I have a piece in today’s Wall Street Journal looking at new research showing that retiree’s incomes are substantially higher than previously thought. I’ve argued in other pieces that household surveys, in which respondents are asked how much income they receive from various sources, significantly underestimate the incomes retirees receive from private retirement plans like DB pensions and 401(k)s. As a result, incomes seem lower, poverty rates higher, and retirees more dependent on Social Security benefits.
But new research from two Census Bureau economists instead uses IRS tax data, which is much more accurate. They find a number of very interesting facts with regard to retirement incomes:
- Incomes are substantially higher you’d think from relying on the usual household survey data.
- The percentage of Americans who are receiving private retirement plans benefits is increasing, and those benefits are rising.
- Most retirees have incomes that very closely match their pre-retirement incomes, far exceeding the 70% “replacement rate” that financial advisors recommend.
You can find some of the article here at AEI’s webpage; the full piece will be posted there in a few days.
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1 comment:
"according to my analysis of data from the National Income and Product Accounts, payments out of private retirement accounts, after adjusting for inflation, have nearly tripled since 1984."
...
"The data showed that in 1984 only 23% of households received benefits from private retirement plans. By 2007 that had risen to 45%. Moreover, during the same period the benefits that the median household received from private plans rose by 141% above inflation, versus only 25% for Social Security benefits."
I would think that in 1984 we are looking at an "immature" private retirement account no different than social security up until the mid 70's.
When was the first IRA first available or the first 401K. 4-6 years is not much time to save much. Now 33 years later I would think that the system is nearly mature.
My first contribution to an IRA was in 1983. 34 years later it is still growing and I have taken nothing out.
This is a meaningless data point.
"The program is 25% underfunded over the long term, the Congressional Budget Office projects. Yes, Social Security should be protected for the poor, even expanded to dramatically reduce the number of retirees in poverty."
Prove it is only 25% under funded? The SSA's own Mid projection population file shows the measured Worker to Beneficiary ratio will fall to 2.1 by 2080 which is less than 75 years from now. You either are using linear math or have not run the numbers yourself. My model using the SSA's mid level population file clearly shows the payable scheduled benefit in 2065 to be 60%. That is a 40% benefit cut. I do not believe the SSA or the CBO. People who are so called experts need to actually start from scratch, and calculate individual cohort costs, individual cohort wages, individual cohort bend points and apply the SSA mid projection population file and run the numbers instead instead of equalizing the raw data by CPI or a discount value.
Compound gradients need to be handled differently.
In 2001 I came up with a similar value for median incomes for retirees. I do agree that the potential to do far better than Social Security with a 10.03% OASI payroll tax would be better in the workers hands than the SSA.
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