who chose when to retire voluntarily (62 percent versus 91 percent, respectively). They were also more likely to rely on public assistance programs such as Supplemental Security Income (SSI) (16 percent) compared to those who retired voluntarily (1 percent). Additionally, they reported lower rates of overall financial well-being (64 percent versus 94 percent).
Although financial well-being in retirement was lower on average for all people retiring for unanticipated or involuntary reasons, this was particularly the case among those with less education (figure B). Among retirees with a high-school degree or less, those who retired for unanticipated or involuntary reasons were much less likely to say they were doing at least okay financially (57 percent) than are those who retired for voluntary reasons (90 percent). Among retirees with at least a bachelor's degree, the difference was smaller: 87 percent compared to 97 percent.
Figure B. At least okay financially (by education and whether retirement decision was involuntary or voluntary)
Note: Key identifies circles in order from left to right. Among retirees.
The substantially lower rates of financial well-being among less-educated involuntary retirees is consistent with their being in a less stable financial position as they approach retirement. As a result, they may be less able to withstand the additional shock of an unexpectedly early retirement. Prior research indicates that retirees with less education have lower lifetime earnings and are less likely to have had employer-sponsored retirement benefits and health insurance during their working years.4 Consistent with their lower lifetime earnings, fewer benefits, and less capacity to save, 29 percent of non-retirees in their 50s with a high school degree or less had no retirement savings, compared to 2 percent of those with a bachelor's degree.
Existing policies seek to address needs of workers facing health shocks or job loss, and changes in the nature of work over time may also work in favor of some older adults' ability to continue working longer in spite of health limitations.5 Even so, these results suggest that unstable financial situations approaching retirement age along with unpredictable events that prevent working longer are associated with higher rates of economic hardship in retirement among those with less education.
1. See Alicia Munnell, Matthew S. Rutledge, and Geoffrey T. Sanzenbacher, "Retiring Earlier than Planned: What Matters Most?" Center for Retirement Research at Boston College, Issue Brief no. 19-3 (February 2019), https://crr.bc.edu/wp-content/uploads/2019/01/IB_19-3.pdf. Return to text
2. In this box, "unanticipated or involuntary" reasons for retirement include health problems, caring for family members, and being forced to retire or a lack of available work. "Voluntary" reasons include a desire to do other things or to spend time with family, reaching normal retirement age, and not liking the work. Those who chose answers from both the voluntary and involuntary categories are included as giving a "combination" of reasons for their decision to retire. Eight percent of retirees did not respond to the question on reasons why they retired and are included with the combination category. While caring for family members is included in the "unanticipated or involuntary" category, it may be an affirmative choice for some. That said, a small share of retirees reported this as their only reason for retiring. If it is excluded from the unanticipated or involuntary category, the share of those retiring for only involuntary reasons would decline from 22 percent to 19 percent of retirees. Return to text
3. See Steven Venti and David Wise, "The Long Reach of Education: Early Retirement," Journal of the Economics of Ageing 6 (December 2015): 133–48, https://www.sciencedirect.com/science/article/pii/S2212828X15000201. Return to text
4. See Lauren Schudde and Kaitlin Bernell, "Educational Attainment and Nonwage Labor Market Returns in the United States," AERA Open 5, no.3 (July–September 2019): 1–18, https://doi.org/10.1177/2332858419874056. Return to text
5. Such policies include those that protect workers from age-related discrimination, allow time off for medical treatment and care for family members, provide income in the case of disability, and enable early access to retirement savings without penalties in some circumstances. On the changing nature of work, see Richard W. Johnson, Gordon B.T. Mermin, and Matthew Resseger, Employment at Older Ages and the Changing Nature of Work (Washington: AARP Public Policy Institute, November 2007), https://www.urban.org/sites/default/files/publication/31146/1001154-Employment-at-Older-Ages-and-the-Changing-Nature-of-Work.PDF. Return to text
Return to textRetirement Savings among Non-Retirees
Although three-fourths of non-retired adults had at least some retirement savings, one-fourth indicated they did not have any at the time of the survey (figure 36). Among those with retirement savings, these savings were most frequently in defined contribution plans, such as a 401(k) or 403(b), with 55 percent of non-retired adults reporting they had money in such a plan. These accounts were more than twice as common as traditional defined benefit plans such as pensions, which 22 percent of non-retirees held. Forty-seven percent of non-retirees had savings outside of retirement accounts.
Figure 36. Forms of retirement savings among non-retirees
Note: Among non-retirees. Respondents could select multiple answers.
While most non-retired adults had some type of retirement savings, fewer than 4 in 10 thought their retirement saving was on track. Because retirement saving strategies differ by circumstances and age, survey respondents assessed whether or not they felt that they are on track, but they defined that for themselves. Thirty-seven percent of non-retired adults thought their retirement saving was on track, while 44 percent said it is not and the rest were not sure.
Retirement savings and perceived preparedness differed across demographic groups. Younger adults were both less likely to have retirement savings and to view their savings as on track than older adults. Additionally, black and Hispanic non-retirees were less likely to have retirement savings and to view their retirement savings as on track (table 30). The lower rates of savings among black and Hispanic non-retirees partly reflects the fact that black and Hispanic adults are, on average, younger than the non-retired population overall. Even within age cohorts, however, significant differences remained in retirement savings by race and ethnicity.
