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Experts: ‘Retirement Crisis’ Concerns Might Be Overblown

Census Bureau survey does not account for at least 95 percent of IRA distributions and at least half of pension and annuity income.

Rodrigo Sermeño


March 6, 2014 - 11:38 pm
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WASHINGTON – Experts have cautioned against concerns over a retirement crisis, saying the most commonly cited measure of retirement income ignores a large portion of the money retirees receive.

Recently, many pundits and policymakers have expressed much concern about the U.S. retirement system. They argue that the United States is facing a crisis due to the shift over the past three decades from defined-benefit pensions to defined-contribution savings plans. They also worry Americans do not seem to save enough when they are working and in retirement their meager pension income will force them to rely on Social Security.

In response, several lawmakers have proposed changes to Social Security and the U.S. pension system.

Sens. Elizabeth Warren (D-Mass.) and Sherrod Brown (D-Ohio) have proposed increasing Social Security benefits, despite the program facing a deficit over the next 10 years.

Sen. Tom Harkin (D-Iowa), who helped legitimize the term “retirement crisis” after releasing a report on the issue in 2012, unveiled legislation last month that would offer retirement plans to Americans who are without access to workplace retirement plans or are self-employed. The Iowa Democrat has also introduced a bill that would increase Social Security benefits.

But according to former Chairman of the Social Security Advisory Board Sylvester Schieber, the narrative advanced by those who worry about a retirement crisis in the U.S. is partly based on bad data.

Schieber and his colleague Billie Jean Miller found that the data ignores retirees’ growing private retirement savings and income and this, in turn, distorts private pensions’ role and makes assessments of the financial health of retirees inaccurate.

In their paper, Schieber and Miller argue that information on income from retirement plans provided by the Current Population Survey (CPS), a study by the Census Bureau, and the Social Security Administration is incomplete, which suggests that the retirement crisis may not be as bad as some might think.

“The CPS is clearly missing a great deal of retirement income,” Schieber said recently at the American Enterprise Institute. “There is very substantial amounts of income here that are not being captured, and it’s pension and IRA income.”

Schieber said the perception of a retirement crisis is largely based on the CPS, which forms the basis of the Social Security Administration’s Income of the Aged publication series.

The CPS measures the sources and amounts of income received by American households, including income from retirement plans. The Census Bureau’s income includes only pension payments made on a regular basis – like a traditional defined benefit pension or a monthly annuity payment. Other irregular payments, such as withdrawal from individual retirement accounts (IRAs) and payments from defined-benefit pensions, are not counted as income.

“The policy prescriptions and analyses that ignore them are distorting the perceived economic welfare and situation that the [retired] portion of the population is currently facing,” Schieber said.

To arrive to their conclusion, Schieber and Miller looked at Internal Revenue Service federal tax data and compared it with CPS data.

For 2008, the CPS captured only $5.6 billion in individual IRA income. Retirees themselves reported $111 billion in IRA income to the Internal Revenue Service. The CPS reported that in 2008, households receiving Social Security benefits collected $222 billion in pensions or annuity income. But federal tax filings for 2008 show that these same households received $457 billion of pension or annuity income.

“The system that we are not counting income from is by far the overwhelming and largest portion of the retirement system today,” Schieber said. “And if we want to know how people are doing in economic terms during their retirement, it seems to me we must begin to focus on trying to count that.”

Schieber stressed that he is not contending that retirees at the bottom of the income distribution are getting a lot of money out these plans, but rather that the tax filings are a “reality check” on the CPS numbers.

Schieber noted that in its statistics, the CPS does not account for at least 95 percent of IRA distributions and at least half of pension and annuity income.

“Measurement is everything here,” said John Sabelhaus, chief of the Federal Reserve’s Microeconomic Surveys Section.

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All Comments   (7)
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In other words, it will be useful for the government to impose Means Testing for SSA eligibility and tell those that saved money for retirement that they shoulda done like their neighbors and bought more new cars and took more vacations instead - because, "You don't need the money now and thus do not deserve getting back any or all of what you put in to the system - surprise!"
50 weeks ago
50 weeks ago Link To Comment
Saving for the future is one of those "bourgeois values" the left despises. So that they would advocate replacing personal saving with welfare programs of different kinds ought to be no surprise.
50 weeks ago
50 weeks ago Link To Comment
On the proposed increases in SSN, let me guess that it would help fund those with nothing, but those with something would not receive more, in fact would probably receive less in order to help fund the increase.

On the proposed limitation of contributions, I think our good buddy Romney may be the poster boy for that, with reports that he had between $20m and $102m (how's that for precision!) in his "IRA". That is, perhaps, an excessive sum to be given preferential tax treatment. I'd cap the total, not the contributions. In the small business world it can happen that an older guy with a small business has one or two great years when he can finally fund his own retirement, and being able to do this via defined benefit is completely fair.

Up to, oh, maybe $10m total.

Any more that he saves, he can save at normal tax rates.
50 weeks ago
50 weeks ago Link To Comment
They're also failing to consider the ameliorization to the retirement crisis that will be provided by the Obamacare death panels.
50 weeks ago
50 weeks ago Link To Comment
UCLA's Medical School is very worried about the lack of geriatric training in physicians who will treat the Boomers, which they call "the silver tsunami." See At the same time, they support ACA with enthusiasm.
50 weeks ago
50 weeks ago Link To Comment
Here is what I think is going on. When the people who particpate in the survey fill out the numbers, they use their tax return, but reference the column on the right, taxable amounts. This is what ends up as part of the adjusted gross income, the income numbers that are always cited in IRS data. See page 111 of this pub, which are the estimated data line counts for each 1040 line.

IRS Dist 216B, taxable amount 162B
Pensions and Annuities 845B, taxable amount 506B
Social Security 416B, taxable amount 168B

I have no idea how this relates to the numbers above, perhaps they are only the amounts for over 65. 111B for 65+ vs 162 total for IRA, 477B 65+ vs 506B total for pension and annuity. One thing to point out is that the IRS numbers referenced in the article are taxable amounts only, not the total, so even they are low. (They are counting only the part that is included in AGI). How the CPS ends up with such low numbers needs to be explained by looking at the survey response and the sources the person who filled it out used. But aside frm that, even the IRS numbers cited are low, because they are only the taxable amounts included in AGI, not the full amounts.

50 weeks ago
50 weeks ago Link To Comment
Nearly every "progressive" policy is based on either bad data or outright fabrication so it figures that the retirement-related issues are too. A few bones, though:
1. "...force people to rely on Social Security..." I've been paying SS taxes since 1976. My share has run 6-6.5% and my employer shares have been the same. Take 6% out of an ordinary family's income and see what they have left to save toward retirement -- it's a big chunk.
2. Any way you slice this issue, a smaller generation of Millenials and Gen-X or Gen-Y means that fewer working-age people have to support more retirees. However that may be funded, that's the reality.
51 weeks ago
51 weeks ago Link To Comment
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