Are America’s seniors secretly rich?

By Michael Hiltzik,

That’s the implication of an op-ed in Thursday’s Wall Street Journal, which says that figures on retiree incomes used by the Social Security Administration systematically misses as much as 60% of the income that seniors receive. That income, they say, is IRA and pension (especially 401(k)) income.

The goal of the authors, independent benefits consultant Sylvester J. Schieber and American Enterprise Institute scholar Andrew G. Biggs, is to question the growing consensus by progressives that Social Security needs to be expanded to meet the needs of present and future retirees. The consensus is based on statistics showing that the program is the major source of income for most of the elderly — at least 90% of the income for nearly half of unmarried retirees, for example — and that the elderly are increasingly strapped as they enter retirement and grow much worse off as they age. The most prominent backer of this view is Sen. Elizabeth Warren (D-Mass).

If there’s a supply of wealth and income that isn’t being counted, of course, that’s a different story.

The question is whether the authors’ findings hold true for most retirees. There’s reason to believe they don’t.

It’s proper to observe that Schieber and Biggs are both longtime critics of Social Security. But they’re both serious students of the program, and their assertions should be judged on their own terms.

The core of the authors’ argument is that Social Security relies on income data from the Census Bureau’s annual Current Population Survey — The discrepancy is large in the aggregate, they observe: For 2008, the CPS reported that retirees collected $5.6 billion in individual IRA income and $222 billion from pensions and annuities, but retired households reported $111 billion in IRA income and $457 billion in pension and annuity income to the IRS.

One question about this finding is raised by progressive economist Dean Baker, who observes that other commonly used surveys of household income that do count the “missed” income sources come to roughly the same conclusions about the financial status of the elderly as the CPS.

How much richer are they than we thought, and who among them is really getting all this money? That’s where the Biggs and Schieber analysis may be most seriously flawed.

… on average, we’re talking about $4,513 per household in uncounted IRA income and $10,056 in pension and annuity income. That might be considered a significant bump up in income, measured against Social Security benefits that topped out at $26,220 a year in 2008. (The maximum is $31,704 this year.) But of course IRA and pension income isn’t evenly distributed across the income spectrum. Like most asset-based income, it clusters toward the top end of the lifetime income scale.

…certainly the poorest retirees … their pension and IRA income is sure to be minimal, not likely to amount to a significant share of total income.

So the question remains, are American seniors really rich? The answer from Schieber’s work is: For the most part, no. For a median retiree, his article states that the Social Security Administration counted his or her household income as $29,757 and the IRS data placed it at $34,530.

It’s true, as he wrote there, that “official government reports on the income status of retirees ignore hundreds of billions of dollars of their income.” But that doesn’t support Biggs’ and Schieber’s implication that this means American retirees aren’t facing real financial trouble, or that Social Security isn’t still the hook on which the retirement security of most individual Americans depends.

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