1 in 10 Americans Aren’t Relying on These 6 Common Sources of Retirement Income — What Are They Using Instead?

Jacob Wade
shapecharge / iStock/Getty Images
shapecharge / iStock/Getty Images

Saving for retirement is a priority, but what if you don’t have access to traditional investment options?

According to a recent survey by GOBankingRates, nearly 1 in 10 Americans don’t have access to the most common sources of retirement income. This poses a huge challenge when saving for retirement and requires some creative solutions.

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In this article, we’ll review the most common sources of retirement income, how many survey respondents expect to have access to these sources of income and what they can do to fund retirement instead.

What Are the Main Sources of Retirement Income?

The current rate of inflation, as measured by the Consumer Price Index (CPI), is 3.2% over the last 12 months (as of February 2024). While this might seem pretty reasonable, it comes after several years of high inflation, compounding the effects of high prices. As prices rise, you’ll need ways to fund your retirement.

Social Security

Social Security is one of the top sources of income for many retirees, but it was only designed to fund a portion of your retirement. However, many Americans rely heavily on Social Security income for retirement.

According to a GOBankingRates survey, 76% of respondents anticipate having access to Social Security income in retirement. This makes sense, as not everyone is eligible for Social Security, while some may be worrying about the future of the program by the time they reach retirement age.

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Pensions

Pensions are defined-benefits plans that employers pay out to employees after retirement for the rest of their lives. Pensions are becoming rarer, as longevity is driving the costs too high for most employers to manage.

While most private sector jobs don’t offer pension plans, many government and public service jobs still do. According to the GOBankingRates survey, 27% of respondents will have access to a pension of some sort in retirement. This can help boost retirement income and lower the need for additional sources of income.

401(k) Accounts

The 401(k) account is the most popular retirement account in America, with average account balances of over $118,000 as of 2023, according to Fidelity. These accounts are offered by employers, allowing you to automatically invest directly from your paycheck.

Some 401(k) accounts also offer matching funds, where your employer matches a percentage of your contribution for the year. According to the GOBankingRates survey, nearly 41% of respondents will have access to 401(k) funds in retirement.

IRAs

Individual retirement accounts (IRAs) are a type of retirement account that is not connected to your job but rather opened directly by individuals. You can choose a broker and open an account, contributing up to $7,000 as of 2024.

According to our survey, there are far fewer Americans who have opened these accounts, with only 19% of respondents stating IRAs as a source of anticipated retirement income. Because there is no workplace automatic enrollment, or individuals simply don’t know about these accounts, less than 1 in 5 respondents currently plan on using an IRA.

Other Investment Accounts

Outside of retirement accounts, there are several other investment accounts that you can use for retirement savings.

Health Savings Account (HSA): Health savings accounts are available to individuals and families with an eligible high-deductible health plan (HDHP). You can contribute funds to an HSA and use those funds for medical expenses, tax-free. At age 65, unused funds can be withdrawn just like a traditional IRA and are not required to be used for medical expenses after that.

Taxable Brokerage: A taxable brokerage account is a standard investment account with no tax advantages but also no limitations. These accounts are for investors who have maxed out their retirement savings and want more flexible access to funds within retirement.

529 Account: While 529 accounts are designed for education expenses and paying for college, a new rule in the Secure 2.0 Act allows unused funds to rollover into a Roth IRA. As long as the account has been opened for 15 years or more, you can roll over up to $35,000 into a Roth IRA over several years. Rollover funds count as the contribution for the year.

Annuities

An annuity is an insurance contract designed to offer stable income in retirement. These complicated financial products can be structured in various ways and may offer guaranteed income, but often come with very high fees.

According to the GOBankingRates survey, 8% of respondents reported they expect to have access to income from an annuity in retirement.

1 in 10 Americans Don’t Have Access To These Accounts

What’s surprising is that 1 in 10 Americans reported that they don’t expect to have access to any of the following income sources in retirement:

  • Social Security

  • Pension

  • Traditional/Roth 401(k)

  • Traditional/Roth IRA

  • Investments outside of a 401(k)/IRA

  • Annuities

The most surprising fact is that nearly 10% of respondents don’t expect to have access to Social Security. This may be due to a pessimism about the program’s future, or they don’t expect to qualify for the program due to the work credit requirements.

Overall, some Americans simply won’t have access to traditional retirement income sources and will have to find other sources of income to rely on.

How Americans Can Save For Retirement Outside of Traditional Investment Accounts

If nearly 10% of Americans truly can’t save in retirement or investment accounts, there are a few other ways to fund retirement — albeit it’s a little more unconventional.

Rental real estate: Purchasing rental real estate is a great way to grow your passive income, and it can extend well into retirement as a source of income. You can collect rents monthly and use those funds for your retirement expenses. If you own multiple homes, this can help make up a significant portion of your retirement income needs.

Business silent partner: If you want to invest in a private business but don’t want to do any of the work, you can become a silent partner. You’d be mainly responsible for funding the business while reaping income and dividends as a partner. This can help bring in income, even in retirement.

Inheritance: Some respondents may be inheriting money and not need to fund their own retirement. Baby boomers are expected to pass along over $53 trillion (yes, with a “t”) to heirs by 2045, which may help fund the retirement of several generations to come.

“Things like entrepreneurship, investment real estate, and private equity or angel investing transitions from luxuries to necessities for this demographic,” said Michael Ryan, financial planner and founder of Michael Ryan Money. “The increased risk is well worth potentially exponential gains compared to traditionally ‘safe’ investment options.”

One final outcome of not having any retirement savings or access to a pension or Social Security income is that some individuals simply may not be able to retire. This is a sad reality for some Americans, who may need to rely on family members or welfare programs to supplement their income needs.

How To Prepare For Retirement If You’re Younger

It’s not surprising that the majority of respondents who don’t expect to have access to retirement accounts or Social Security are younger. But there are things they can do right now, even if they don’t have access to a 401(k) and don’t expect Social Security to be around.

“Here’s what people can do if they feel behind,” said Andrei Vasilescu, co-founder and CEO of Don’t Pay Full. “Start putting away money as soon as you can. Even small amounts can become big over time. If you’re older, like in your 50s or 60s, check if you can put more money into your retirement plan than usual. Think about living on less money or find ways to make extra cash through side jobs or consulting.”

The key here is to start saving, even if you’re just putting money away in a savings account. Building that muscle will help you learn to save more over the length of your career.

And as an individual, if you’re earning income, you qualify for an IRA and can still open one. This allows you to invest and save on taxes, giving compound interest more time to grow. This can lead to a sizable nest egg over a long enough time period.

“Remember, it’s never too late to start getting ready for retirement,” Vasilescu said. “By taking steps now and getting the right advice, you can work towards a financially stable future.”

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This article originally appeared on GOBankingRates.com: 1 in 10 Americans Aren’t Relying on These 6 Common Sources of Retirement Income — What Are They Using Instead?

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