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Do Seniors Have More Income Than We Think?

Being prepared not just for a rainy day but for years — perhaps many years — of post-workforce life drives strategies and safety nets. And analyses often warn that all the effort is insufficient. But panelists at a recent discussion concerning studies on retirement income suggest that the prospects for many are really quite good.

At “What Can IRS Data Tell Us About Retirement Income?,” a recent program at the American Enterprise Institute (AEI), a panel of experts discussed how older Americans are doing financially in retirement.

Panel participants included Bruce Meyer, AEI visiting scholar and McCormick Foundation Professor at the University of Chicago Harris School of Public Policy; Kevin Moore, chief of the Microeconomic Surveys Section of the Federal Reserve Board; Joshua Mitchell, senior economist at the Census Bureau; Peter Brady, senior economist in the Retirement and Investor Research Division at the Investment Company Institute (ICI); and moderator AEI Resident Scholar Andrew Biggs.

The event focused on two recent research studies: one by Brady and his ICI colleague Steven Bass and Jessica Holland and Kevin Pierce of the IRS’ Statistics of Income Division, and one by Mitchell and his Census Bureau colleague Adam Bee. Both draw on IRS data; the Census Bureau study also employs information from the bureau as well as the Social Security Administration.

The studies, says the AEI, show that an increasing number of seniors are receiving private retirement plan benefits and that retirees’ incomes are substantially higher than had been believed. “This new research will cause us to reassess how many retirees are living in poverty and how well-equipped retirees are to maintain their preretirement standard of living,” says the AEI.

“Some survey data show that retirees receive only meager incomes from private retirement plans, leaving many seniors highly dependent on Social Security benefits. But better data tell a much more encouraging story,” says the AEI in its discussion of the event.


In their paper, Mitchell and Bee conclude that the measurement of median incomes and poverty rates for older Americans has been meaningfully affected by retirement income underreporting. They aver that IRA withdrawals generally are not addressed by the Census Bureau’s traditional Current Population Survey Annual Social and Economic Supplement (CPS ASEC), and add that it is “also noteworthy that defined benefit retirement income is also underreported.” At the AEI event, Mitchell also attributed the underreporting to additional factors, including demographic variables, survey design features and the nature of reporting on the Form 1099.

Retirement Income and Sources

Mitchell said that in their research, he and Bee found that retirement income for those age 65 and older was generally higher than the CPS. Brady and his fellow researchers made a similar finding; he reported that they found that retirement income increased after claiming Social Security benefits for more than 70% of those in their study. He suggested that “retirement is best thought of as a transitional period, not a point in time.”  Not only that, “most people are able to maintain their standard of living after they start taking Social Security,” said Brady. Moore concurred, remarking, “It looks like retirement income is higher than we thought,” as did Meyer, who said, “Median income for those 65+ is higher than we thought.”

Brady noted that there are many sources of retirement income, such as Social Security, pension distributions, annuities and IRA distributions, and that he and the other researchers in the ICI study found that most people are able to support themselves in retirement. Mitchell said that income from DB plans during retirement was the “highest single income source” according to the Census Bureau’s administrative records. Moore also emphasized the importance of DB plan payments, but noted that is changing for younger workers, for whom defined contribution plan income is increasing in importance.

Both Brady and Mitchell noted that they found that the relative importance of Social Security increased as retirement income levels decreased, and that it comprised the highest percentage of retirement income for the lowest income decile. Brady disputed the notion that Social Security is the sole financial resource retirees have, saying that the ICI study found that “Nearly 90% received non-Social Security retirement income or had evidence of retirement resources.”

“The elderly are much better off than they appear,” asserted Meyer. Not only that, said Meyer in the materials he distributed to attendees, “those at the bottom have more resources than we think.”

A Caveat

While the studies’ results may suggest that things are better than is popularly thought, that may not remain the case. Mitchell cautioned that they “cannot extrapolate beyond [the data from] 2012,” and Moore said that the current results “may not hold in the future.”