Retirement and Investments
In 2021, retirees' descriptions of their reasons for retirement and their income sources were consistent with recent years. As was the case in 2020, a sizeable share of recent retirees said COVID-related factors affected the timing of their retirement decision. Among non-retirees, a higher share reported they felt like their retirement savings were on track, and a smaller share borrowed against or cashed out retirement savings, compared with 2020. Yet, differences by age and race or ethnicity in retirement preparedness among non-retirees remained similar to earlier years.
Retirees represent a sizeable portion of the adult population. Twenty-seven percent of adults in 2021 considered themselves to be retired, even though some were still working in some capacity.59 Fourteen percent of retirees had done some work for pay or profit in the prior month. Consequently, 4 percent of all adults considered themselves retired and were still working. Retirees with more education were slightly more likely to work in retirement.
In deciding when to retire, most retirees indicated that their preferences played a role, but life events contributed to the timing of retirement for a substantial share (figure 42). Forty-nine percent of retirees said a desire to do other things or to spend time with family was important for their decision to retire, and 45 percent said they retired because they reached a normal retirement age.
Nonetheless, 29 percent said that a health problem was a factor in their decision to retire, and 15 percent said they retired to care for family members. One in 10 said they were forced to retire or that work was not available. Collectively, health problems, caring for family, and lack of work contributed to the timing of retirement for 45 percent of retirees.
A sizeable share of recent retirees indicated that COVID-19 was a factor in their retirement decision. Twenty-five percent of adults who retired in the prior 12 months, and 15 percent of those who retired one to two years ago, said factors related to COVID-19 contributed to when they retired. Compared with other retirees, recent retirees whose retirement decision was related to COVID-19 were more likely to say they retired because they were forced to do so or work was not available. While the pandemic may be contributing to retirement decisions for some recent retirees, the share of adults who consider themselves to be retired has remained relatively consistent during the pandemic.60
Social Security remained the most common source of retirement income, but 79 percent of retirees had one or more sources of private income. This included 57 percent of retirees with income from a pension; 43 percent with interest, dividends, or rental income; and 32 percent with labor income (table 24).61 Seventy-eight percent of retirees received income from Social Security in the prior 12 months, including 92 percent of retirees age 65 or older.
Table 24. Sources of income in the prior 12 months among retirees (by age)
|Source||Retirees age 65 and older||All retirees|
|Interest, dividends, or rental income||49||43|
|Wages, salaries, or self-employment||25||32|
|Cash transfers other than Social Security||7||11|
Note: Among retirees. Respondents could select multiple answers. Sources of income include the income of a spouse or partner.
While retirees as a group report a generally high level of financial well-being and life satisfaction, those who were not married and those with a disability reported lower levels for these subjective measures (table 25).62 In 2021, 81 percent of all retirees said they were doing at least okay financially, and 60 percent reported high levels of life satisfaction. On average, retirees who were not married were not doing as well, with just 68 percent saying that they were doing at least okay financially and 49 percent reporting high levels of life satisfaction. Retirees with a disability, regardless of their marital status, were less likely to report they were doing at least okay financially or that they had high levels of life satisfaction.
Table 25. Financial well-being and life satisfaction among retirees (by marital status and disability status)
|Characteristic||At least doing okay financially||High life satisfaction|
Note: Among retirees.
Retirement Savings among Non-Retirees
Although three-fourths of non-retired adults had at least some retirement savings, about one-fourth did not have any (figure 43). This share has remained nearly unchanged since 2019. Among those with retirement savings, these savings were most frequently in defined contribution plans, such as a 401(k) or 403(b), with 55 percent of non-retired adults having money in such a plan. These accounts were more than twice as common as traditional defined benefit pension plans. Fifty-two percent of non-retirees had retirement savings outside of formal retirement accounts, up from 48 percent of non-retirees who reported having such accounts in 2020.
While most non-retired adults had some type of retirement savings, only 40 percent of non-retirees thought their retirement saving was on track. Still, the share of non-retirees who thought their retirement saving was on track increased in 2021, from 36 percent who thought their saving was on track in 2020 and 37 percent who thought their retirement savings were on track in 2019. Because retirement saving strategies differ by circumstances and age, survey respondents assessed whether or not they felt that they were on track, but they defined that for themselves.
Retirement savings and perceived preparedness differed across demographic groups. Younger adults were both less likely to have retirement savings and to view their savings as on track than older adults. Compared with all non-retirees, Black and Hispanic non-retirees were less likely to have retirement savings and to view their retirement savings as on track, while White and Asian non-retirees were more likely to have such savings and say they were on track (table 26).
