Income in retirement may come from several sources, including (1) Social Security, (2) payments from employment-based DB plans, (3) savings in retirement plans, such as in a 401(k) plan or IRA, including the return on and (4) other sources, including non-retirement savings, these savings;home equity, and wages. (1) Social Security: Social Security pays benefits to retirees, their spouses, and their survivors, as well as to some disabled workers. According to the Social Security Administration (SSA), as of 2012, 86 percent of households age 65 and older received Social Security benefits. Benefits are paid to workers who meet requirements for the time they have worked in “covered employment” – jobs through which workers pay Social Security taxes, which cover about 96 percent of U.S. workers, according to SSA. Workers can claim benefits starting at age 62 (or when they become disabled), but for retiring workers the monthly benefit they receive increases the longer they delay receiving them, up until age 70.history and are progressive, meaning that Social Security replaces a higher percentage of earnings for lower-income workers and their dependents than for higher-income workers. Monthly Social Security benefits are based on a worker’s earnings Social Security benefits offer two main advantages: they are a monthly stream of payments that continue until death and they adjust annually for cost-of-living increases. According to the 2014 report from the Social Security Board of Trustees, the Old-Age and Survivors Insurance (OASI) trust fund from which Social Security benefits are paid is projected to become depleted in 2034, at which point continuing income is projected to be sufficient to cover just 75 percent of scheduled benefits. This projection raises the possibility of changes to Social Security benefits, taxation, or both before the depletion date. (2) Defined Benefit Plans: these plans are “traditional” employment-based pension plans that offer benefits typically determined by a formula based on factors specified by the plan, such as salary and years of service. DB plans typically offer pension benefits in the form of an annuity that provides a monthly payment for life, although some plans also offer a lump-sum distribution option. An annuity can help to protect a retiree against risks, including the risk of outliving one’s assets (longevity risk), and may also offer survivor benefits. However, DB plans carry the risk that a plan sponsor may freeze or terminate the plan. If a private-sector plan terminates with insufficient assets to pay promised benefits, the Pension Benefit Guaranty Corporation (PBGC), a federal government corporation, provides plan insurance and pays promised benefits subject to certain statutory limits, which may result in some beneficiaries getting reduced benefits. (3) Retirement Savings: Introduced over 30 years ago, two primary types of retirement savings vehicles currently exist: employment-sponsored DC plans (such as 401(k) plans) and IRAs. For both types, benefits accrue in the form of account balances, which grow from contributions made by workers (and sometimes by their employers) and investment returns. Examples of employer-sponsored DC plans include 401(k) plans, 403(b) plans, and similar plans for which employers can offer payroll deductions, employer contributions to employee accounts, or both. Individuals can also save for retirement through IRAs, which allow individuals to make contributions for retirement without participating in an employment- sponsored plan. DC plans and IRAs provide tax advantages, portability of savings, and transparency of known account balances. However, they also place the primary responsibility on individuals to participate in, contribute to, and manage their accounts throughout their working careers, and to manage their savings throughout retirement in order to keep from running out of money. For 2015, individuals can contribute up to $5,500 in IRAs ($6,500 for those age 50 or older), while the contribution limit for 401(k) plans is $18,000 ($24,000 for those age 50 or older). Contributions to 401(k) plans and traditional IRAs are not subject to tax when made (26 U.S.C. §§ 402(e)(3) and 219(a) and (e), respectively); distributions or withdrawals of principal or earnings from them are subject to tax (26 U.S.C. §§ 402(a) and 408(c)(1), respectively). Contributions to Roth IRAs are not tax-deductible, but after one has been established for 5 years, upon reaching age 59½, an individual may make withdrawals of principal or earnings not subject to tax. 26 U.S.C. § 408A(c) and (d). revenue loss associated with these accounts included $51.8 billion for DC plans and $16.2 billion for IRAs. Employment-based retirement plan coverage, especially in the private sector, has shifted from DB to DC plans. According to the Department of Labor, as of 2012 private-sector DB plans had almost 40 million participants, while DC plans had about 91 million. In contrast, in 1975, about three-quarters of private-sector pension participants had DB plans, and half of all participants in 1990 had DB plans. Reserve data, as of the third quarter of 2014, U.S. DB plans held about $11.2 trillion in assets, IRA assets totaled about $7.3 trillion and DC assets accounted for about $6.2 trillion. Rollovers from 401(k) plans and other employment-sponsored plans are the predominant source of contributions to IRAs. These figures may double-count individuals who have both a DB and DC plan. U.S. Department of Labor, Employee Benefits Security Administration, “Private Pension Plan Bulletin Historical Tables and Graphs.” December 2014. Considering imputed rent income treats owner-occupied housing neutrally compared to renter-occupied housing. For example, consider two homeowners who each live in their homes and pay a $1,000 mortgage. If they moved into each other’s home and received $1,000 per month rent, that $1,000 would be considered income, even though nothing has changed about either household’s balance sheet or net expenses. an important source of income for some households with a member age 65 or older, especially for those with a spouse younger than 62 who is not yet eligible to receive Social Security benefits. According to our analysis of data from the 2013 SCF, 52 percent of households age 55 and older have no retirement savings in a DC plan or IRA, and Social Security provides most of the retirement income for about half of households age 65 and older. Among the 48 percent of households age 55 and older with some retirement savings, the median amount is approximately $109,000–commensurate to an inflation- protected annuity of $405 per month at current rates for a 65-year-old. Households that have sizeable retirement savings are more likely than households with lower saving to have other resources, including a higher likelihood of expecting retirement income from a DB plan. Nearly 30 percent of households age 55 and older have neither retirement savings nor a DB plan (see fig. 1). Social Security remains the largest component of household income in retirement, making up an average of 52 percent of household income for those age 65 and older. About 55 percent of households age 55-64 have less than $25,000 in retirement savings, including 41 percent who have zero (see fig. 2 for additional detail). Most of the households in this age group have some other resources or benefits from a DB plan, but 27 percent of this age group have neither retirement savings nor a DB plan. Among households age 55-64, the 41 percent with no retirement savings have few other financial resources but they are less likely to have debt than those with retirement savings.have less than $25,000 in total financial assets, such as in savings accounts or non-retirement investments. Compared to those with retirement savings, these households have about a third of the median income, about one-fifteenth of the median net worth, and are less likely to be covered by a DB plan (see table 1). Regarding debt, households without retirement savings are less likely to have debt than households with savings (about 70 percent compared to 84 percent). Their debt levels are comparable, though, as about 20 percent of households from each For example, around 85 percent category have debt amounts that are more than twice their annual income. Perhaps of greatest concern are the 27 percent of all households age 55- 64 that have neither retirement savings nor a DB plan. Their median net worth is about $9,000, and 91 percent have less than $25,000 in financial assets. These households’ median home equity is about $53,000,savings or a DB plan have. which is less than half of what households with retirement Not surprisingly, they have approximate median income of $21,000. About half of these households had wage or salary income, compared to 82 percent of households age 55-64 with some retirement savings or a DB plan. This indicates that a smaller portion of these households are likely working, which may limit their ability to accumulate retirement savings. About 46 percent had Social Security income, indicating that they may have claimed before the full retirement age and would receive reduced monthly benefits. For the 59 percent of households age 55-64 with some retirement savings, we estimate that the median amount saved is about $104,000, which is equivalent to an insured, inflation-protected annuity of $310 per month for a 60-year-old. While about 15 percent of these households have retirement savings amounts over $500,000, 11 percent have retirement savings below $10,000 and 24 percent have savings of less than $25,000 (see table 2 for additional detail).