While income in retirement varies widely by source, Social Security benefits are the foundation of income for nearly all retiree households. In aggregate, Social Security is the largest source of retirement income for households with someone aged 65 or older, but other financial assets such as pension income from DB and DC plans, private savings, and assets such as home equity are important sources of retirement income for many. (See fig. 1.) In 2008, the most recent year for which data were available, among households with someone aged 55 to 60, the median net wealth for the middle quintile of net wealth was $339,000. The median household income for the middle net wealth quintile was about $70,000 in the preceding year, according to the Health and Retirement Study. (See app. II.) Earnings from work can be an important source of income for some households with a member aged 65 or older because, for example, a spouse younger than 65 may be working. Yet many people aged 65 or older also work. In 2010, 29.1 percent of people aged 65 to 69 worked at least part-time and 6.9 percent of people aged 75 or older were employed. Social Security benefits provide annually inflation-adjusted income for life—and in 2008 were on average the source of 64.8 percent of total income for recipient households with someone aged 65 or older. Under changes legislated in 1983, the retirement age for an unreduced benefit (the full retirement age) is gradually increasing from age 65, beginning with retirees born in 1938, and will reach age 67 for those born in 1960 or later. Despite these changes, the cost of Social Security benefits is projected to exceed sources of funding, and the program is projected to be unable to pay a portion of scheduled benefits by 2036. In 2010, for the first time since 1983, the Social Security trust funds began paying out more in benefits than they received through payroll tax revenue, although trust fund interest income more than covers the difference, according to the 2011 report of the Social Security trust funds’ Board of Trustees. However, changes to Social Security could eliminate or reduce the size of this projected long-term shortfall. At retirement, DB plan participants are eligible for a specified payment for life (either immediately or deferred, and with or without benefits for a surviving spouse), but some DB plans also give participants a choice, sometimes a difficult choice, to forego a lifetime annuity and instead take a lump sum cash settlement (distribution) or roll over funds to an IRA. DC participants face a number of difficult choices regarding their account balances, such as leaving money in the plan, purchasing an annuity, or transferring or rolling over their balance into an IRA. Employers who sponsor qualified plans and enable departing participants to receive lump sum distributions must also give participants the option to have these amounts directly rolled over into an IRA or another employer’s tax- qualified plan. Workers entering retirement today typically face greater responsibilities for managing their retirement savings than those who retired in the past. Social Security continues to provide a foundation of inflation-adjusted income for life, but fewer retirees today have defined benefit plans providing lifetime income. DC plans have become much more common and they generally do not offer annuities, so retirees are left with increasingly important decisions about managing their retirement savings. Participants in DB plans also face similar decisions when the plan offers a lump sum option, including not only whether to take the annuity or lump sum, but decisions about managing these savings if a lump sum is elected. For households with someone aged 65 or older with income from assets, such as interest and dividends, the estimated median amount of asset income for households in the third (middle) income quintile was $1,022 in 2008. For those in the highest income quintile the median was $8,050. Financial assets provide income, but can also provide flexibility to draw down funds as needed during retirement. For workers with a self-directed lump sum or other retirement savings, the money can be taken in periodic distributions for which there are strategies to help reduce the chance that a retiree does not outlive his or her money. For example, retirees could draw down a portion of their balance as a form of regular income to supplement Social Security and possibly DB pension income, investing the balance of savings in a diversified portfolio of mutual funds containing equities and fixed income securities. An alternative to self-managing periodic distributions from savings is to use one’s savings to purchase an immediate annuity from an insurance company that guarantees income for life. An immediate annuity can help to protect a retiree against the risk of underperforming investments, the risk of outliving one’s assets (longevity risk) and, when an inflation- adjusted annuity is purchased, the risk of inflation diminishing one’s purchasing power. Researchers have concluded that annuities have important benefits. For example, according to one association of actuaries, it is more efficient to pool the risk of outliving one’s assets than to self-insure by accumulating enough assets to provide enough income in case one lives to a very old age. Annuities provide