Table 30. Retirement savings and self-assessed preparedness (by age, race/ethnicity)
Percent
| Characteristic | Any retirement savings | Retirement savings on track |
|---|---|---|
| Age | ||
| 18–29 | 62 | 29 |
| 30–44 | 73 | 35 |
| 45–59 | 83 | 44 |
| 60+ | 88 | 51 |
| Race/ethnicity | ||
| White | 80 | 43 |
| Black | 64 | 29 |
| Hispanic | 61 | 22 |
| Overall | 74 | 37 |
Note: Among non-retirees.
At all ages, a sizeable minority of non-retirees with modest retirement savings felt that they were on track toward their retirement savings goals. Most non-retirees of all ages without retirement savings recognized that they were not on track. However, one-third of people in their 30s who had some self-directed retirement savings, but less than $50,000 worth, felt that they were on track. Even among older ages, one-fourth of those with this level of self-directed savings in their 40s felt they were on track, and one-fifth of those in their 50s felt that they were. However, for many individuals this level of savings falls short of the recommended retirement savings goals, by age range, suggested by financial planners.47
Comfort Managing Savings and Financial Literacy
Non-retirees with self-directed retirement savings varied in their comfort with making investment decisions for their accounts. Nearly 6 in 10 non-retirees with self-directed retirement savings expressed low levels of comfort in making investment decisions with their accounts.
Among those non-retirees with self-directed savings, women of all education levels, and men with less education, were not as comfortable as men with at least a bachelor's degree at managing their retirement investments (figure 37). While 60 percent of men with at least a bachelor's degree were mostly or very comfortable making investment decisions, 43 percent of men with a high school degree or less expressed that level of comfort. Women with any level of education were less comfortable making investment decisions than men. Thirty-two percent of women with a bachelor's degree were comfortable managing their investments, and the share was similar for women with less education.
To get some sense of individuals' financial knowledge, respondents were asked three questions commonly used as measures of financial literacy (figure 38).48 Higher shares of adults provided correct answers to questions about interest and inflation than to the question on risk diversification. The average number of correct answers was 1.8 out of 3, and 35 percent of adults got all three correct.
Self-assessed comfort in managing investments was correlated with these measures of financial literacy. Among those with self-directed retirement accounts, those who expressed comfort with managing their investments answered a larger share of questions (75 percent) correctly, on average, than those who expressed little or no comfort (62 percent) (table 31). Notably, the share of incorrect answers did not vary with investment comfort. Instead, the number of "don't know" responses fell as investment comfort rose. Overall, however, non-retirees with such accounts still answered more financial literacy questions correctly, on average, than either non-retirees who did not have such accounts or people who were already retired.
Figure 37. Mostly or very comfortable investing self-directed retirement savings (by gender and education)
Note: Key identifies bars in order from top to bottom. Among non-retirees with self-directed retirement savings.
Figure 38. Financial literacy questions
Note: Key identifies bars in order from left to right. Correct answers provided in parentheses.
Gender differences in financial literacy mirrored differences in being comfortable with the investment decisions. Women, on average, answered a lower share of financial literacy questions correctly (52 percent) than men (67 percent). Women were also more likely to select "don't know" (38 percent) than men (25 percent). As a result, women, on average, had lower levels of financial literacy by this measure. Some evidence suggests that one driver of this gender difference may relate to different levels of experience with financial decisions.49
Table 31. Financial literacy (by retirement savings and comfort investing)
Percent of answers
| Presence of retirement savings and level of investing comfort |
Correct | Incorrect | Don't know/ refused |
|---|---|---|---|
| Has self-directed retirement savings | 67 | 8 | 25 |
| Mostly or very comfortable investing | 75 | 8 | 17 |
| Not or slightly comfortable investing | 61 | 8 | 30 |
| No self-directed retirement savings | 36 | 11 | 53 |
| Retired | 62 | 9 | 29 |
| Overall | 59 | 9 | 32 |
References
44. In this report, descriptions of current retirees include everyone who reported being retired, including those who also reported that they are working. Return to text
45. Individual expectations about the timing of retirement vary, but the U.S. Social Security System may provide reference points for typical retirement ages. Eligible individuals can begin to draw Social Security retirement benefits as early as age 62. Unreduced benefits are available at full retirement age, which varies from age 65 to 67 depending on birth year. See https://www.ssa.gov/planners/retire/agereduction.html. Return to text
46. The type of pension was not specified, so pension income may include income from defined benefit plans, which pay a fixed monthly amount and defined contribution plans, such as 401(k) and 403(b) plans. Return to text
47. While there is not a consensus of retirement savings goals by age, for examples of these recommendations see Kristin Stoller, "How Much Should You Have Saved by Age?" Forbes.com, February 25, 2020, https://www.forbes.com/advisor/personal-finance/how-much-should-you-have-saved-by-age/. Return to text
48. These questions were developed by Annamaria Lusardi and Olivia Mitchell (see "Financial Literacy around the World: An Overview," Journal of Pension Economics and Finance 10, no. 4 (2011): 497–508) and have been widely used to study financial literacy. Return to text
49. Some of the gender gap in financial literacy may relate to specialization in financial tasks within a household, with women being less likely to handle the finances. Joanne Hsu finds that women's financial literacy increases after the death of a spouse (see "Aging and Strategic Learning: The Impact of Spousal Incentives on Financial Literacy," Journal of Human Resources 51, no. 4 (Fall 2016): 1036–67). Return to text