Pension Plan Benefits Flow to Wealthier Retirees
By far the single most common contributing program to a retiree’s household income is Social Security. And the lower a person’s retirement income, the bigger role Social Security plays. For Americans with household retirement income less than $50,000 annually, Social Security represents a major source of income to 73% of those surveyed in a recent Gallup poll. For households with incomes above $50,000, Social Security has a major role in 49% of households.
An even starker contrast is revealed when it comes to a work-sponsored pension plan. Of households with less than $50,000 in annual retirement income, only 27% depend on a pension plan for some of that income. In wealthier households, the percentage is more than double at 55%. Retirement savings accounts play an even smaller role in the household income of less wealthy retirees, contributing a major source of income for only 19%.
According to Gallup, retirees who can supplement Social Security payments with income from a pension plan or other source “appear to be doing much better.” That should hardly come as a surprise to anyone. Gallup also notes:
Income differences among retirees today may then be a continuation of income differences that were in place before they retired, and it so happened that higher-income workers were more likely than lower-income workers to have pension benefits.
That is possible, but not necessarily the case. The availability of pensions is relatively limited among workers who earn less than $50,000 a year. Unless such a worker is a government employee or a union worker still covered by a pension agreement, chances are that defined benefit pension plans have been replaced by a defined-contribution plan such as a 401(k) or other retirement savings plan. As Gallup puts it:
… [I]nvestors’ average 401(k) balance was roughly $77,000 at the end of 2012. That figure likely should have gone up by at least 10%, given the average increase in stock prices this year. However, if those nearing retirement age have balances around the national average, these balances will almost certainly be inadequate to fund their retirement, making them more dependent on Social Security.