070429.jpgIf there is a mythical god in charge of retirement, it would have to be Janus. Best known as the Roman god with two faces--- one looking forward, one back--- Janus was the master of beginnings and endings.

You and I see this every month in magazines. Advertising offers luxurious retirement condos in Florida and Arizona, world-girdling cruises, and mind-boggling automobiles being enjoyed by energetic silver-haired seniors.

Editorial content looks the other way. It warns us of dementia, incipient poverty, and the inevitability of long-term care.

Is it possible that retirement--- for most people, most of the time--- is somewhere in between?

To explore this, I read two studies--- the 2007 Retirement Confidence Survey done by EBRI, the Employee Benefit Research Institute, and a study by the Social Security Administration, "Income of the Population 55 or Older, 2004." The first is an interesting read. The second is recommended for those whose idea of a good time is reading tide tables, but it contains good data. Here is what I culled from the two reports:

  • Most of us are clueless about retirement. EBRI is too polite to actually say "clueless," but it notes that few workers are aware of the impact of receding pensions. Or of the rising age requirement for full Social Security benefits. Worse, only 66 percent of workers have saved money for retirement. Only 43 percent have attempted to calculate how much money they will need as a nest egg. The best you can say is that collectively we are a cheery bunch, prone to believing that things will work out.
  • We're wrong about our sources of retirement income. Those still working expect that personal savings will provide 50 percent of retirement income. They also that expect employment will provide 11 percent and Social Security only 14 percent. But retirees report that Social Security provides 40 percent, while savings provide only 24 percent. Employment is barely worth mentioning at 2 percent.
  • In spite of this, retirement matches or betters what workers expect. Only 6 percent of workers expected to feel "well-off" in retirement, but 8 percent of retirees felt "well-off." Retirees discovered their post retirement spending compared favorably with their pre-retirement spending. While 20 percent of workers expected and 20 percent of retirees experienced large declines in spending, 55 percent of retirees spent the same, or more.

Post-Retirement vs. Pre-Retirement Spending

This table compares retirement spending levels workers expected with what retirees actually experienced.
Spending level Workers (Expected) Retirees (Actual)
Much lower than before you retired



A little lower



About the same



A little higher



Much higher than before you retired



Source: Employee Benefit Research Institute
  • In retirement, income falls steadily. The Social Security study figures show that income falls dramatically as people age. The median income for married couples declines from $68,612 at ages 55 to 61 to $28,490 for couples 80 and older. For singles, the decline is less severe, dropping from $24,000 to $13,321 (see table for more figures). Retirees who want to see how they are doing can benchmark themselves by comparing their income with the percentage over $100,000 and the median, or 50th percentile, income.For a variety of reasons, these figures understate actual living standards in retirement. Taxes tend to take a smaller bite in retirement. Also, many seniors have no payment obligations and own their homes mortgage-free. And retirees are likely to spend down their principal as well as the income from their savings as they get older.

The Retirement Income Scoreboard:Benchmarking Income as We Age

This table shows sample income levels for retiree couples and singles as they age.
Household Age 55-61 Age 62-64 Age 65-69 Age 70-74 Age 75-79 Age 80 or older
Median Couple $68,612 $54,899 $44,299 $36,750 $30,413 $28,490
Couples with $100k or more 28.6% 18.7% 15.7% 9.7% 6.0% 5.2%
Median Singles $24,000 $19,032 $15,799 $14,263 $13,929 $13,321
Singles with $100k or more 4.2% 2.9% 1.4% 1.7% 1.1% 0.7%
Source: http://www.ssa.gov/policy/docs/statcomps/income_pop55/2004/incpop04.pdf
  • Social Security is very important for all but the rich. When you examine the sources of cash income those 65 and older have, income from assets is a much smaller percentage than readers of financial publications would expect. Even for those in the second highest income quintile (incomes higher than 60 percent of all households but lower than 20 percent of all households), Social Security was usually the largest single source of income. In 48 percent of those households, it accounted for 50 percent, or more, of all income.
  • Income from assets, on the other hand, plays a small role for most people. In the bottom 80 percent of all households, income from assets accounted for 50 percent or more of income in less than 4 percent of households. Even in the top 20 percent of all households, asset income accounted for 50 percent or more of all income in only 12 percent of households.
Does that mean we shouldn't save and invest? Hardly. It's simply a reminder that retirement income is primarily a political and social contract event.

On the web:

EBRI Issue Brief No. 304

Income of the Population 55 and Over, 2004