Board of Governors of the Federal Reserve System

Retirement and Investments

In 2022, retirees' descriptions of their reasons for retirement and their income sources were consistent with recent years. Retirees generally report high levels of financial well-being, but those with income from employment, pensions, or investments were doing better than those who relied solely on Social Security or other public income sources. Among non-retirees, a lower share said they felt like their retirement savings were on track compared with 2021. Differences by age and race or ethnicity in retirement preparedness among non-retirees also remained similar to earlier years.

Current Retirees

Retirees represent a sizeable portion of the adult population. Twenty-seven percent of adults in 2022 considered themselves to be retired, even though some were still working in some capacity.⁵⁶ Thirteen percent of retirees 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. Part-time work was more common among retirees than full-time work (10 percent and 3 percent of retirees, respectively). In addition, retirees with more education were more likely to work in retirement. Eighteen percent of retirees with a bachelor's degree or more reported they were still working, compared with 9 percent of retirees with a high school degree or less.

In deciding when to retire, most retirees indicated that their preferences played a role, although life events contributed to the timing of retirement for a substantial share. Many indicated that multiple factors contributed to their timing. Fifty-one percent of retirees said a desire to do other things or to spend time with family was important for their decision to retire, and 47 percent said they retired because they reached a normal retirement age.

Nonetheless, 30 percent of retirees said that a health problem was a factor in their decision of when to retire, and 17 percent said they retired in part to care for family members. One in 10 said they were forced to retire or that work was not available. Collectively, health problems, caring for family, and lack of work contributed to the timing of retirement for 46 percent of retirees.

Social Security remained the most common source of retirement income, but 79 percent of retirees had one or more sources of private income. This included 56 percent of retirees with income from a pension; 42 percent with interest, dividends, or rental income; and 32 percent with labor income (table 34).⁵⁷ Seventy-eight percent of retirees received income from Social Security in the prior 12 months, including 92 percent of retirees age 65 or older.

Table 34. Sources of income among retirees (by age)

Retirees who reported that their family income included labor income (such as wages, salaries or self-employment income) were generally younger than retirees overall, and many had a working spouse. The median age of retirees whose family income included labor income was 65, compared with a median age of 69 for all retirees. Moreover, while 36 percent of retirees whose family income included labor income said they worked for pay or profit in the month prior to the survey despite being retired, a larger 60 percent reported they had a spouse who worked for pay or profit in the prior month.

Thirty percent of retirees said that a health problem was a factor in their decision of when to retire, and 17 percent said they retired in part to care for family members.

While retirees as a group had generally high levels of financial well-being, this varied depending on the individual's sources of income. In 2022, 79 percent of all retirees said they were doing at least okay financially. Among retirees whose family income included wages or other sources of labor income, a slightly higher share (83 percent) reported they were doing at least okay financially.

Among retirees who did not have labor income, those who had pensions or income from interest, dividends or rents were doing better financially than those who were reliant solely on Social Security and cash transfers from other government programs or reported no income sources in 2022.⁵⁸ Fifty-three percent of retirees who did not have private income said they were doing at least okay financially (table 35). This was far below the share of retirees who had income from private sources such as pensions and investments who were doing at least okay financially. Additionally, retirees without labor income who had both a pension and investment income were more likely to be doing okay financially than those who had just one or the other of these income sources.

Table 35. Financial well-being among retirees without labor income (by other sources of private income in the prior 12 months)

Retirement Savings among Non-Retirees

Although almost three-fourths of non-retired adults had at least some retirement savings, about 28 percent did not have any* (figure 32). This share who did not report any retirement savings was up from 25 percent in 2021. Among those with retirement savings, these savings were most frequently in defined contribution plans, such as a 401(k) or 403(b), with 54 percent of non-retired adults having money in such a plan. These accounts were more than twice as common as traditional defined benefit pension plans. Forty-seven percent of non-retirees had retirement savings outside of formal retirement accounts.

While most non-retired adults had some type of retirement savings, only 31 percent of non-retirees thought their retirement saving was on track, down from 40 percent in 2021. The share of non-retirees who thought their retirement saving was on track was also below the shares who thought their saving was on track in 2017 through 2020** (figure 33). Because retirement saving strategies differ by circumstances and age, survey respondents assessed whether or not they felt that they were on track, but they defined that for themselves. Despite the individualized nature of retirement plans, declines in stock and bond prices during 2022 likely contributed to many respondents' assessments of their retirement preparedness.

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. Compared with all non-retirees, Black and Hispanic non-retirees were less likely to have retirement savings and to view their retirement savings as on track, while White and Asian non-retirees were more likely to have such savings and say they were on track (table 36). Groups who reported larger balances of self-directed retirement savings, including older adults and White and Asian adults, saw larger declines between 2021 and 2022 in the share saying their savings were on track. Given the substantial declines in stock and bond prices in 2022, these groups with higher balances likely experienced larger dollar declines in their investments.

Table 36. Have retirement savings and view retirement savings plan as on track (by age, race/ethnicity, and disability status)

The lower rates of savings among Black and Hispanic non-retirees partly reflect the fact that Black and Hispanic adults were, on average, younger than the non-retired population overall. Even within age cohorts, however, significant differences remained in retirement savings by race and ethnicity, consistent with patterns seen in previous years.

