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Revising Our Thinking on Retirement IncomeC. Adam Bee and Joshua Mitchell, two economists at the Census Bureau, recently released an analysis of retirement income that qualitatively changes our understanding of the well-being of retirees. The analysis matched administrative data (essentially tax filings) with the reported income in the Current Population Survey (CPS), which has been the standard basis for the measurement of household income, including retirement income.
Bee and Mitchell found that the income of households in the administrative data was substantially higher than what was reported in the CPS. The overall median for households over age 65 in the administrative data was $44,371 in 2012 (the year that was the basis of their analysis), 30.4 percent higher than the $34,037 reported in the CPS for the same households. Their analysis found sharply higher incomes at all points along the income distribution than what was reported in the CPS. They also show a corresponding reduction in poverty rates among older households.
This is good and important news. While there is much room for additional analysis based on the Bee and Mitchell findings, there are two points that jump out. First, defined benefit (DB) pensions have been more effective in supporting retirement incomes than we had realized. This is good news. The second point is not good. There is nothing in the Bee and Mitchell analysis that suggests we had been overly pessimistic about the extent to which defined contribution (DC) pensions will provide adequate income to future retirees.
On the first point, by far the largest single source of the gap between the income as measured in the administrative data and income as measured in the CPS is uncounted income from DB pensions. This is due to both the fact that many people who receive a DB benefit do not report it on the CPS and also that many people who do receive a DB benefit under-report the amount.[1] Bee and Mitchell find that DB pensions make a large contribution to the income of older households for the 3rd decile and above in the income distribution. Their results are shown in the table below.
Administrative Data | CPS Data | ||||||
Income Decile | Income | DB | DB | Income | Retirement | Retirement | |
Income | Share | Income | Share | ||||
First | $7,518 | $376 | 5% | $6,630 | $332 | 5% | |
Second | $13,046 | $652 | 5% | $11,620 | $465 | 4% | |
Third | $18,841 | $2,073 | 11% | $15,381 | $923 | 6% | |
Fourth | $25,171 | $4,531 | 18% | $19,604 | $1,960 | 10% | |
Fifth | $32,505 | $7,151 | 22% | $25,075 | $4,012 | 16% | |
Sixth | $41,819 | $11,291 | 27% | $31,757 | $6,987 | 22% | |
Seventh | $52,646 | $14,214 | 27% | $40,793 | $10,606 | 26% | |
Eighth | $67,436 | $20,231 | 30% | $54,286 | $15,200 | 28% | |
Nineth | $92,249 | $25,830 | 28% | $76,677 | $21,470 | 28% | |
Tenth | $230,579 | $46,116 | 20% | $172,800 | $32,832 | 19% |
Source: Bee and Mitchell 2017, Table 9.
CEPR / September 10, 2017
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