Here’s a map of retirement income by state, measured as a percentage of pre-retirement income.
Experts generally say retirees need to be earning at least 70 percent of their pre-retirement income to maintain their lifestyle during retirement. Only one state fits that bill: Nevada.
This map was developed from a study of Census Bureau data by Interest.com.
You can find the study here.
Chart credit: Interest.com
A new study has analyzed Census Bureau data to determine in which states the typical retiree is living a “healthy” retirement – that is, a retirement where one earns at least 70 percent of their pre-retirement income.
The study found there was only one state where the median retiree had enough retirement income: Nevada.
From Time.com:
Financial advisers generally agree you need at least 70% of pre-retirement income to maintain your lifestyle after calling it quits. Many say 80% to 85% is a more appropriate target.
But even using the lower bar, Nevada is the only state where the typical retiree has sufficient income to live comfortably in retirement, according to a study from Interest.com, a division of Bankrate, a financial information provider. The District of Columbia also makes the cut. But every other jurisdiction in the nation falls short, underscoring the scope of the retirement income crisis in America.
Nationally, the median income for those who are 65 and older equals just 60% of the median income for those aged 45 to 64, the study found. In Nevada, median income for those past 65 is 71%. In Washington D.C., the figure is 74%. States that get close to the minimum retirement income level are Hawaii (69%), Arizona (68%) and Mississippi (68%). At the bottom are Massachusetts (49%) and North Dakota (49%).
The national rate represents a jump of 10 percentage points over the past decade. But that is not as encouraging as it may appear, reflecting trends where older Americans stay on the job longer and young workers fail to see significant wage gains. The share of Americans working past 65 has been increasing for 20 years and reached 18.9% this May, one of the highest levels in the last half century.
Just below Nevada were Mississippi and Arizona, state where retirees benefit low costs of living, as well as Hawaii, a state that carries a “strong pension culture”.
Near the bottom of the list was Massachusetts.
Two studies came out earlier this week that shed further light onto the challenges facing Americans entering retirement.
The Joint Center for Housing Studies of Harvard University (JCHS) released a study on the housing needs of retirees, and the Federal Reserve Board issued its Survey of Consumer Finances (SCF), which gives insights into the income of retirees as well as their participation in retirement plans. Money magazine did a nice job summarizing the findings:
The Harvard study found that our existing housing stock is ill-suited to meet seniors’ needs, including affordability, accessibility, social connectivity and support services. And high housing costs are eating into the ability of low-income older adults to pay for necessities like food and healthcare.
Housing is the largest expenditure in most household budgets, and so is a linchpin of financial security and well-being. “It’s really at the nexus of your financial health, physical health and healthcare,” says Jennifer Molinsky, research associate at the JCHS and principal author of the study.
Harvard found that a third of adults over age 50 pay more than 30% of their income for housing—including 37% of people over age 80. Harvard defines that group as “housing cost burdened.” Another group of “severely burdened” older Americans spend more than 50% of income on housing. That group spends 43% less on food, and 59% less on healthcare, compared with households that can afford their housing.
Homeowners are much less likely to be cost-burdened than renters, the study found. But more homeowners are carrying mortgages well into retirement. More than 70% of homeowners aged 50 to 64 were still paying off mortgages in 2010.
The Federal Reserve Board also released its Survey of Consumer Finances (SCF). The findings, explained by Money:
The Federal Reserve findings on middle-class retirement prospects are equally troubling. Despite the economy’s gradual mending, the SCF found a widening gap in income and net worth. The top 10% of households was the only income band registering rising income (up 2% since 2010). Households between the 40th and 90th percentiles of income saw little change in average real incomes from 2010 to 2013. And the rate of homeownership was 65%, down from 69% in 2004 and 67% in 2010.
Ownership of retirement plan accounts also fell sharply. In the bottom half of income distribution, just 40% of households owned any type of account—IRA, 401(k) or traditional pension—in 2013, down from 48% in the 2007 survey. The Fed attributes the drop mainly to declining IRA and 401(k) coverage, since defined benefit coverage remained flat. Meanwhile, coverage in the top half of income distribution was much higher. In the top 10%, 95% of families are covered.
