From Dustin Woodard,
Your Guide to Mutual Funds.
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A January 2006 EBRI study shows how older population's income has changed from 1987 to 2004. Their main point is that reliance upon social security increases as one gets older, which is even truer today then it was in 1987. Looking over their data, I find some other interesting items that show how times have changed.

Good News
First I'll start with the good news. Compared to 1987, the income levels for those over 65 have increased. In 1987, the average 65-69 year-old made $13,576. In 2004, they made $28,082. Taking into account inflation, as measured by the consumer price index (CPI), their income boost was around 24% ($13,576 in '87 is worth $22,575, which is $5,507 less than what this age group made in 2004). Here's a breakdown of gains in income by age group:

• 65-69: Average income increased 24%
• 70-74: Average income increased 11%
• 75-79: Average income increased 11%
• 80-84: Average income increased 10%
• 85+: Average income increased 14%

Neutral News
Social security income and pension or annuity incomes haven't change much as a percentage of total income. The 80-84 and 85+ groups did see a significant jump in pension and annuity incomes, but one thing to remember is that they were part of the 65-69 year-old group in the '87 study (which had the highest pension and annuity percentages of all groups in 1987).

Bad News
The bad news is in the income sources. Income from assets (stocks, bonds, funds, real estate, etc.) has dropped for all age groups. Take a look at these comparisons:

• 65-69: Avg. income from assets went from 20% in '87 to 12% in '04
• 70-74: Avg. income from assets went from 26% in '87 to 12% in '04.
• 75-79: Avg. income from assets went from 28% in '87 to 14% in '04.
• 80-84: Avg. income from assets went from 31% in '87 to 15% in '04.
• 85+: Avg. income from assets went from 32% in '87 to 14% in '04.

So if their portfolios aren't doing nearly what they used to, where are they getting their money? Well, some of it is reliance on social security and pensions (more on this later), but another disturbing trend is for the older generations to work more. Earnings have gone up in all age groups, but it is the 65-74 year-olds that seem to be working in what used to be consider a retirement age. In '87, 65-69 year-olds earned 26% of their income, but in '04 they earned 37% of their income (an 11% increase). As for 70-74 year-olds, 12% of their income came from earnings in '87, but in '04, 24% of their income came from earnings (a 12% increase).

Worst News
Younger workers today can't rely on pensions (which are almost extinct) and social security (which is expected to go extinct as well). Today's older generations heavily rely upon these two income sources and rely on them even more than they did in 1987. Take a how important those two sources were in 2004 for those over 70:

• 70-74: social security plus pensions represented 62% of their income.
• 75-79: social security plus pensions represented 70% of their income.
• 80-84: social security plus pensions represented 75% of their income.
• 85+: social security plus pensions represented 80% of their income.

If social security and pensions are eliminated, today's workforce must rely on income from assets or earnings. This highlights how important 401ks and IRAs are. If you are not investing for retirement, you may never have one!

Source: Distribution of Older Populations's Average Annual Income - EBRI