Retirement Security: Trends in Marriage, Work, and Pensions May Increase Vulnerability for Some Retirees
Published: 2014-03-05T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Over the past 50 years, poverty rates among older Americans have declined dramatically, in large part due to the availability and expansion of Social Security benefits. Social Security is now the most common type of income for retirees. Social Security retirement benefits are available not only to those who qualify based on their own work history, but also to spouses, widows/widowers, and in some cases former spouses of workers who qualify. However, in recent decades, marriage has become less common, women have entered the workforce in greater numbers, and many employers have shifted from offering DB to DC plans.
In light of these trends, GAO is reporting on: (1) the trends in marriage and labor force participation in the American household and in the U.S. retirement system, (2) the effect of those trends on the receipt of retirement benefits and savings, and (3) the implications for vulnerable elderly populations and current challenges in assisting them. This statement draws from previously issued GAO work and a recently issued report, which was based on an analysis of nationally representative survey data including the Survey of Consumer Finances, the Survey of Income and Program Participation, and the Current Population Survey (CPS); and a broad literature review. GAO also interviewed agency officials and a range of experts in the area of retirement security.
GAO is making no recommendations.
section_title: What GAO Found
paragraphs: The decline in marriage, rise in women's labor force participation, and transition away from defined benefit (DB) plans to defined contribution (DC) plans have resulted in changes in the types of retirement benefits households receive and increased vulnerabilities for some. Since the 1960s, the percentage of unmarried and single-parent families has risen dramatically, especially among low-income, less-educated individuals, and some minorities. At the same time, the percentage of married women entering the labor force has increased. The decline in marriage and rise in women's labor force participation have affected the types of Social Security benefits households receive, with fewer women receiving spousal benefits today than in the past. In addition, the shift away from DB to DC plans has increased financial vulnerabilities for some due to the fact that DC plans typically offer fewer spousal protections. DC plans also place greater responsibility on households to make decisions and manage their pension and financial assets so they have income throughout retirement. As shown in the figure below, despite Social Security's role in reducing poverty among seniors, poverty remains high among certain groups of seniors, such as minorities and unmarried women. These vulnerable populations are more likely to be adversely affected by these trends and may need assistance in old age.
Note: The category “White” refers to people who are white only, non-Hispanic. “Black” refers to people who are black only, non-Hispanic. “Asian” refers to people who are either Asian only, Pacific Islander only or Asian and Pacific Islander, and are non-Hispanic. Hispanic people may be any race. Percentage estimates for poverty rates have margins of error ranging from 0.6 to 8.6 percentage points. See the hearing statement for more information on confidence levels and the data.

section_title: Letter
paragraphs: I am pleased to be here today to discuss financial vulnerabilities among  our nation’s seniors. Over the past 50 years, poverty rates among older  Americans have declined dramatically, in large part due to the availability  and expansion of Social Security benefits. Social Security is now the most  common type of income for retirees. In fact, according to the Social  Security Administration, 35 percent of beneficiaries age 65 and older  relied on Social Security for at least 90 percent of their income in 2011.
Social Security retirement benefits are available not only to those who  qualify based on their own work history, but also to spouses,  widows/widowers, and in some cases former spouses of workers who  qualify. However, many of the federal requirements governing Social  Security benefits for spouses and survivors were developed at a time  when family structures, work patterns, and pensions were very different  than what they are today. In recent decades, marriage has become less  common, more households have two earners rather than one, and many  employers have shifted from offering defined benefit (DB) to defined  contribution (DC) plans.
My testimony today examines the effects of these trends on retirement  security in the United States, the subject of a report we prepared and  recently issued at the request of this committee. In addition, this  statement draws on past GAO work concerning the overall economic  status of our nation’s seniors. Specifically, this testimony will address (1)  the trends in marriage and labor force participation in the American  household and in the U.S. retirement system, (2) the effect of those  trends on the receipt of retirement benefits and savings, and (3) the  implications for vulnerable elderly populations and current challenges in  assisting them.
