Retirement income studies that vary wildly can be summed up this way: The rich have more money stored away than it’s being reported; the rest of us don’t.
There may be a twist on the topic of retirement income: Are America’s retirees better off financially than many of us think?
That’s the debate that’s taking place among researchers and analysts who track data of how much Americans are saving. Most of the reports and stories talk about how people aren’t saving enough and how they’re going to have to keep working to maintain their standard of living. From time to time a report will surface and I’ll write about it as well saying the doomsayers are wrong and that people are in much better shape than what many researchers are reporting.
What’s driving the debate and who’s right about the future of retirees?
Alicia Munnell, director of the Center for Retirement Services at Boston College says what’s causing the confusion is how US Census Bureau surveys aren’t capturing most of the 401(k) and IRA income of people.
It’s pretty dramatic because in 2012 the Census Bureau reported $18 billion in income for 401(k) and IRA income — a number that’s well below the $220 billion numbers of the Federal Reserve and $229 billion of the IRS, Munnell says.
What are researchers and analysts supposed to think when there’s such a discrepancy in numbers and people are trying to portray an accurate picture of what’s happening. If the Census numbers are underreported, than America’s retirees much be in better shape than most people think.
Munnell says we shouldn’t be fooled by the numbers even though retirement savings is underreported. That’s been a problem since the trend has been for companies to move away from pensions and into contribution plans like a 401(k).
“Because low-and middle-income households have little 401(k) and IRA assets, the underreporting is minimal for these groups,” Munnell says. “The main problem occurs in the top (income groups).”
So, in essence, the numbers, even though they’re underreported overall, are a good measure of income for the typical middle class household, Munnell says.
“The problem with the reporting is largely concentrated among upper-income households, which hold most of the 401(k) wealth,” Munnell says.
So when you hear reports that retirees are better off than many people think, they’re really talking about the upper end of the income scale. The statistics are underreporting how much money that group is stashing away from retirement.
Munnell says studies show that most retirees don’t start taking money of their retirement plans until their early 70s when they’re subjected to penalties if they fail to take out some of the funds.
The numbers are dramatic in showing much people are saving in their income groups, Munnell says.
Those between the ages of 65 to 84 at the bottom of the income scale have virtually no 401(k) savings. It shows an average of $206. That increases to $11,376 on average to $17,392 for the next highest income groups that are part of the middle class.
The fourth highest income group that’s part of the upper middle class has $69,225 in 401(k) holdings on average. The highest income group that’s been underreported has $400,647
The numbers for those 65 to 84 also holds true when it comes to annual income for those five groups with the lowest receiving $10,651 a year. That increases to $20.367 and $30,009 for the middle class, $41,558 for the upper middle class and $67,685 for the highest income group, the center says.
The younger the greater the annual income with those 65 to 69 earning $32,160 on average a year. It falls to $31,979 for those 70 to 74 and $27,628 for those 75 to 79. Those 80 to 84 have an annual income of $24,000 a year the center says.
What surveys show is how important Social Security is to the lower and middle class households, Munnell says.
The lowest income scale relies on Social Security for 90 percent of their retirement income. That falls to about 80 percent and 70 percent of middle class, 50 percent for the upper middle class and 30 percent of the highest income bracket.