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Practice Management

Is Social Security Really All There Is for 4 in 10 Retirees?

Not so much, according to a recent analysis that disputes that finding and points out that there are a wealth of studies and statistics whose conclusion is quite different and not as dire.

In “Factcheck: Do 40% Of Retirees Rely On Social Security For Their Entire Income?” an analysis appearing in Forbes, American Enterprise Institute resident scholar Andrew Biggs discusses a recent finding by the National Institute for Retirement Security (NIRS) that for 40.2% of older Americans, Social Security is the only source of income during retirement. “If true that’s very worrying,” writes Biggs. “But does this frightening factoid hold up?” he asks.

The NIRS, Biggs notes, draws upon the Census Bureau’s Survey of Income and Program Participation (SIPP). In the SIPP, he observes, the questions the Census Bureau asks include the sources of income.

But Biggs cites other federal government sources that provide information very different from that on which the NIRS relies. For instance:

  • Social Security Administration researchers, who Biggs notes also used the SIPP as a source, in 2017 found that for less than half as many — 19.6% of Americans age 65 and older — Social Security comprised 90% of their income. “Clearly, there’s a conflict,” Biggs writes. And he indicates that this is not a statistic that bespeaks a dire situation: from a policy standpoint, he argues, one-fifth of retirees depending that heavily on Social Security “isn’t a huge problem” and notes that Social Security was intended to provide retirement benefits for workers who found it difficult to save.
  • Two Census Bureau economists analyzed retirement incomes using federal tax records in 2017 and found that an even smaller percentage of Americans age 65 and older — 12% — derived 90% of their income from Social Security.
  • The 2017 Census Bureau study also found that even for retiree households in the lowest 40% of income Social Security benefits and Supplemental Security Income (SSI) combined accounted for just 79% of their income.

Why? And How?

So why did the NIRS arrive at its conclusion that 40% of older Americans derive their retirement income only from Social Security? Biggs says that it’s difficult to absent “recreating NIRS’s data from scratch,” but he has a few suggestions.

NIRS defines “retiree” and “income” differently than the SSA and the Census Bureau. NIRS, Biggs says, look at Americans age 60 and older who work less than 30 hours per week, while other such studies look at all Americans age 65 and above. In addition, he says, the NIRS:

  • does not consider any earnings by those 60 or older as making them less dependent on Social Security; and
  • counts only Social Security benefits, traditional defined benefit plan payments and payments from 401(k)-style defined contribution retirement accounts as retirement income; whereas many retirees also receive income from interest and dividends from sources other than retirement accounts.

NIRS also relies on SIPPS’s pension and retirement supplement, in which those surveyed report on their other sources of retirement income, Biggs says, observing that retirees in other such studies do not always do a good job of reporting their income sources.

Biggs argues that one can “safely conclude” that the NIRS finding is incorrect, based on government agencies’ analysis.