To address these questions, we analyzed several nationally- representative datasets, conducted an extensive literature review, and  consulted with a wide range of experts. Specifically, for our first objective  we analyzed data from the Survey of Income and Program Participation  (SIPP); the Integrated Public Use Microdata Series (IPUMS); and recent  Census Bureau (Census) and Bureau of Labor Statistics publications. For  our second objective, we analyzed the SIPP Gold Standard File—SIPP  data that have been matched to administrative data from the Social  Security Administration (SSA)—and the Survey of Consumer Finances  (SCF). We also relied on projections based on simulations SSA  conducted with the Modeling Income in the Near Term model, Version 6  (MINT6). For our third objective, we reviewed past GAO work in the area  of retirement security and human services. We assessed the reliability of  selected IPUMS, SIPP, SCF, and MINT6 data and found, for the  purposes of our analyses, them to be sufficiently reliable. Lastly, to  deepen our understanding of our data analyses and to understand the  implications of demographic trends for retirement security, we conducted  an extensive literature review and interviewed 49 experts with a range of  perspectives from federal agencies, academia, advocacy groups, think  tanks, and the private sector.
We conducted this work in accordance with generally accepted  government auditing standards. Those standards require that we plan  and perform the audit to obtain sufficient, appropriate evidence to provide  a reasonable basis for our findings and conclusions based on our audit  objectives. We believe that the evidence we obtained provides a  reasonable basis for our findings and conclusions based on our audit  objectives.
In summary, we found that the decline in marriage, the rise in women’s  labor force participation, and the transition away from DB plans to DC  plans have resulted in changes in the types of retirement benefits  households receive and increased vulnerabilities for some. Since the  1960s, the percentage of unmarried and single-parent families has risen  dramatically, especially among low-income, less-educated individuals and  some minorities. At the same time, the percentage of married women  entering the labor force has increased. The decline in marriage and rise in  women’s labor force participation have affected the types of Social  Security benefits households receive, with fewer women receiving  spousal benefits today than in the past. In addition, the shift away from  DB plans to DC plans has increased financial vulnerabilities for some due  to the fact that DC plans typically offer fewer spousal protections. DC  plans also place greater responsibility on households to make decisions  and manage their pension and financial assets so they have income  throughout retirement. Despite the important role Social Security benefits  have played in reducing the poverty rate among seniors, poverty remains  high among certain groups of seniors, such as minorities and unmarried  women. These vulnerable populations are more likely to be adversely  affected by these trends we have reported and may need assistance in  old age.
subsections: section_title: The Composition and Work Patterns of American Households and the U.S. Retirement System Have Changed Over Time
paragraphs: Over the last 50 years, the composition of the American household has  changed dramatically. During this period, the proportion of unmarried  individuals in the population increased steadily as couples chose to marry  at later ages and cohabit prior to marriage—and as divorce rates rose  (see fig. 1). From 1960 to 2010, the percentage of single-parent families  also rose. In fact, from 1970 through 2012, the estimated proportion of  single-parent families more than doubled, increasing from 13 to 32  percent of all families.
The decline in marriage and rise in single parenthood over this period  were more pronounced among low-income, less-educated individuals,  and some minorities. For example, from 1960 to 2010, the proportion of  married, 45- to 54-year old men in the highest income quintile declined  modestly while the proportion of married men in the lowest income  quintile declined from an estimated 71 to 27 percent (see fig. 2). Similarly,  the percentage of single parents among 45- to 54-year-old men and  women in the highest income quintile remained flat, while there was a  steep rise in the percentage of single parents in the lowest income  quintile, according to our estimates. In terms of education, among  individuals age 18 years and older, the rise in single parenthood was  steeper for those without a high school diploma in comparison to their  counterparts with 4 or more years of college.
subsections: section_title: Trends in Labor Force Participation
paragraphs: Over the same period, the labor force participation rate of married women  increased (see fig. 3). In 1960, labor force participation rates among  married men, single men, married women, and single women ranged  from 89 percent for married men to 32 percent for married women,  according to our estimates. Since then, the differences in labor force  participation rates for these four groups have narrowed, with labor force  participation among married and single women within 3 percentage points  in 2010. As a result of married women’s increasing labor force  participation, the proportion of married couples with two earners has  risen—along with the wives’ contributions to household income.  According to the Bureau of Labor Statistics, from 1970 through 2010,  women’s median contribution to household income rose from 27 to 38  percent. Further, from 1987 through 2010, the percentage of households  in which the wives’ earnings exceeded their husband’s rose from 24 to 38  percent.
