Robert Samuelson told readers in his latest column that we need not worry that people are undersaving for retirement. Unfortunately this conclusion rests largely on a confused reading of the data.
Samuelson starts by telling readers:
"In 2010, roughly 80 percent of households headed by someone 65 to 74 owned their homes reports, economist Peter Brady of the Investment Company Institute, the trade group for mutual funds. ... For all homeowners, median home equity — the amount not owed on the mortgage — was $120,000."
Another way of putting this is that 60 percent of households in the 65-74 age group had less than $120,000 of equity in their home. With the median house price now near $200,000 this means that many of the 80 percent who owned homes still had far to go to pay them off.
"To supplement Social Security, retirees can borrow against their home equity. They can also draw on retiree savings from defined benefit pensions, individual retirement accounts (IRAs) and 401(k) accounts. In 2010, almost three-quarters of households aged 55 to 64 had some combination of these retirement vehicles. The median value of the IRA and 401(k) accounts was $100,000, Brady says."
It is interesting that Mr. Brady says that almost three-quarters of people in the age group 55-64 either had retirement accounts or defined benefit pensions. (Note that we have shifted age groups here to one with lower rates of homeownership and less equity in their homes.) The Federal Reserve Board put the percentage of people in this age group with a retirement account at 59.6 percent, with a median holding of $100,000. This means that 70 percent of people in this age group had less than $100,000 in assets. If we assume this will be drawn down over a 20 year period, it implies annual income of roughly $5,000 a year or $400 a month.
That's better than nothing, but if the only other source of income is a Social Security check that averages $1,300 a month, this will not get people very far. And, 70 percent of retirees will have less.
Then Samuelson tells us:
"The poorest quarter of the elderly rely on Social Security for 85 percent of their income, notes economist James Poterba of the Massachusetts Institute of Technology."
That's funny, because the Social Security Administration tells us that 36 percent of the elderly rely on Social Security for more than 90 percent of their income. Andrew Biggs has correctly noted that these data do not count withdrawals from retirement accounts as income, but is likely that most of the people who are reported as relying on Social Security for more than 90 percent of their income are among the portion of the population that doesn't own a retirement account.
Finally, Samuelson reports on a subjective assessment of well-being:
"Older Americans feel better about their finances than any other age group, report surveys by NORC at the University of Chicago. In 2012, 80 percent of those 65 and over were “satisfied” or “more or less satisfied” with their financial situation compared with only 67 percent of those aged 50 to 64. Other age groups also lagged; comparable results date to the 1970s."
Okay, now we are back with the over 65 group, who Samuelson notes consider themselves to be doing much better than do the 50-64 age group. There are two points worth noting here. First, the 50-64 age group are the ones that consider themselves to be doing worst among the four age groups in the survey. The next worst off group by their self perception was the 35-49 age group in which 71.2 reported being "satisfied" or "more or less satisfied' with their situation. This means that if our focus is the soon to be retired, they are not doing well by this measure.
The other point is that perceptions of well-being among seniors have fallen sharply in the last three decades. In the 1980 survey, 85.9 percent of people over age 65 were in the satisfied or relatively satisfied categories. Among people in the 50-64 age group, 78.2 percent reported being in these categories. In short, if we take this survey seriously as an assessment of the well-being of older workers and retirees, the news is not good.
The reality, which none of the data in Samuelson's piece challenges is that most retirees can expect Social Security to provide most of their income. That is enough to keep them out of poverty, but it is not an especially comfortable standard of living. And if benefits are cut from currently projected levels, the standard of living of retirees will be even lower.