Table 26. Retirement saving and self-assessed preparedness (by age, race/ethnicity, and disability status)
|Characteristic||Any retirement savings||Retirement savings on track|
Note: Among non-retirees.
The lower rates of savings among Black and Hispanic non-retirees partly reflect the fact that Black and Hispanic adults were, on average, younger than the non-retired population overall. Even within age cohorts, however, significant differences remained in retirement savings by race and ethnicity, consistent with patterns seen in previous years.
Non-retirees with a disability were also less likely to have retirement savings and to view their savings as on track. Among non-retirees with a disability, only 49 percent had retirement savings and 17 percent viewed their savings as on track. Adults with a disability have a lower rate of employment compared with adults without a disability. (See box 1 for more on the employment experiences of adults with a disability during the pandemic.) In addition, adults with a disability who receive means-tested benefits may face asset limits that would deter holding any savings they may have accrued.63
Occasionally, retirement savings can also act as a source of emergency funds for non-retirees who face economic hardships. Overall, 8 percent of non-retired adults tapped their retirement savings—a slight decrease from 2020. Yet, 14 percent of non-retired adults who had experienced a layoff in 2021 borrowed or cashed out funds from their retirement savings. Even so, some non-retirees who may have a need for a reserve fund to weather a hardship may not have retirement savings or may have already tapped such savings. Forty-three percent of non-retirees who experienced a layoff in the prior 12 months did not have self-directed retirement savings at the time of the survey, compared with 26 percent of non-retirees who did not experience a layoff.
Non-retirees with smaller account balances were more likely to have borrowed from, or cashed out, funds from their retirement accounts in the prior 12 months (figure 44). Twelve percent of those with account balances under $50,000 borrowed from, or cashed out, these accounts, compared with 7 percent of those with account values of $50,000 or more. While tapping retirement funds could result in smaller account balances, or the exhaustion of such reserves altogether, adults with lower income (and likely with lower account balances) were more likely to experience shocks that could prompt them to tap retirement reserves early.64
Self-directed retirement accounts frequently have complex rules on withdrawals and rely on individuals to have the skills and knowledge required to manage their own investments. Non-retirees with self-directed retirement savings varied in their comfort with making investment decisions for their accounts. Nearly 6 in 10 non-retirees with self-directed retirement savings expressed low levels of comfort in making investment decisions with their accounts.
Among those non-retirees with self-directed savings, a higher share of men were comfortable managing their retirement investments compared to women (figure 45). Sixty-four percent of men with a bachelor's degree were mostly or very comfortable making investment decisions, compared to 33 percent of women with this level of education who were mostly or very comfortable. In fact, the 33 percent of women with a bachelor's degree who were comfortable investing was similar to the 37 percent of men with a high school degree or less who expressed the same level of comfort.
Financial Literacy and Experience with Investments
To get some sense of individuals' financial knowledge, respondents were asked three questions—on interest, inflation, and risk diversification, respectively—that are commonly used as measures of financial literacy (figure 46).65
Higher shares of adults provided correct answers to questions about interest and inflation than to the question on risk diversification. The average number of correct answers was 1.8 out of 3, and 34 percent of adults got all three correct.
Self-assessed comfort in managing investments was correlated with these measures of financial literacy. Among those with self-directed retirement accounts, on average, those who expressed comfort with managing their investments answered a larger share of questions correctly (78 percent) than those who expressed little or no comfort (59 percent) (table 27). Notably, the share of incorrect answers did not vary much with investment comfort. Instead, the number of "don't know" responses fell as investment comfort rose. Overall, however, non-retirees with such accounts still answered more financial literacy questions correctly, on average, than either non-retirees who did not have such accounts or people who were already retired.
Table 27. Financial literacy (by retirement savings and comfort investing)
|Presence of retirement savings and level of investing comfort||Correct||Incorrect||Don't know/Refused|
|Has self-directed retirement savings||67||7||26|
|Mostly or very comfortable investing||78||7||15|
|Not or slightly comfortable investing||59||8||33|
|No self-directed retirement savings||32||11||56|
Note: Among the one-half of respondents who were asked the questions including "Don't know" as an answer choice.