section_title: Trends in the U.S. Retirement System
paragraphs: As marriage and workforce patterns have changed, the U.S. retirement  system has undergone its own transition. Specifically, over the last two  decades employers have increasingly shifted away from offering their  employees traditional DB to DC plans, and roughly half of U.S. workers  do not participate in any employer-sponsored pension plan. DB plans  typically offer retirement benefits to a retiree in the form of an annuity that  provides a monthly payment for life, including a lifetime annuity to the  surviving spouse, unless the couple chooses otherwise. In contrast, under  a DC plan, workers and employers may make contributions to individual  accounts. Depending on the options available under the plan, at  retirement DC participants may take a lump sum, roll their plan savings  into an IRA, leave some or all of their money in the plan, or purchase an  annuity offered through the plan. Further, many of the remaining DB plans  now offer lump sums as one of the form-of-payment options under the  plan. Participants who elect a lump sum forgo a lifetime annuity. Some  DB plan sponsors have also begun offering special, one-time lump sum  elections to participants who are already retired and receiving monthly  pension benefits.
section_title: Trends in Marriage, Work and Pensions May Leave Some Americans Vulnerable
subsections: section_title: Social Security Benefits
paragraphs: Taken together, the trends in marriage and workforce participation have  implications for the receipt of Social Security retirement benefits,  especially for women. Specifically, the proportion of women who are not  eligible to receive Social Security spousal benefits because they were  either never married, or divorced after less than 10 years of marriage— the length of time required for eligibility for Social Security divorced  spouse benefits—has increased over the last two decades. The decline  in the proportion of women with marriages that qualify them for spousal  benefits—coupled with the rise in the percentage of women receiving  benefits based on their own work record—has resulted in fewer women  today receiving Social Security spousal and survivor benefits than in the  past.been more dramatic. In general, the trend away from women receiving  spousal benefits is projected to continue, with the largest shift occurring  among black women, according to SSA analyses. For many elderly, this  shift is likely to be positive, reflecting their higher earnings and greater  capacity to save for retirement. However, elderly women with low levels of  lifetime earnings, who have no spouse or do not receive a spousal  benefit—a group that is disproportionately represented by black women—  For blacks, the rise in ineligibility for spousal or widow benefits has  are expected to have correspondingly lower Social Security retirement  benefits relative to those with higher incomes.
section_title: Private Retirement Savings and Benefits
paragraphs: These trends have also affected household savings behavior and the  financial risks households face in retirement. Households with DC plans  have greater responsibility to save and manage their retirement savings  so that they have sufficient income throughout retirement. However, our  analysis of SCF data shows that many households approaching  retirement still have no or very limited retirement savings (see fig. 4).  Married households—in which many women now make significant  contributions to retirement savings—are more likely to have retirement  savings, but their median savings are low. The majority of single-headed  households have no retirement savings. Single parents, in particular, tend  to have fewer resources available to save for retirement during their  working years and are less likely to participate in DC plans.
In addition to challenges with accumulating sufficient savings for  retirement, individuals may also find it difficult to determine how to invest  their savings during their working years and spend down their savings  when they reach retirement. During their working years, DC plan  participants typically must determine the size of their contributions and  choose among various investment options offered by the plan. At  retirement or separation from their employer, plan participants must  decide what to do with their plan savings. Participants in DB plans also  face similar decisions if the plan offers a lump sum option, including  whether to take the annuity or lump sum, and if a lump sum is elected,  how to manage those benefits. GAO has found that these decisions are  difficult to navigate because the appropriate investment strategy depends  on many different aspects of an individual’s circumstances, such as  anticipated expenses, income level, health, and each household’s  tolerance for risk. In addition, individuals with DC plans face challenges  comparing their distribution options, in part due to a host of complicated  factors that must be considered in choosing among such options. They  may also lack objective information to inform these complicated  decisions.  In fact, while financial experts GAO has interviewed typically  recommended that retirees convert a portion of their savings into an  income annuity, or opt for the annuity provided by an employer-sponsored  DB pension instead of a lump sum withdrawal, we found that most  retirees pass up opportunities for additional lifetime retirement income.  These choices coupled with increasing life expectancy may result in more  retirees outliving their assets.
