When it comes to funding your retirement, it’s best to utilize a mix of income sources. Relying solely on Social Security is never the ideal, as it’s typically not enough for a retiree to live on — and the future of the program as we know it remains uncertain.
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Fortunately, many Americans are not planning to rely on Social Security as their main source of income in retirement, a recent Schwab study found. Here are the other income sources Americans plan to utilize in retirement.
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How Americans Will Fund Their Retirement
The Schwab study found that Americans plan to utilize their 401(k) plans as their main source of retirement income. Here’s a look at the percentage of retirement income Americans are planning to depend on from various sources.
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401(k): 43%
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Social Security: 16%
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Savings and investments: 13%
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Pension/defined benefit plans: 10%
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Part-time work: 4%
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Company stock plan/equity compensation: 3%
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Inheritance: 3%
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Real estate income: 3%
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Annuities/insurance: 3%
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Other: 2%
Lee McAdoo, managing director at Schwab Retirement Plan Services, believes that Americans may actually be underestimating the role of Social Security in their overall retirement income.
“According to the Social Security Administration, Social Security will replace on average 40% of retirees’ annual pre-retirement earnings, but this can vary widely based on individual circumstances,” she said. “This is much higher than the estimated 16% of income that workers in our survey expect Social Security to fulfill.”
However, because the future of the Social Security program remains uncertain, it’s probably better to underestimate your benefits than to overestimate them.
“The latest estimates from the Social Security trustees board project that Social Security benefits may be reduced in the next decade unless Congress intervenes,” McAdoo said.
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Reliance on 401(k) Plans Is Growing, While Reliance on Social Security Is Shrinking
Americans now plan to rely on their 401(k) plans to provide 43% of their income in retirement; that’s up from 40% in 2023. At the same time, Americans are now counting on Social Security for a smaller percentage of their retirement income — 16% versus 20% in 2023.
Americans who are closer to retirement — those who are planning to retire within the next 10 years — believe that Social Security will account for 22% of their income in retirement. But those who are 11 years or more from retirement believe that Social Security will account for only 13% of their retirement income.
“Amid the uncertainty, workers, especially those who are younger, are adjusting their expectations and preparing for a future that is less reliant on Social Security for income,” McAdoo said. “Workers who are 11 or more years from retirement believe that 45% of their retirement income will come from a 401(k).
“It makes sense for workers to place more emphasis here, especially considering how frictionless it has become to contribute to a 401(k),” she continued. “Many employers automatically enroll workers into the plan and automatically increase how much they are contributing to help get workers started, and also help them regularly increase how much they are saving. Employer matches are also common, which can boost your savings even more.”
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This article originally appeared on GOBankingRates.com: Americans Are Relying Less on Social Security: 9 Income Sources They Are Turning To
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