The decrease in pensions has put new retirees in a difficult situation: they are increasingly dependent on Social Security to support themselves.

Recent research from a nonprofit focused on employee benefits highlights this trend starkly.

The Employee Benefit Research Institute (EBRI) conducted a survey in 2024 with 3,600 retirees regarding their spending habits. The results indicated that younger retirees rely significantly more on Social Security than their older counterparts. Among retirees aged 74 and 75, an average of 52% of their income was derived from Social Security, while those aged 62 and 63 reported a remarkable 67% reliance on it.

These findings were detailed in EBRI’s 2024 Spending in Retirement Survey released in November.

“As we see, younger retirees disclose a heightened dependence on Social Security for income compared to older retirees,” remarked Bridget Bearden, a research strategist at EBRI and the report’s author.

Do younger retirees have a greater reliance on Social Security?

Additional studies support the idea that retirees from the 1960s are increasingly leaning on Social Security for financial support.

According to a recent survey by the Transamerica Center for Retirement Studies, retirees in their 60s are more likely to prioritize Social Security as their primary income source compared to retirees in their 70s—63% versus 55%, respectively.

The reliance on Social Security is becoming more pronounced as traditional pensions, once a reliable source of retirement income for many Americans, continue to decline.

Federal statistics indicate that participation in defined benefit pensions in the private sector dropped from 42.3 million in 2008 to 30.2 million by 2022.

“Defined benefit pensions have virtually disappeared,” stated Evan Potash, a senior wealth management advisor at TIAA, a financial services firm. “Now, the responsibility is on individuals to save for their retirement.”

With the decline of pensions, employees are now expected to support their retirement via a mix of Social Security and personal savings, mainly through 401(k) plans and Individual Retirement Accounts.

Social Security is not intended to fully support retirement

It’s important to note that Social Security was never designed to completely fund retirement. On average, it covers about 40% of what a worker made before retiring. This percentage might decrease further, as a shortfall is anticipated by 2034, as per the Congressional Budget Office.

Financial experts suggest that individuals should aim to save around ten times their annual income to adequately complement Social Security during retirement.

However, many Americans fall short of that goal. For instance, data from the federal Survey of Consumer Finances reveals that typical families aged 65 to 74 with retirement accounts hold about $200,000 in savings, and only about half of those families actually have retirement accounts.

“The reality is that employees are increasingly expected to finance a larger portion of their retirement on their own, but many are not aware of or have access to company retirement plans to do so,” explained Catherine Collinson, CEO of the Transamerica Center for Retirement Studies.

The EBRI report further indicates that retirees are grappling with credit card debts and overspending. About half of those surveyed admitted to saving less than what they require for a complete retirement plan.

Younger retirees may have a tighter financial situation

The findings from the survey indicate that younger retirees, specifically those aged 62 and 63, tend to maintain a more constrained budget compared to older retirees. Only 21% of the younger group reported monthly expenses exceeding $3,000, while 45% of retirees aged 74 and 75 reported spending that amount or more.

Additionally, researchers found that younger retirees typically have fewer income sources: on average, retirees born in 1962 reported around two income streams, while those born in 1949 had about three.

These economic realities—including reduced income from fewer sources—might explain the greater reliance on Social Security among younger retirees, according to Bearden.

Researchers caution against straightforward comparisons between retirees of various ages, noting that individuals who retire earlier generally have lower incomes. For instance, retirees opting for Social Security at 62 or 63 may face more severe financial challenges than those who wait longer. Both factors could contribute to the increased reliance on Social Security seen in younger retirees within the EBRI survey.

Despite these considerations, Wettstein believes that the survey results likely reflect a genuine trend.

‘Beatlemania’ boomers on the brink of a retirement crisis

Other studies suggest that the most recent generation of retirees, referred to as the “Beatlemania” boomers, is facing an impending financial crisis.

Late boomers, born in the early 1960s, possess less wealth and savings for retirement compared to their older peers, as indicated by a 2023 study from the Center for Retirement Research at Boston College.

By examining various generational groups within the same age range, Boston College researchers discovered that the youngest boomers have been affected significantly regarding wealth, particularly due to the repercussions of the Great Recession.

The decline of pension plans is attributed as a primary reason for the financial struggles of younger boomers during retirement, a trend that is projected to escalate for Generation X, those born between 1965 and 1980, as the oldest members of that generation turn 60 this year.

The oldest respondents in the EBRI survey—those in their 70s—represent “the last significant group who have access to pension plans,” according to David John, a senior policy adviser at the AARP Public Policy Institute.

Younger retirees grew up in an era dominated by 401(k) plans. However, many workers have been slow to adopt this tax-advantaged savings option.

“Individuals retiring now, particularly at age 62, have often had only about 20 years in the 401(k) system at best,” John explained. “That limited time diminishes their ability to accumulate substantial savings.”

In essence, John indicated that this latest generation of retirees finds itself caught between two distinct retirement planning domains: too late for traditional pensions and too early to fully utilize 401(k) plans.