Board of Governors of the Federal Reserve System

Retirement and Investments

Retirees generally report high levels of financial well-being, but those with income from employment, pensions, or investments were doing substantially better than those who relied solely on Social Security or other public income sources. Among non-retirees, the share who felt like their retirement savings were on track increased in 2023, although most still did not feel their retirement savings were on track.

Current Retirees

Retirees represent a sizeable portion of the adult population. Twenty-seven percent of adults in 2023 considered themselves to be retired, even though some were still working in some capacity.⁵⁷ Fifteen percent of retirees had done some work for pay or profit in the prior month. Consequently, 4 percent of all adults considered themselves retired but were still working. Part-time work was more common among retirees than full-time work (11 percent and 4 percent of retirees, respectively).

Retirees with less education and those with a disability were less likely to work in retirement. Twelve percent of retirees with a high school degree or less reported they were still working, compared with 17 percent of retirees with a bachelor's degree or more. Nine percent of retirees with a disability were working, while 16 percent of retirees without a disability were working.⁵⁸

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 of when to retire, and 47 percent said they retired because they reached a normal retirement age.

Nonetheless, 29 percent of retirees said that a health problem was a factor in their decision of when to retire, and 16 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.

Retiring due to health problems, lack of work, or caring for family was far more common among those with less education. Fifty-three percent of retirees with a high school degree or less cited one of these reasons for the timing of their retirement, compared with 32 percent of those with at least a bachelor's degree.

Social Security remained the most common source of retirement income, but 80 percent of retirees had one or more sources of private income. This included 56 percent of retirees with income from a pension; 48 percent with interest, dividends, or rental income; and 33 percent with labor income (table 36).⁵⁹ Seventy-seven percent of retirees received income from Social Security in the prior 12 months, including 92 percent of retirees age 65 or older.

Table 36. 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 66, compared with a median age of 69 for all retirees. Moreover, while 38 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 59 percent reported they had a spouse who worked for pay or profit in the prior month.

While retirees as a group had generally high levels of financial well-being, this varied depending on the individual's sources of income. In 2023, 80 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 higher share (85 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 2023.⁶⁰ Fifty-two percent of retirees who did not have private income said they were doing at least okay financially (table 37). 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.

Table 37. Financial well-being among retirees without labor income (by other sources of private income in the prior 12 months)

Retirement Savings and Investments

Most adults had tax-preferred retirement accounts, defined benefit pensions, or other assets that they may be able to tap to meet expenses in retirement. Sixty-seven percent of adults had assets that are specifically designated for producing income in retirement, including the 60 percent of adults who had a tax-preferred retirement account, such as a 401(k) plan through an employer, individual retirement account (IRA), or Roth IRA, and 29 percent who had a defined benefit pension through an employer (table 38).⁶¹ Outside of designated retirement assets, other assets, such as home equity and savings in a taxable investment account, can also be important sources of financial security in retirement.⁶²

Table 38. Types of assets (by retirement status)

Retirees are more likely than non-retirees to have most types of assets (table 38). Focusing on assets that are specifically designed to provide income for retirement, retirees are more likely than non-retirees to have a defined benefit pension from an employer. However, non-retirees are more likely than retirees to have a tax-preferred retirement savings accounts like an employer-sponsored defined contribution retirement plan, such as a 401(k) plan, or an IRA. This difference in types of designated retirement assets held by retirees and non-retirees likely reflects the declining prevalence of employer-sponsored defined benefit pensions and the wider use of tax-preferred retirement savings accounts in recent decades.⁶³

While most non-retired adults had some type of tax-preferred retirement account (such as a 401(k), IRA, or Roth IRA) or a defined benefit pension, 34 percent of non-retirees thought their retirement saving was on track.⁶⁴ The share of non-retirees who thought their retirement saving was on track was up from 31 percent in 2022 but below the shares who thought their saving was on track in 2017 through 2021 (figure 34).

Retirement savings and perceived preparedness differed across demographic groups. Younger non-retirees were less likely to have tax-preferred retirement accounts and defined benefit pensions and less likely to view their retirement savings plan as on track than older non-retirees. Compared with all non-retirees, Black and Hispanic non-retirees were less likely to have these types of designated retirement assets and to view their retirement savings as on track, while White and Asian non-retirees were more likely to have such assets and say they were on track. Men were slightly more likely than women to have designated retirement assets and to say their retirement savings plan was on track (table 39).

Table 39. Non-retirees with a tax-preferred retirement account, defined benefit pension and view retirement savings plan as on track (by demographic characteristics)

Non-retirees with a disability were also less likely to have designated retirement assets and to view their savings as on track. Among non-retirees with a disability, just 33 percent had tax-preferred retirement savings accounts, 13 percent had a defined benefit pension, and 11 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.⁶⁵

Although money in retirement accounts is intended to be preserved for retirement, occasionally these savings can also act as a source of emergency funds for non-retirees who face economic hardships. Overall, 10 percent of non-retired adults tapped their retirement savings by borrowing from or cashing out funds from their retirement accounts in the prior 12 months.⁶⁶

Non-retirees who are contributing to tax-preferred retirement accounts may do so through a payroll deduction or other regular contribution. Reducing the amount of these regular contributions is another way that non-retirees can increase their disposable income to help make ends meet. Nine percent of non-retirees said that they reduced their regular contributions to their retirement accounts in the prior 12 months. Some people tapped their retirement accounts by borrowing from or cashing out funds and also said they reduced regular contributions to their accounts. Overall, 16 percent of non-retirees took any of these three actions with their retirement accounts in the prior 12 months.

