It turns out that the three-legged stool of retirement income may not be not be dead after all. But for a growing number of retirees, the components of retirement income are shifting.
Several new surveys suggest that retirees are becoming more dependent on Social Security as pensions fade to black. And while personal savings may be inadequate when based on traditional retirement readiness measures, there is hope that Americans can still create a secure retirement when a broader measure of household wealth, including home equity and continued employment, is considered.
Meanwhile, many retirees are finding inventive ways to replace that traditional third leg of the retirement income stool by participating in the gig economy by driving for Uber or Lyft or swapping free time to run paid errands for companies such as Task Rabbit. And increasingly, older homeowners are renting out their spare rooms through Airbnb.
In fact, seniors are the fastest growing demographic of Airbnb hosts in the United States, according to statistics released by the travel website. Nearly two-thirds of all senior hosts are women, the company reported, and women age 60 and older are consistently rated the best Airbnb hosts in the United States.
One in four U.S. households has at least one partner employed in the freelance economy, according to new research from Hearts & Wallets, a provider of data and insights on retail investors. The share rises to four in 10 for older workers defined as those aged 53 to 64. And among fully employed seniors age 65 and older, 81% have one or both partners working in the gig economy.
The latest reports from the annual Hearts & Wallets Investor Quantitative data base analyzes net worth and income sources for U.S. households and examines the changing ways Americans accumulate wealth, save for retirement and manage income in retirement.
Today, the three most common sources of retirement income are Social Security, retirement account withdrawals and employment, according to Hearts & Wallets. One-third of future retirees expect to have employment income, up 7 percentage points from last year's survey results, with employment making up one quarter of their income.
"Many Americans are telling us these flexible working arrangements work for them," said Laura Varas, founder and chief executive officer of Hearts & Wallets. "We believe the increase in the desire to work is a reflection of greater control over their ability to work."
The report also analyzes the vital role real estate plays in household wealth and its potential to be incorporated into financial advice and guidance experiences. For households with less than $500,000 in investable assets, real estate represents over half of assets. Even for wealthier households, real estate still averages a quarter to a third of total assets.
"Households may be in better shape for retirement than anticipated using a broader view of household wealth," Ms. Vargas said. "Financial providers can develop better solutions for customers by understanding the reality of the individual household financial situation that take into account real estate, human capital, children, inheritances and other variables."
Separately, a new telephone survey by the American Institute of CPAs found that more than 45% of pre-retirees expected to work full-time —longer than they had originally planned —and 43% expect to work in retirement.
"Working throughout your life was once a reliable route to a comfortable, financial security retirement," said Greg Anton, chair of the AICPA's National CPA Financial Literacy Commission. "We found today, even Americans who say they'll reach their financial goals are anticipating a more active 'retirement lite' that involves working and making financial sacrifices."
It seems that one of the legs of the traditional three-legged stool — Social Security — is now more important than ever.
Ten years after the financial crisis and recession, middle-income boomers are increasingly relying on Social Security for their retirement income, according to a new study by Bankers Life Center for a Secure Retirement.
The portion of middle-income boomers who expect to rely on Social Security for their primary source of retirement income has risen from 30% in 2007 to 38% today. A nationwide sample of 1,000 Americans aged 52 to 70 with annual household incomes of $30,000 to $100,0000 and investable assets of less than $1 million participated in the internet survey in October 2016.
"Social Security was designed to be a safety net, not a primary replacement for savings or income," said Scott Goldberg, president of Bankers Life. "Those who are in or near retirement should consider the various ways they can create future income to help achieve security in retirement."
For some future retirees, that could mean experimenting with the gig economy.
(Questions about new Social Security rules? Find the answers in my new ebook.)
Mary Beth Franklin is a contributing editor to InvestmentNews and a certified financial planner.