Are Retired Americans Better Off Than We Think?
Two new reports challenge common assumptions about the number of retirees living in poverty, arguing that retiree income data from government studies are misleading because they do not consider underreporting or income derived from private retirement plans. The studies from the Investment Company Institute and economists from the U.S. Census Bureau make the case that poverty among America’s seniors is not as widespread as is commonly believed.
At an event at the American Enterprise Institute last week, Census Bureau economist Joshua Mitchell argued that this gap is mainly due to retirees failing to report retirement savings from defined benefit pensions and retirement account withdrawals.
“People tend to report their income better when they spend that income,” said Mitchell. Since retirees often have multiple separate income streams, he argued, they may not reliably report it to the Social Security Administration (SSA).
He disputed the SSA’s claim that one-third of Social Security recipients receive 90 percent or more of their income from the program. After adjusting for unreported income, Mitchell finds that just 18 percent of recipients are that heavily reliant on Social Security benefits — half of the figure reported by the SSA.
It all adds up to his finding that the median income for the typical retiree is 30 percent greater than reported by the U.S. Census Bureau: $44,400 versus $33,848. With this “corrected income data,” says Mitchell, the 2012 poverty rate among seniors reported by the Census drops from 9.1 percent to 6.9 percent.
Peter Brady, senior economist at the Investment Company Institute, also presented findings that indicated most retirees have multiple reliable income streams, despite what they may report. Brady said that in examining the five-year period before individuals received their first Social Security benefits, “81 percent of individuals in 2010 had income either directly or through a spouse from retirement plans, annuities or IRAs.”
The claims made by Brady and Mitchell diverge from reports by organizations that advocate for aging Americans. The National Council on Aging (NOA) says that more accurate measures of economic well-being, such as the Elder Economic Security Standard Index and the Institute on Assets and Social Policy’s Senior Financial Stability Index, show that millions of retirees struggle to meet their monthly expenses even though they live above the federal poverty level and are not technically considered “poor.” NOA also reports that one-third of senior households struggle with debt—a consideration that is missing from the Brady and Mitchell reports.
Brady acknowledges that debt is an important consideration and expressed some skepticism that government benefits alone would help the poorest Americans after they retire.
“The Social Security system has a very progressive benefit structure at which retirees at the bottom are making pretty much what they were making before with a bit of additional income,” said Brady. “The retirement system is probably not going to counteract incomes pre-retirement.”