New Study Reveals IRAs and 401(k)s Contribute Less Than 20% to Retirees’ Income
A recent analysis by the Employee Benefit Research Institute (EBRI) has unveiled a surprising truth about retirement savings: Individual Retirement Accounts (IRAs) and 401(k) plans together account for less than 20% of retirees’ total income. This finding casts doubt on the perception that these savings vehicles are the primary means of financial security in retirement.
The 2024 EBRI Spending in Retirement Survey, which polled approximately 3,600 Americans aged 62 to 75, reveals that while a significant number of retirees utilize these accounts—20% report dabbling in IRAs and 17% in workplace 401(k) plans—the actual monetary contribution is quite modest. Specifically, IRAs represent about 10% of the average retiree’s income, while 401(k) plans contribute approximately 15%.
As the study highlights, the real-world financial landscape for many retirees often extends far beyond these accounts. For individuals relying heavily on IRA and 401(k) savings, other sources of income may be crucial. The survey notes that nearly 92% of retirees aged 65 and over benefit from Social Security, which serves as a vital lifeline; however, it typically only replaces about 40% of pre-retirement earnings. Furthermore, pensions and additional income streams like interest or rental income fill in the gaps for many retirees, with pensions contributing to about 56% of retiree income.
The Broader Picture
The modest impact of IRAs and 401(k)s serves as a reminder of the complexity surrounding financial stability in retirement, echoing biblical principles of wise stewardship. As noted in Proverbs 21:5, “The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty.” This verse offers profound insight for those preparing for retirement: careful planning and diversified income sources are critical in ensuring a stable financial future.
Transitioning further, the median annual income for Americans aged 65 and older stands at $50,290—a figure that falls short of average annual expenses of around $57,818. This income gap underscores the vital need for diversified income planning and reinforces the importance of not relying solely on retirement accounts.
Financial experts recommend having sufficient retirement income sources to replace 70-80% of pre-retirement income, reinforcing the view that IRAs and 401(k)s are simply components of a broader strategy.
An Encouraging Perspective
In an age where financial concerns can weigh heavily, this study serves as a pivotal reminder of the importance of prudently managing one’s resources. With nearly 45% of those aged 60 and up facing difficulties in covering basic expenses, the need for reliable income sources is more pressing than ever.
As we reflect on these findings, let us remember the biblical call to seek wisdom in our stewardship. Proverbs 3:5-6 encourages us, saying, “Trust in the Lord with all your heart, and do not lean on your own understanding. In all your ways acknowledge Him, and He will make straight your paths.”
Finding peace amidst financial uncertainties is achievable through a balanced approach that acknowledges both earthly planning and divine guidance.
Ultimately, as financial landscapes continue to evolve, may we strive to embrace a holistic view, blending prudence with faith, and advocating for a retirement built on a foundation of diversified income—echoing both practical wisdom and spiritual trust.
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