Skip to main content

You are here

Advertisement

401(k)s Got Short Shrift in Census Bureau Data

A widely used government surveys of retirement income turns out to have been undercounting income from 401(k)s and individual retirement accounts (IRAs).

The U.S. Census Bureau’s Current Population Survey (CPS), a primary source of income data for those whose ages are associated with being retired, in its most recent iteration included a redesigned set of questions aimed at better capturing income from IRAs and 401(k)-type plans, among other goals.

Research has shown that this survey has misclassified certain types of income and generally underreported retirement income because the questions did not properly ask about income from sources that did not provide an annuity payment, such as has been traditionally paid from DB plans. In essence, the survey only classified as pension income money that was paid to individuals in the form of a regular stream of income. That meant that those who relied on the CPS as a source of information about retirement income (and retirement income adequacy) would have been missing what has been an increasingly important source of retirement income for Americans.

An analysis by the nonpartisan Employee Benefits Research Institute (EBRI) found that, compared with the estimated amount under the traditional-income questions for 2013, the redesigned questions have resulted in an estimated total annual income 9.1% larger for those ages 65 or older, an aggregate amount of almost an additional $133 billion. Retirement income is 27.9% larger, an aggregate difference of almost $71 billion.

In fact, the traditional CPS measure underreported IRA and 401(k)-type income by more than 250%.

Those with IRAs, 401(k)-type plan and DB pension income from private- and public-sector employers are more likely to be in the upper-income quartiles because they are far more likely to have these sources. Consequently, those who both had access and took advantage of these plans are the ones with higher amounts of this income in retirement — and not necessarily those who had the highest overall incomes prior to retirement.

However, even with the higher amounts of income identified under the new income measure, Social Security remains by far the predominant source of income for those ages 65 or older. More than 60% of individuals in the lowest two income quartiles received more than 90% of their total income from Social Security.

Advertisement