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Retiree Income is Higher Than We Thought

By W. Andrew Larson, CPC

Trigger warning: This blog post highlights some good and, sadly, unheralded-news about retiree income, Social Security dependence and poverty among the elderly. If good new is upsetting to you please don’t continue.

Maybe you missed it but some good retirement-related news came out recently. It seems that retiree income is actually higher than previously thought, according to a study by the Social Security Administration (SSA) . In fact, according to the information, retiree income levels where quite a bit higher than reported in other studies. In this blog we will review these findings and explore why retiree income was undercounted according to the SSA. Our source of information is the study, Improving the Measurement of Retirement Income of the Aged Population. [1]

This ORES Working Paper No. 116 published by Irena Dushi and Brad Trenkamp came out in January 2021.Before we dig into the data, it is important to understand the entities  involved with this study. As noted, the study was an “ORES” paper. ORES is the Office of Research, Evaluation and Statistics of the SSA. The paper was unique in that it compiled data from multiple sources to obtain as complete a picture of retiree income as is feasible. To date the most commonly used data on retiree income is published by the Census Bureau and is known as the Current Population Survey (CPS) Annual Social and Economic Supplement (ASEC) [2]. The ORES study extended the retiree income exploration beyond the ASEC data and included IRS database information along with the  Health and Retirement Study [3] (HRS). Once the data was compiled a more complete view of retiree income was noted with clearly positive findings.

ORES compared the various data sets to determine if the ASEC study accurately captured retiree income sources and levels. When the multiple data sets were compared with the ASEC report it was apparent that certain retirement income sources were not being taken into account. Surprisingly, the missing income pieces included distributions from IRAs, qualified plans and pensions. When these elements were added to the calculations retiree income increased by about 30 percent . To quote the study “…[the study] showed that the difference in estimated income is mainly due to underreporting of retirement income (from both defined benefit pensions and defined contribution retirement account withdrawals) and that the discrepancy in median income between survey and administrative data increased from about 20 percent in 1990 to about 30 percent in 2012. This finding reveals that the discrepancy, attributable mainly to CPS’s failure to capture retirement account distributions, arose at a time when retirement accounts and withdrawals from such accounts became more prevalent.”

This makes sense; as time goes on, retirees will have had additional time to accumulate retirement assets in IRAs and qualified accounts and the gap should increase if changes in the ASEC methodology are not forthcoming.

The ORES data also demonstrates somewhat less dependency on Social Security retirement benefits. Policymakers have expressed concern over the numbers of retirees who have virtually no retirement income or assets other than Social Security benefits. Specifically, in the original ASEC report 26 percent of retirees receive at least 90 percent of their income from Social Security benefits. Once the additional retirement savings income is included, this number decreases to 12 percent−clearly a big improvement on the Social Security dependency issue.

Recall the original intent of the Social Security system was the reduction of poverty among the elderly. Under the study, if we look at the most expansive data set, the post-age-65 poverty rate is 7.1 percent. Certainly, by that standard, the system can claim success in reducing the poverty rate.

Retiree Income Range Percentage
Less than 5,000 0.8
5,000–9,999 3.6
10,000–14,999 5.5
15,000–19,999 5.6
20,000–24,999 5.6
25,000–29,999 5.3
30,000–34,999 5.2
35,000–39,999 5.8
40,000–44,999 4.7
45,000–49,999 4.3
50,000–74,999 18.2 62.7%
75,000–99,999 12.5
100,000 or more 23.0


In summary, the SSA’s ORES paper has provided positive insights into how retirees are faring from an overall income perspective. These figures illustrate the current retirement system’s ability to help most (nearly 63%, see above) workers create a reasonable-more than $40,000 per year- retirement income. The system is not perfect but it is increasingly effective at delivering adequate retirement outcomes to most workers. That said let’s not be complacent; we can do more to support workers efforts towards achieving retirement income security.  Initiatives could include more auto enrollment and escalation features, practical retirement and financial education and innovative retirement income products. Gloom and doom may sell media advertising but let’s take some comfort in the fact that the retirement system seems to be on a better path that we may have thought.