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Home Publications Blogs Beat the Press The WSJ Says the Elderly Are Rich But We Didn't Know It (see correction)

The WSJ Says the Elderly Are Rich But We Didn't Know It (see correction)

Thursday, 23 January 2014 21:04

Sylvester Scheiber and Andrew Biggs have good news for us in a Wall Street Journal column, apparently the elderly are much better off than we realized.  Scheiber, a pension consultant and former chairman of the Social Security Advisory Board, and Biggs, an economist at the American Enterprise Institute and former Deputy Commissioner of the Social Security Administration, tell readers that the standard numbers on income for the elderly are way off.

The most commonly used measures of income are from the Census Bureau's Current Population Survey CPS). Scheiber and Biggs say that this survey misses a large portion of the income of retirees. For example, they tell readers:

"For 2008, the CPS reported $5.6 billion in individual IRA income. Retirees themselves reported $111 billion in IRA income to the Internal Revenue Service. The CPS suggests 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.

"In combined terms, the Current Population Survey that ostensibly documents how poorly pensions and individual retirement plans provide retirement income ignores at least 60% of the income being delivered to retirees. Even that is not the whole story—because tax filings do not include distributions from Roth plans, since those distributions are not taxable."

Scheiber and Biggs go on to complain about the use of the CPS to assess retiree income and suggest alternative sources which they say would be more accurate.

This is an interesting argument. It is certainly newsworthy when someone finds major flaws in the most widely used survey for measuring income. However before we join Scheiber and Biggs in demanding that the Social Security Administration and other official bodies discard the data from the CPS, we may want to think this one over a bit.

There is one major problem with the Scheiber-Biggs story: the CPS is not the only data set that gives us these sorts of numbers about the income of the elderly. The Census Bureau has a totally separate survey, the Survey on Income and Program Participation (SIPP) that yields largely similar numbers to the CPS.

For example, an analysis of SIPP data by Pew showed a median income for families over age 65 in 2010 of $43,400. While this is considerably higher than the $33,100 median shown in the CPS data, the Pew number is adjusted as though it were the income for a family of three. If we used the CPS figure and assumed that it was for a family of 2, the equivalent Pew figure would be $40,500. If the CPS number were for a single person household, then it would be reported as $57,300 in the Pew analysis. In other words, the Pew calculation based on SIPP data would almost certainly imply a lower income figure for median household income that the CPS.

The Federal Reserve Board's Survey of Consumer Finance (SCF) also shows numbers consistent with the CPS. The 2010 SCF shows a median household income for people between the ages of 65-74 of $42,700 and $29,100 for people 75 and over (Table 1). By comparison, the CPS showed median incomes of $39,800 for households between the ages of 65-74 and  $25,400 for households over the age of 75. While these numbers are somewhat higher than the data shown in the CPS, it does not qualitatively change our picture of the elderly population. If the median household over the age of 75 has an income of $29,100 no one will think that they are living well. (There are differences between the definition of "family" in the SCF and household in the CPS. I have not looked at their implications for measuring the income of seniors, but it is possible they explain some of the gap between the surveys.)

The SCF also has useful data on assets, exactly what Sheiber and Biggs claim the CPS is missing in the income data. (The SCF is designed first and foremost to measure wealth, so it would be surprising if its numbers on assets were far from the mark.) The 2010 SCF showed that 49.0 percent of families between the ages of 65-74 hold retirement accounts and 32.8 percent of families over age 75 have retirement accounts (Table 6). The median holdings for those who have retirement accounts was $100,000 for those between the ages of 65-74 and $54,000 for those over the age of 75. This means the SCF data imply that 75.5 percent of families between the ages of 65-74 have less than $100,000 in a retirement account. The data also imply that 83.6 percent of the families over age 75 have less than $54,000 in retirement accounts.