Overall, the average value of retirement accounts jumped a substantial 10% from 2010 to 2013, to $201,300. The Fed attributed that to the strong stock market and larger contributions. But for the lowest-income group that owned accounts, the average combined IRA and 401(k) value was just $39,100—and that is down more than 20% from 2007.
There’s a growing debate about whether a retirement crisis is real or imagined. These numbers will add to that debate, but will likely do little to resolve it. The Harvard study was funded in part by the AARP Foundation, an affiliation that critics will use to discredit the study’s conclusions.
Photo by
Michigan Gov. Rick Snyder’s tax on pension benefits, levied in 2011, has become a legitimate campaign issue over the last few days. Snyder took to the radio this morning to defend the policy and cast the tax in a different light. Reported by Detroit News:
Democrats have made Snyder’s changes to the way pensions are taxed a major issue in the election campaign, calling it a tax on seniors — a characterization the governor challenged Friday during the live radio show.
“That’s a misstatement when it says seniors,” Snyder told radio show host Rick Pluta. “It was really about essentially removing the exclusion on pension income.”
In 2011, Snyder first proposed ending all income tax exemptions on pension income. Previously, only retirees with large pensions from private employers were subject to the income tax.
[…]
The governor noted a new exemption of up to $40,000 was carved into the tax code for all forms of income for senior citizens.
“Now it’s fair between people who had retirement income and people who had working income,” Snyder said.
Under the changes Snyder signed into law, all pension income is subject to the 4.25 percent income tax for residents born after 1952.
“It’s still one of the top 10 most generous schemes in the country,” Snyder said of Michigan’s tax on retirement income.
Snyder reiterated his longstanding argument that making more pension income subject to the income tax was a matter of fairness to other workers.
“If you say retirement income isn’t taxed, you’re shifting your taxes to your kids to say ‘we want you to carry us,’ and that’s not a fair answer,” Snyder said.
The pension tax is especially controversial because Snyder simultaneously cut taxes for businesses by $1.8 billion.
Snyder countered that, although he cut taxes for businesses, he also “wiped out” tax credits for those businesses.
A recent survey reveals that more workers are confident in their retirement income in 2013 than in 2009, but most are still worried about their long-term prospects–especially those 50 and older. From Pension Benefits:
Retirement confidence climbed between 2009 and 2013, and nearly one-quarter of employees are now Very confident’ of having enough income for the first 15 years of retirement. This reflects improving financial conditions over the past four years as employees have rebuilt their savings. When asked to assess their prospects 25 years after retiring, however, only 8% remain confident of a financially comfortable retirement.
Since the start of the financial crisis, confidence levels for workers age 50 and older have declined by 10 percentage points. In 2007, 34% were very confident of their ability to afford the first 15 years of retirement, compared with only 24% in 2013.
Workers with defined-benefit plans are more confident than those with defined-contribution plans. On the flip side, the prospect of benefit cuts worry workers in DB plans. From Pension Benefits:
Participants in defined benefit plans (DB) are 35% more likely to be satisfied with their finances than those with only a defined contribution (DC) plan.
Roughly half of DB plan participants (45%) are afraid their retirement plan might be cut and about one-third (36%) fear having to bear more investment risk in the future. And for DB plan participants who have recently undergone a cut to their retirement program, 70% fear more curtailments are on the horizon.
Another interesting trend: Workers are becoming more engaged with their retirement plans. From Pension Benefits:
Since 2010, employees have become more involved and interested in retirement planning. Slightly more than half of all employees review their retirement plans frequently. Sixty-three percent of DB plan participants track their savings carefully compared with 48% of DC-plan-only participants. Older and midcareer workers report greater engagement with retirement than younger workers and saving for retirement is their number one financial priority.
You can read the full survey results by clicking here (subscribers only).
The article is published in Pension Benefits.
Photo by