Non-retirees with a disability were also less likely to have retirement savings and to view their savings as on track. Among non-retirees with a disability, just 47 percent had retirement savings and 13 percent viewed their savings as on track. Adults with a disability have a lower rate of employment compared with adults without a disability. In addition, adults with a disability who receive means-tested benefits may face asset limits that would deter holding any savings they may have accrued.

Occasionally, retirement savings can also act as a source of emergency funds for non-retirees who face economic hardships. Overall, 8 percent of non-retired adults tapped their retirement savings—matching the share who tapped accounts in 2021. Non-retirees who had experienced economic shocks in the past year were more likely to have borrowed from, or cashed out, funds from their retirement accounts in the prior 12 months. Thirteen percent of non-retirees who had unexpected, out-of-pocket major medical expenses in the past 12 months borrowed from, or cashed out, these accounts, compared with 7 percent of those who did not have this type of expense. Fourteen percent of non-retirees who experienced a layoff in the past 12 months tapped their retirements accounts, compared with 8 percent of those who had not been laid off.⁵⁹

Self-directed retirement accounts frequently rely on individuals to have the skills and knowledge required to manage their own investments. Non-retirees with self-directed retirement savings varied in their comfort with making investment decisions for their accounts. Sixty-one percent of 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, a higher share of men was comfortable managing their retirement investments compared to women (figure 34). Sixty percent of men with a bachelor's degree were mostly or very comfortable making investment decisions, compared to 32 percent of women with this level of education who were mostly or very comfortable. In fact, the 32 percent of women with a bachelor's degree who were comfortable investing was similar to the 36 percent of men with a high school degree or less who expressed the same level of comfort.

Financial Literacy and Experience with Financial Decisions

To get some sense of individuals' financial knowledge, respondents were asked three questions—on interest, inflation, and risk diversification, respectively—that are commonly used as measures of financial literacy (figure 35).⁶⁰

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.

Financial literacy was higher among adults who were involved with financial decisionmaking. This could reflect specialization and division of responsibilities within a household, and financial knowledge can also be gained through experience. Adults who said they made most of the financial decisions in their household or who shared in these decisions with someone else answered over 6 in 10 financial literacy questions correctly (62 and 63 percent, respectively). However, adults who said that another member of the household made most of the decisions averaged fewer correct answers (49 percent).

Measures of financial literacy were also correlated with self-assessed comfort in managing investments. Among those with self-directed retirement accounts, on average, those who expressed comfort with managing their investments answered a larger share of questions correctly (77 percent) than those who expressed little or no comfort (63 percent) (table 37). 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.

Table 37. Share of financial literacy questions answered correctly (by retirement savings and comfort investing)

Gender differences in financial literacy mirrored differences in being comfortable with investment decisions. Women, on average, answered a lower share of financial literacy questions correctly (54 percent) than men (66 percent). Women were also more likely to select "don't know" (37 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.⁶¹

 

References

 

 56. 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

 57. 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

 58. For context on the income sources highlighted here, a "three-legged stool" has been used as a metaphor for a retirement savings strategy that includes Social Security, private pensions, and other savings and investments. For a history of this metaphor, see Larry DeWitt, "Origins of the Three-Legged Stool Metaphor for Social Security," Research Notes & Special Studies by the Historian's Office (Washington: Social Security Administration, May 1996), https://www.ssa.gov/history/stool.html. Return to text

 59. For more on early withdrawals and the relationship with economic shocks and income, see Robert Argento, Victoria L. Bryant, and John Sabelhaus, "Early Withdrawals from Retirement Accounts during the Great Recession," Contemporary Economic Policy 33, no. 1 (2015), 1–16. Return to text

 60. These questions were developed by Annamaria Lusardi and Olivia Mitchell and have been widely used to study financial literacy. (See Annamaria Lusardi and Olivia Mitchell, "Financial Literacy around the World: An Overview," Journal of Pension Economics and Finance 10, no. 4 (2011): 497–508.) In the 2022 SHED, half of the respondents received the questions and answer choices developed by Lusardi and Mitchell, and the results reported here reflect their responses. The other half of the respondents received the same questions without the "don't know" answer option. The discussion in this section only includes those respondents who are asked the question with the "don't know" option. Full question wording is available in appendix A and results from the group who received the alternative formulation are included in appendix B of this report. Return to text

 61. 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 Joanne W. Hsu, "Aging and Strategic Learning: The Impact of Spousal Incentives on Financial Literacy," Journal of Human Resources 51(4) (Fall 2016): 1036–67.) Return to text

*Note: The Federal Reserve revised this report on August 15, 2023, to reflect corrected data. The sentence "Although over three-fourths of non-retired adults had at least some retirement savings, about 28 percent did not have any" was corrected to "Although almost three-fourths of non-retired adults had at least some retirement savings, about 28 percent did not have any." Return to text

**Note: The Federal Reserve revised this report on August 15, 2023, to reflect corrected data. The sentence "The share of non-retirees who thought their retirement saving was on track was also below the shares who thought their saving was on track in 2018, 2019, and 2020" was corrected to "The share of non-retirees who thought their retirement saving was on track was also below the shares who thought their saving was on track in 2017 through 2020." Return to text