income at a rate that can help retirees avoid overspending their assets and provide a floor of guaranteed income to prevent unnecessarily spending too little for fear of outliving assets, according to one association. Annuities can also relieve retirees of some of the burden of managing their investments at older ages when their capacity to do so may diminish, which may also make them susceptible to fraudulent sales. On the other hand, annuities may be inappropriate or expensive for people who have predictably shorter-than- normal life expectancies. Likewise, funds used to purchase immediate annuities are no longer available to cover large unplanned expenses. Also, immediate annuities that provide for bequests have higher costs. There is little consensus about how much income constitutes “enough” retirement income. Retirement income adequacy may be defined relative to a standard of minimum needs, such as the poverty rate, or to the level of spending households experienced during working years. Some economists and financial advisors consider retirement income adequate if the ratio of retirement income to preretirement income—called the replacement rate—is from 65 to 85 percent, although some retirees may need considerably less or more than this. Typically, however, retirees do not need to replace 100 percent of preretirement income to maintain living standards for several reasons. For example, retirees will no longer need to save for retirement and their payroll and income tax liability will likely fall. However, some researchers cite uncertainties about health and long-term care costs as reasons a higher replacement rate may be necessary. Table 1 shows replacement rates from Social Security benefits for low and high earners retiring in 2011, as well as the remaining amount of preretirement income from other sources necessary to achieve a 75 percent replacement rate. The Employee Retirement Income Security Act of 1974 (ERISA) is the primary statute governing private pension plans, including DB and DC plans. It seeks to protect the interests of employee benefit plan participants and their beneficiaries. Title I of ERISA, enforced by Labor, sets standards of conduct and requires accountability for the people who run or provide investment advice to plans, known as plan fiduciaries, and requires administrators to provide participants with certain disclosures, including periodic benefit statements as well as a summary plan description. Title IV of ERISA created the Pension Benefit Guaranty Corporation (PBGC) as a U.S. government corporation to provide plan termination insurance for certain DB pension plans that are unable to pay promised benefits. The Internal Revenue Service (IRS), under Title II of ERISA, and subsequent amendments to the Internal Revenue Code (the Code), generally is responsible for ensuring that plans meet certain requirements for tax qualification and for interpreting rules in Title I of ERISA regarding participation, vesting, benefit accrual, and minimum funding. Tax qualification enables employers to make tax-deductible contributions and the plan to earn interest on a tax-deferred basis. The tax advantages are intended to encourage employers to establish and maintain pension plans for their employees and advance other public policy objectives. For example, certain provisions of the Code set required minimum distributions from tax-deferred accounts, such as traditional IRAs and qualified plans, generally by April 1 in the year following the year in which the account holder reaches age 70 ½. These required minimum distributions help to ensure that account holders withdraw tax-deferred savings in retirement rather than accumulate savings for their estate. Once an individual withdraws his or her funds from either a DB or DC plan, a myriad of laws and regulations typically applies, depending on the investment decisions that the individual makes with those funds. In this instance, the individual is no longer a plan participant governed by ERISA, but is now essentially a retail investor governed by the laws and regulations that are pertinent to the particular product or asset in which he or she chooses to invest, and whether or not the funds are in an IRA. The different laws, regulations, and agencies that may come into play vary depending on the type of assets held. Various other federal and state agencies may regulate the investment or insurance products offered in pension plans or outside of plans on the retail market. For example, the Securities and Exchange Commission (SEC) regulates mutual funds, which are pooled investments in a portfolio of securities. In addition, certain types of annuities may be regulated by states, while other types may also be subject to federal securities laws and thus regulation by the SEC. For example, the SEC, among others, regulates variable annuities, including regulation of disclosure and sales practices. (See app. V on selected retirement income arrangements and products.) Insurance company annuities are generally regulated by state insurance departments, which set reserve requirements for the insurance companies offering annuities. More recently, states are also regulating sales and marketing practices and policy terms and conditions to ensure that consumers are treated fairly when they purchase insurance products and file claims.