Lastly, the transition from DB to DC plans has increased the vulnerability  of some spouses due to differences in the federal requirements for  spousal protections between these two types of retirement plans. For DB  plans, spousal consent is required if the participant wishes to waive the  survivor annuity for his or her spouse. In contrast, for DC plans, spousal  consent is not required for the participant to withdraw funds from the  account—either before or at retirement—and DC plans do not generally  offer annuities at all, including those with a survivor benefit. While this  may not be a concern among many couples, it is a concern for some,  especially those who depend on their spouse for income.
section_title: Some Retirees May Need More Assistance from the Safety-Net System
paragraphs: While the trends described above have the potential to affect many  Americans, it is likely that they will impact the nation’s most vulnerable  more severely. Despite the role Social Security has played in reducing  poverty among seniors, poverty remains high among certain groups (see  fig. 5). These groups include older women, especially those who are  unmarried or over age 80, and nonwhites.
Moreover, individuals nearing retirement who experience economic  shocks, such as losing a job or spouse, are also vulnerable to economic  insecurity. During the 2007-2009 recession, unemployment rates doubled  for workers aged 55 and older. When older workers lose a job they are  less likely to find other employment. In fact, the median duration of  unemployment for older workers rose sharply from 2007 to 2010, more  than tripling for workers 65 and older and increasing to 31 weeks from 11  weeks for workers age 55 to 64. Prior GAO work has shown that long- term unemployment can reduce an older worker’s future retirement  income in numerous ways, including reducing the number of years the  worker can accumulate savings, prompting workers to claim Social  Security retirement benefits before they reach their full retirement age,   Similarly, our  and leading workers to draw down their retirement assets.past work has shown that divorce and widowhood in the years leading up  to and during retirement have detrimental effects on an individual’s assets  and income, and that these effects were more pronounced for women.
As a result of the trends described above, these vulnerable populations  may face increasing income insecurity in old age and be in greater need  of assistance. For example, during the 2007-2009 recession, the demand  for food assistance rose sharply among older adults. Specifically, from  fiscal year 2006 to 2009, the average number of households with a  member age 60 or older participating in the Supplemental Nutrition  Assistance Program rose 25 percent, while the population in that age  group rose by 9 percent.
Pub. L. No. 89-73, 79 Stat. 218 (codified as amended at 42 U.S.C. §§ 3001-3058ff). past work, we noted that the national funding formula used to allocate  funding to states does not include factors to target older adults in greatest  need, such as low-income older adults, although states are required to  consider such factors when developing the intrastate formulas they use to  allocate funds among their local agencies. We found that certain formula  changes to better target states with elderly adults with the greatest need  would have disparate effects on states, depending on their  characteristics. We have also found that lack of federal guidance and  data make it difficult to know whether those with the greatest need are  being served.
section_title: Concluding Observations
paragraphs: Our findings underscore how retirement security can be affected by  changing circumstances in the American household and the economy. As  the composition of the American family continues to evolve and as our  retirement system transitions to one that is primarily account-based,  vulnerable populations in this country will face increasing risk of saving  sufficiently and potentially outliving their assets. For those with little or no  pension or other financial assets, ensuring income in retirement may  involve difficult choices, including how long to wait before claiming Social  Security benefits, how long to work, and how to adjust consumption and  lifestyle to lower levels of income in retirement. Poor or imprudent  decisions may mean the difference between a secure retirement and  poverty. Planning for these needs will be crucial if we wish to avoid  turning back the clock on the gains we have achieved over the past 50  years from Social Security in reducing poverty among seniors.
Chairman Nelson, Ranking Member Collins, and Members of the  Committee, this completes my statement. I would be happy to answer any  questions you might have.
section_title: Appendix I: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the above, Charlie Jeszeck, Director; Michael Collins,  Assistant Director; Jennifer Cook, Erin M. Godtland, Rhiannon Patterson,  and Ryan Siegel made significant contributions to this testimony and the  related report. In addition, James Bennett, David Chrisinger, Sarah  Cornetto, Courtney LaFountain, Kathy Leslie, Amy Moran Lowe, Sheila  McCoy, Susan Offutt, Marylynn Sergent, Frank Todisco, and Shana  Wallace made valuable contributions.
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