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Home Publications Blogs Beat the Press Robert Samuelson Is Badly Confused About the Well-Being of Retirees

Robert Samuelson Is Badly Confused About the Well-Being of Retirees

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Sunday, 27 April 2014 20:03

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.

Samuelson continues:

"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.

Comments (5)Add Comment
Feel the squeeze ...
written by Squeezed Turnip, April 27, 2014 9:33
Samuelson confuses interest payment on mortgages as income for the asset holders. I bet he doesn't even know that household debt is still too high*, but, then, Samuelson's often confused.

* a la Krugman:
...
written by JDM, April 27, 2014 10:02
Even if you accept his numbers, and count only those with 120,000 in home equity that they want to tap completely (say in a reverse mortgage) and another 100,000 in a retirement account, that's about an extra $1000/month. Very nice, that $12 grand. Yet don't I remember constant stories about how hard it is to live on $250 grand a year?

Why is it so much easier for these oldsters, even if they did have $1000 plus $1300 in social security. That adds up to about 1/10th of the "it's so hard living on" amount.
...
written by PeonInChief, April 28, 2014 12:04
First, the over-65 group includes a lot of people who were in the last generation where a substantial minority received defined-benefit pensions. Those in the 55-64 group aren't going to have those pensions and, if they don't have a substantial retirement fund, face a meager retirement. Second, for most people, a reverse mortgage will only give seniors a small portion of their equity. In addition to fees and interest, reverse mortgages only pay about 60% of the equity. (Yes, this is a very good deal for those who make the mortgages, not so much for the seniors who take them on.
Wait, what? "median", 60%, 70%???
written by oaguabonita, April 28, 2014 9:43
My grad school transcript's 20ish hours of stats courses would attest that I am not statistically innumerate.

Yet these statements baffle me:

'"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.'

Likewise:

"'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.

I could be wrong! (It could happen!) But the definition of "median" that I recall is that it splits the distribution in half -- half of cases above and half below the median value. (In fact, I'm pretty sure this is the only accepted definition of "median"!) So where do the 60% and 70% mentioned above come from???

Inquiring minds want to know.
Simple Arithmetic
written by AlanInAZ, April 28, 2014 10:09
@oaguabonita

Only 60% of the group have any retirement account and half of them have less than $100,000. This means 30% have more than $100,000 and 30% have accounts between $100,000 and zero. The remaining 40% of the group have no accounts. Adding 30% with less than $100,000 in their accounts to the 40% with no account gives 70% with less than $100,000.

Similarly, in the first case 80% own homes and 20% do not. Half of the 80% have less than $120,000 equity. Adding the 40% with less than $120,000 equity to the 20% that do not own gives 60% with less than $120,000 equity.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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