In short, the SCF data support the notion that, contrary to Scheiber and Biggs, the vast majority of seniors are not getting substantial income from retirement accounts. We should always be willing to scrutinize the data we use in assessing income and other measures of well-being, but this means bringing to bear all the data sources available. The picture of the elderly given by the CPS, and being used by most people in policy debates, is consistent with the picture given by other commonly used data sets, even if it doesn't fit well with the story told by Scheiber and Biggs.



Andrew Biggs has called my attention to the fact that the income data in the Pew study were in fact taken from the Current Population Survey. While the wealth data come from the SIPP, they did a separate analysis of the CPS for income data.

Comments (13)Add Comment
written by watermelonpunch, January 23, 2014 11:47
In short, the SCF data support the notion that, contrary to Scheiber and Biggs, the vast majority of seniors are not getting substantial income from retirement accounts.

And I daresay... the overwhelming majority of soon elderly-to-be, will not see anything like substantial income from retirement accounts.

I mean what's their point anyway?
That there are some seniors today that have the goose still hanging high... so then what?
Defined Contributions Was the Last Step in Wage Confiscation by the Economic Predators
written by Last Mover, January 24, 2014 5:03
WSJ says:
There is a widespread perception that most Americans are inadequately prepared for retirement. The story pushed by pundits and policy makers is that the shift over the past 30 years from defined-benefit pensions to defined-contribution savings plans such as 401(k)s has dramatically reduced retirement income to supplement the benefits provided by Social Security.

No. The story pushed by pundits and policymakers is the same story they pushed to convince Americans to switch from defined benefits to defined contributions long ago - on grounds that private sector investment up front provided superior returns compared to defined benefits or Social Security.

The same pundits and policy makers on mainstream media for years who were hawking dire warnings to Americans they didn't have enough retirement savings, that SS was going broke, that SS wasn't enough, that SS should be privatized.

The same pundits and policy makers who acted as advance con artists for the parasitic layers of recurring commissions and fees carefully built into defined contribution plans to hide the huge take and redistribution to the charlatan financial predators instead of the original investors.

The same pundits and policy makers who now lecture the nation that retirees are much better off than reported, that it all worked out in the end didn't it America. See, there's even enough left to cut SS and reduce the debt monster that's dragging everyone down isn't there.

Nice work by the predators, don't you think? They started driving down the wage share of productivity gains in the '70s and '80s on the front end, then they whittled down retirement benefits on the back end to finish off the middle class altogether.

If only they had privatized SS before the Great Recession hit, the economic massacre would have been over sooner, and with a clean break too. Then Scheiber and Biggs would be writing senior retirees are just about where they deserve to be aren't they.
written by Peter, January 24, 2014 9:33
I've been wondering about this since Schieber released this research as a newsletter on the company website.

I think the main point of Schieber is that the CPS is missing IRA income. Baker presents evidence that despite this, the CPS still provides information which is consistent with other surveys. So then the question is why is Schieber's data so different? Is there a shortcoming in the methodology? Or, is this a case of researchers seizing on the 1 in 100 study that produces results that they like due simply to random variation in the sample? (Like David Brooks citing a study showing minimum wage increases cause job losses.)

Either way - I'm just confused.

written by djb, January 24, 2014 10:19

biggs and scheiber are using totals with no evidence that they have taken into account the distribution of the income

and annuities can mean a lot of things

using the median income is a more accurate picture

so is it possible that the pension and annuity income of 457 billion is skewed largely to the top 1 percent like everything else
Roth IRA conversions, borrowing from IRAs and 1%ers
written by Mike Gottan Asterisk, January 24, 2014 10:38
all affect TAX recording of IRAs in ways that CPS is not likely to get in its sample.

So it is likely that Schieber has definition problems when comparing his CPS apples to IRS oranges.

The use of medians and averages also may also be an issue. Mitt Romney has really rich IRAs...way beyond what would be possible if you contributed the maximum each year and got respectable or even high rate of return. The totals reported by the IRS would include these "exceptional" assets (and distributions) but they would not show up in surveys.

