How much income do retirees really have?
The Center for Retirement Research investigated whether under-reporting of retirement income is a common occurrence.
In the great debate over retirement preparedness, which comes down heavily on the side of many workers being poorly, if at all, prepared, arguments surface from time to time that perhaps the picture isn’t as gloomy as it’s generally made out to be.
According to a brief from the Center for Retirement Research at Boston College, recent research “has redocumented that the Census Bureau’s Current Population Survey (CPS) understates retirement income.”
This has caused doubt about the results of other surveys, which has led some to question “decades of research” that posit the poor preparation of workers to retire.
So researchers examined the four other surveys that have been called into question to see whether underreporting of retirement income is a common failing, or solely the province of the CPS.
Comparing administrative data from the Internal Revenue Service and the Social Security Administration to measures of retirement income reported in the CPS, researchers also examined the four other commonly used datasets:
- Survey of Consumer Finances
- Health and Retirement Study
- Panel Survey of Income Dynamics
- Survey of Income and Program Participation
They then took into account the purpose of each survey as well as differences in frequency and formats.
Researchers then compared the retirement income from each dataset with aggregate administrative data.
Then each dataset was compared with administrative data across the income distribution.
In addition, to see whether retirees would truly have enough financial resources in retirement, they estimated the replacement rate—a ratio of postretirement income to preretirement income.
The general rule of thumb in determining whether retirement income will be enough is that households should target a replacement rate of roughly 75 percent to maintain the same standard of living in retirement.
Researchers found that while the percentage of households at risk of not having enough income in retirement varies by definition, all the replacement rates suggest that about half of households—between 42 and 60 percent—may fall short.
Results of the study indicate that while “recent research suggests that older households may have a lot more income than is captured in survey data, those results are unique to the CPS,” the brief concludes.
It adds, “Other survey data provide income estimates that are much more consistent with administrative data and still suggest that about half of households face a retirement shortfall.”
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