Non-retirees who had a major unexpected medical expense or who experienced a layoff were more likely to have tapped the funds in their retirement accounts, compared with other adults (table 40). They also were more likely to have reduced their regular contributions to retirement accounts.⁶⁷

Table 40. Non-retirees who borrowed or cashed out money from a retirement account or reduced regular retirement account contributions in the prior 12 months (by economic hardship)

Tapping retirement accounts and reducing regular contributions can help people handle economic hardships or other changes to income or expenses, but this may come at a cost to their longer-term financial security. While 34 percent of non-retirees overall said their retirement savings plan was on track, only 28 percent of retirees who had reduced their regular contributions to retirement accounts in the prior 12 months thought their retirement savings plan was on track. Among non-retirees who had borrowed from or cashed out funds from their retirement accounts in the prior year, the share who said they were on track was lower, at 20 percent.

Comfort Managing Investments

Given the importance of retirement savings accounts and other self-directed investments, individuals need to have the skills and knowledge required to manage their own investments or to select a paid professional to do so. People varied in their comfort with choosing and managing their investments.⁶⁸ Forty-five percent of adults said they were mostly or very comfortable choosing and managing their investments, while 55 percent of adults said they were not comfortable or only slightly comfortable.

A higher share of men expressed comfort about managing their investments than women. Fifty-two percent of men said they were mostly or very comfortable choosing and managing their investments, while 38 percent of women gave these responses. For both men and women, the share of adults who were comfortable managing their investments generally rose along with the value of investable assets (figure 35). Nonetheless, a higher share of men was comfortable managing their investments, compared with women with the same level of investable assets.⁶⁹

 

References

 57. 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

 58. Retirees with a high school degree or less were more than twice as likely as retirees with a bachelor's degree to have a disability, which may contribute to some of the differences in employment by education. Data from the Current Population Survey (CPS) show that a rising share of older adults are working compared with two decades ago. However, the share of older adults who report that health issues are the reason they are not working has also risen over this time, and most of this increase in older adults who are not working because of health issues has been among those without college degrees (David H. Montgomery, "Who's Not Working? Understanding the U.S.'s Aging Workforce" (Minneapolis: Federal Reserve Bank of Minneapolis, February 2023), https://www.minneapolisfed.org/article/2023/whos-not-working-understanding-the-uss-aging-workforce). Return to text

 59. 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

 60. 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

 61. Accounts like 401(k) plans and IRAs are tax preferred in that they receive some type of favorable treatment to incentivize retirement savings. In the case of traditional 401(k) and IRA accounts, contributions to the accounts and account income and appreciation are not taxed at the time they are received, but rather taxes are deferred until the money is withdrawn, typically in retirement. In contrast, contributions to Roth 401(k) and Roth IRA accounts do not receive a tax deduction, but the full balance of the account, including contributions, income, and appreciation, is not taxable when withdrawn in retirement. Return to text

 62. While the assets listed here include many sources that people could tap to generate income for retirement, they do not reflect all types of assets people may hold. In particular, many adults have an automobile, and as discussed in the "Banking and Credit" section of this report, most adults have a checking or other transaction account. The triennial Survey of Consumer Finances (SCF) provides detailed estimates of the types of assets and liabilities held by U.S. households and the value of their holdings. For the most recent estimates from the SCF, see Aditya Aladangady, Jesse Bricker, Andrew C. Chang, Sarena Goodman, Jacob Krimmel, Kevin B. Moore, Sarah Reber, Alice Henriques Volz, and Richard A. Windle, Changes in U.S. Family Finances from 2019 to 2022: Evidence from the Survey of Consumer Finances (Washington: Board of Governors of the Federal Reserve System, October 2023), https://doi.org/10.17016/8799. Return to text

 63. For history on IRAs, see Congressional Research Service, Individual Retirement Account (IRA) Ownership: Data and Policy Issues, December 9, 2020, https://crsreports.congress.gov/product/pdf/R/R46635/3. For recent context on employer-sponsored retirement plans, see Congressional Research Service, A Visual Depiction of the Shift from Defined Benefit (DB) to Defined Contribution (DC) Pension Plans in the Private Sector, December 27, 2021, https://crsreports.congress.gov/product/pdf/IF/IF12007. Return to text

 64. The question did not prompt respondents to consider any particular type of assets or level of income in their answer, and so survey respondents could determine for themselves what they considered on track. Return to text

 65. SSI and Social Security Disability Insurance (SSDI) are federal programs to support adults with a disability who meet medical and other requirements. SSI recipients must have limited income and resources, but SSDI recipients do not have to meet income and resource limits to qualify for benefits. See Social Security Administration, Red Book: A Guide to Work Incentives and Employment Supports for Persons with Who Have a Disability Under the Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) Programs, SSA Publication No. 64-030, August 2023, https://www.ssa.gov/redbook/. Return to text

 66. The question on borrowing from or cashing out retirement savings was changed on the 2023 survey, so is not directly comparable with earlier years. Return to text

 67. 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

 68. The question asked about choosing and managing investments but did not specify a type of investment, so people could answer according to the assets they considered to be investments. In prior years of the survey, a similar question was asked of non-retirees with self-directed retirement accounts. This question was changed in the 2023 survey and asked of all respondents. Return to text

 69. Comfort managing investments also rises with education, but differences by gender and investable assets persist even when controlling for education. Return to text