Gender differences in financial literacy mirrored differences in being comfortable with the investment decisions. Women, on average, answered a lower share of financial literacy questions correctly (52 percent) than men (66 percent). Women were also more likely to select "don't know" or to skip questions (39 percent) than men (26 percent). As a result, women, on average, had lower levels of financial literacy by this measure. Some evidence suggests that one driver of this gender difference may relate to different levels of experience with financial decisions.66
Financial knowledge appears to be correlated with experience with other investments as well. On average, people who own individual stock answered 77 percent of the financial literacy questions correctly. Those who have self-directed retirement savings, but no individual stocks, answered 59 percent correctly, and those with no self-directed retirement savings or stock holdings answered 32 percent correctly.
The high financial literacy scores among those who own individual stocks is particularly notable since one of the questions asks if owning individual stocks is riskier than owning a stock mutual fund. Sixty-three percent of stock owners correctly answered that it is riskier to own an individual stock, whereas just 33 percent of people who do not own individual stocks answered this question correctly. Consequently, many people who own individual stocks appear to be aware of this additional risk and either view the benefits as outweighing the risk or see the individual stocks as part of their broader investment portfolio.
Financial well-being is higher among people with higher rates of financial knowledge. Among those who answered all three of the financial literacy questions correctly, 89 percent were doing at least okay financially, whereas a lower 64 percent of those who did not answer any of the questions correctly were doing at least okay financially (figure 47). This positive relationship between financial well-being and financial literacy remains even when looking at people with the same level of education, although the magnitude of differences shrinks. Nevertheless, at least a portion of the increase in well-being with additional financial knowledge is likely attributable to other factors rather than to differences in financial knowledge alone.
59. In this report, descriptions of current retirees include everyone who reported being retired, including those who also reported that they are working. Return to text
60. Other recent data have shown an increase in retirements during the pandemic. In part, the difference in findings is because retirees in the SHED include some who are retired while also working in some capacity, as well as some who are retired but provide other reasons—such as health limitations—as the reason for not working. An alternative definition of retirement focuses only on older adults who are not working and who say the reason they are not working is because they are retired. By this measure in the SHED, 51 percent of adults age 55 or older were retired in 2021—a share that edged up over the course of the pandemic from 48 percent in 2019 and 49 percent in 2020—consistent with results from the Current Population Survey using a similar definition (Richard Fry, "Amid the Pandemic, a Rising Share of Older U.S. Adults Are Now Retired," web page, Pew Research Center 2021, https://www.pewresearch.org/fact-tank/2021/11/04/amid-the-pandemic-a-rising-share-of-older-u-s-adults-are-now-retired/). Return to text
61. The type of pension was not specified, so pension income may include income from defined benefit plans, which pay a fixed monthly amount, and defined contribution plans, such as 401(k) and 403(b) plans. Return to text
62. About one-third of retirees were not married, and about one-fourth of retirees had a disability. Return to text
63. SSI and Social Security Disability Insurance (SSDI) are federal programs to support adults with a disability who meet medical and other requirements. SSI recipients must have limited income and resources, but SSDI recipients do not have to meet income and resource limits to qualify for benefits. See Social Security Administration, Red Book: A Summary Guide to Employment Supports for Persons with Disabilities Under the Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) Programs, January 2020, https://www.ssa.gov/redbook/. Return to text
64. For more on early withdrawals and the relationship with economic shocks and income, see Robert Argento, Victoria L. Bryant, and John Sabelhaus, "Early Withdrawals from Retirement Accounts during the Great Recession," Contemporary Economic Policy 33, no. 1 (March 2013), https://www.researchgate.net/publication/254969212_Early_Withdrawals_from_Retirement_Accounts_during_the_Great_Recession. Return to text
65. These questions were developed by Annamaria Lusardi and Olivia Mitchell (see "Financial Literacy around the World: An Overview," Journal of Pension Economics and Finance 10, no. 4 (2011): 497–508) and have been widely used to study financial literacy. In the 2021 SHED, half of the respondents received the questions and answer choices developed by Lusardi and Mitchell, and the results reported here reflect their responses. The other half of the respondents received the same questions without the "don't know" answer option. Full question wording is available in appendix A and results from the group who received the alternative formulation are included in appendix B of the appendixes to this report. Return to text
66. Some of the gender gap in financial literacy may relate to specialization in financial tasks within a household, with women being less likely to handle the finances. Joanne Hsu finds that women's financial literacy increases after the death of a spouse (see "Aging and Strategic Learning: The Impact of Spousal Incentives on Financial Literacy," Journal of Human Resources 51(4) (Fall 2016): 1036–67). Return to text
* The Federal Reserve adjusted this report on February 2, 2023.“At least doing okay financially (by number of financial literacy questions answered correctly),” the text “Key identifies bars in order from left to right” was removed from the footnote.