Most people lean heavily on Social Security during retirement, but for advisors able to position themselves as retirement experts, the growth in 401(k)s could prove a windfall as people who currently work start to retire, according to Ken McDonnell, director of the American Savings Education Council at the Employee Benefit Research Institute.

At 40%, Social Security makes up the bulk of older people’s income, according to a new report from EBRI based on the latest U.S. Census Bureau data. Pensions and annuities make up just 20% of income for people age 65 and older; earnings and wages make up 26%; and income from assets accounts for 13%.

In terms of distribution of income, 89% of older people receive income from Social Security, 55% of people earn income on assets, 35% have pensions or annuities and 20% still work.

Median income is just $18,001, although that paltry amount is actually the highest in the Census Bureau’s time series. In today’s dollars, median earnings stood at $13,264 in 1974 and $17,085 in 2004. The median income for workers under 65 is $50,233.

Elderly women rely on Social Security more than elderly men — it accounts for 48% of women’s income compared to 34% for men. More of older men’s income comes from pensions and annuities, 22% compared to 17% of women’s income.

McDonnell said that the data really hasn’t changed much since 1975, the earliest his data goes back — three-fifths of lower quintile earners derive 60% of their income or more from Social Security and 2% from work. The upper quintile earners, the people advisors are likely to target, derive 40% of their income from work, and the longer people work, the more they’ll put into their 401(k)s, which will create relatively large lump sums for which people will need advice.

“There will be a subsequent increase in demand by people needing assistance in managing this money throughout their retirement,” McDonnell said.


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