America Needs A Fact-Based Retirement Debate. Part 2.

In Half 1 of my response to Sen. Bernie Sanders and economist Teresa Ghilarducci, I defined why Sanders’ favourite and most compelling factoid – that just about half of Individuals approaching retirement have zero financial savings – is outright false, one thing Sanders ought to have identified for years.

Nevertheless it’s not a couple of single factoid. In arguing that the U.S. retirement system doesn’t work, Sanders and Ghilarducci make a number of different claims which might be equally incorrect, albeit for a unique purpose. The U.S. retirement system – each non-public financial savings and Social Safety – is each massively essential and massively costly. This isn’t private to me. I like Teresa very a lot. And who is aware of, possibly Bernie and I’d hit it off. He’s grumpy, I’m grumpy.

However we very a lot want to make use of correct knowledge to know if the U.S. retirement system is working properly. However just one facet of the retirement debate is doing it.

Think about these figures taken from Teresa’s article, two of which quote Sanders whereas the third is Teresa’s personal:

• “Roughly 52 p.c of Individuals 65 and older ‘live on lower than $30,000 yearly, and one in 4 survive on lower than $15,000 per 12 months.’”
• “Almost 17 million older Individuals aged 65 and up are financially insecure, under 200% of poverty — that’s almost one-third; greater than 10 p.c are in poverty.”
• “The elder poverty charge has been stubbornly regular at round 10 p.c over the previous 30 years, and rose from 8.9 to 10.2 p.c from 2020 to 2022.”

All of those claims cite knowledge from the U.S. Census Bureau’s Present Inhabitants Survey (CPS). In mild of those figures, solely a idiot – as an example, me – would deny the looming retirement disaster.

And but every of those claims is inaccurate, a incontrovertible fact that the Census Bureau itself acknowledges. Correct knowledge inform a wholly totally different story.

Let’s begin at first. In a 2012 Wall Road Journal op-ed, Sylvester Schieber and I identified that the Present Inhabitants Survey reported that Individuals 65 and older collected $228 billion in earnings from IRAs, employer-sponsored retirement plans, and annuities. IRS knowledge, nevertheless, confirmed that Individuals acquired $568 billion from these similar sources. Now, Individuals aren’t telling the IRS they’re receiving extra earnings than they really do. This suggests that the CPS, the supply of Sanders’ and Ghilarducci’s factoids, captures solely about 40% of the advantages paid by non-public retirement plans.

The U.S. Census Bureau took these issues significantly. In 2017, two Census economists, Adam Bee and Joshua Mitchell, revealed a groundbreaking study that linked CPS survey responses with IRS information. This linkage let the 2 researchers evaluate the earnings the CPS reported for a given family versus what IRS knowledge confirmed.

What Bee and Mitchell discovered was startling, most likely probably the most vital piece of retirement analysis up to now decade: the median retiree’s true earnings in 2012 was 30 p.c larger than measured within the CPS. The true aged poverty charge wasn’t the 9.1% reported within the CPS, however simply 6.9%. Since 2017 the Bee-Mitchell research has been cited nearly 150 instances by different lecturers.

And the Census Bureau has not stopped: in 2023 it launched the primary iteration of its Nationwide Experimental Wellbeing Statistics (NEWS
EWS
), an ongoing challenge that makes use of “all accessible survey, administrative, and industrial knowledge” to “present the absolute best estimates of our nation and economic system.” The initials NEWS knowledge launch confirmed that “For homeowners aged 65 and over [in 2018], median family earnings is 27.3 p.c larger, and poverty is 3.3 proportion factors decrease than in [CPS] survey estimates.” That’s an enormous deal.

Social Safety Administration economists validated this strategy, discovering related outcomes. For example, whereas the CPS reported that solely 47% of 65+ households acquired advantages from a personal retirement plan, IRS knowledge confirmed that 69% truly did.

And personal retirement plan advantages are the basis of the CPS’s earnings measurement downside. The principle purpose: the Census Bureau defines “earnings” as funds acquired “frequently.” Which means that as-needed withdrawals from a retirement account aren’t counted as “earnings.” And since seniors are more and more drawing advantages from retirement accounts, the CPS’s underestimation of retirees’ true incomes has grown bigger over time.

Bernie Sanders and Teresa Ghilarducci apparently dwell in a world the place none of this analysis has occurred.

So what do extra correct knowledge inform us in regards to the claims Sanders and Ghilarducci make?

The publicly-released Census NEWS knowledge don’t allow us to exactly test Sanders declare that 52% of 65+ have incomes under $30,000 and one-in-four lower than $15,000. However 52% signifies a determine near the median, and we all know that the true median earnings for seniors is 27% larger than within the CPS knowledge Sanders cites. So Sanders’ declare is nearly definitely incorrect.

What about Sanders’ factoid that just about one-third of older Individuals have incomes under 200% of poverty? Nicely, Bee and Mitchell’s research discovered that the CPS reported 33.4% of seniors had incomes under 200% of poverty. However IRS knowledge confirmed that solely 23.6% did. So, improper once more.

What about Teresa’s declare that senior poverty “has been stubbornly regular at round 10 p.c over the previous 30 years.” That is maybe the most important downside. In response to the Census Bureau’s Bee and Mitchell, 9.7% of seniors had sub-poverty degree incomes in 1990. By 2018 the aged poverty charge had fallen to six.4%. Over the identical interval Teresa cites we’ve seen a greater than one-third discount within the threat of retiring poor. That’s a wholly totally different narrative.

Now, I don’t anticipate everybody to pay attention to these knowledge points. For example, for years the Social Safety Administration claimed, primarily based on CPS figures, that as much as 36% of seniors acquired almost all their incomes from Social Safety. When Bee and Mitchell checked these statistics utilizing IRS knowledge, they discovered that simply 12% acquired 90% or extra of their incomes from Social Safety. That’s an enormous distinction, however you may’t anticipate the person on the street to know the analysis.

However Sanders is a Senate committee chair with a workers able to producing a 21-page report that includes 94 footnotes. Ghilarducci is a tenured professor specializing in retirement points.

They need to know higher than to quote knowledge we all know with certainty to be inaccurate. We owe individuals a greater retirement debate than they’re getting.