Experts: ‘Retirement Crisis’ Concerns Might Be Overblown

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.

Sabelhaus said the Survey of Consumer Finances (SCF) might be better suited to capture retiree income and account flows. The SCF captures data on the income and wealth of U.S. families, including IRAs and 401(k)s.


Using the SCF reveals that resources available to retirees are more substantial than the CPS suggests. The increases for low-income individuals, however, are substantially smaller than those at the top of the income distribution.

He said the shift from defined-benefit plans to defined-contribution plans will only increase the need to measure retirement income and financial status in a different way.

Sabelhaus also noted that the demographic profile of retirees might be evolving as well. He said the increased participation of people age 65 and older in the workforce not only changes the definition of a retiree, it also increases their income and may have an impact on the solvency of Social Security.

President Obama plans to ask Congress to reduce tax benefits for high-earning 401(k) investors as part of his 2015 budget. The president wants to limit the value of all tax deductions, defined contribution exclusions and IRA deductions to 28 percent of income.


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