The problem is with the IRS sample collected by Scheiber, even if there are some problems with the CPS and the intermittent IRA distributions not being captured.
I wonder if the data they are using include IRA shifts..
written by Mark Brucker, January 24, 2014 2:11
Last year my retirement income as defined by the IRS looked good...it included a lot of $ shifted from a regular IRA to a Roth. I wonder if that's part of what their using, data that include "income" that isn't really income, it's just shifting from one retirement pot to another.....
I should have said "they're" using, data....
written by Mark Brucker, January 24, 2014 2:30
I can't figure out a way to edit what I already posted.....
No confidence in either wealth surveys or IRS data
written by Sustainable Gains, January 24, 2014 3:48
It would take a lot to persuade me that ANY of these numbers was remotely accurate. The tax code is a morass of insane rules and perverse incentives, leading to distorted data. On the other hand, when surveying households or families, what incentives do people have to report honestly? The only person with a prayer of having accurate information is the one paying the bills, who may not be the one answering the phone. And those with wealth very likely do not want to advertise the fact to a random survey-taker.

What we do know is that to the equivalent cash value (purchase price) for an annuity equivalent to social security, or a lifetime medical insurance policy equivalent to medicare, would be hundreds of thousands if not millions of dollars. (Especially given the monopolistic, anti-fair-trade medical system we've set up.) Even if not in a 401K or bank account, that's real national wealth being allocated to support seniors.

I would also question this statement "If the median household over the age of 75 has an income of $29,100 no one will think that they are living well." Actually, I do think that would be living well. The median household over age 75 has only one person in it. The equivalent income for a "median household" in the age 30-55 range (which has 3 people in it) would be around $90,000. That's well above the actual median household income, and the younger households don't get free medical care (and are more likely to have to pay rent or a mortgage). Except in a few high-cost areas, a single person can live fairly well on $2500/month if the only expenses are food, clothing, upkeep and transportation. Recall also that retirees, who are not anchored to jobs, tend to live in the lower-cost southern states nowadays.
To SG: you're pretty much leaving out medical costs for seniors
written by Mark Brucker, January 24, 2014 3:55
Very few of whom get it free. And I don't know that the $2.5k per month you're talking about accounts for paying taxes....
written by denise, January 24, 2014 5:40
Sustainable Gains seems to be under the impression that old people get free medical care.
The CPS methodology is flawed.
written by Clif, January 24, 2014 9:59
The problem is that CPS and SIPP all rely on self reporting to measure income and huge chunk of the population is completely clueless about financial products. So for example a typical panel/survey question is something along the lines of "Over the last 3 month/one year, how much did you earn in dividend income.

The respondent has only the vaguest idea what a dividend is. They may have $300,000 in mutual funds, spread out over several accounts. But dividend and capital gains are automatically reinvested so they never have seen a dividend check. They answer None, instead of the correct answer of around $6,000. That is why panel/survey income is consistently lower than IRS income, which relies on computers transmitting information, rather than faulty human memory.
Median vs. Mean
written by Dave, January 25, 2014 7:14
Without even looking at any data I guessed this was mainly about median vs. mean calculations. IRA and pension income etc... is heavily biassed to the top of the income scale, and it goes into the hands of the few, which is just another example of our inequality problems.

This is why lots of rich people cannot see the problem with eliminating Social Security, because they just don't see the need. To them, Social Security is a joke as a retirement plan, just like the minimum wage is a joke as a means of supporting a family, so it is a problem for teens in their eyes.

The rich are out of touch with reality. Completely.
Didn't Bosworth and Burtless document this a while ago?
written by MS, January 28, 2014 11:52

And doesn't this imply that IRA in the high end of the income distributions might be getting too high tax expenditures? To quote B&B: "under the broadest measure of household income, aged and nonaged households appear to have similar incomes in the middle of the income distribution, and aged households have higher incomes than the nonaged both in the top quarter and the bottom
quarter of the income distribution."

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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.