Facts Versus Factoids

 “What if the entire retirement-crisis narrative playing out in opinion polls, the government, and the media was a massive case of confirmation bias?”

That’s the provocative position of an intriguing new white paper titled “America’s ‘Retirement Crisis’: The Emperor Has No Clothes” by Andrew Biggs.[i]  Readers of my work will note that with frightening regularity there are any number of assertions, “studies” and surveys all painting a dismal picture of the state of the nation’s retirement—each and every one embraced and promoted with attention-grabbing headlines without so much as a question as to the veracity of the underlying data, the logic of the conclusions drawn, or the motivations of the proponents that have drawn them.

Consequently, I was delighted to come across this paper that provides a detailed, thoughtful, and data-driven analysis that focuses on a number of points that have been made (and uncritically trumpeted by the media) by none other than Teresa Ghilarducci[ii]—points that Biggs’ analysis concludes are “either trivial or inaccurate.” More specifically, he comments that these “points that are true do not necessarily lead to the conclusion that Americans have undersaved for retirement, while other points that could potentially lead to such conclusions are not factually accurate.”

Here are the 10 claims asserted by Ghilarducci/Cook in an Op-Ed (calling for folks to “urgently get over our retirement crisis denial” along with a pitch for the ironically named “Retirement Savings for Americans Act”)—and Biggs’ data-driven responses.

Claim 1: The Poorest Portion of Americans Do Not Have Sufficient Savings

It’s not so much that the statement is inaccurate—but Biggs argues that “their problem was not that they failed to save enough for retirement; it was that they were poor throughout their lives.” While noting that he has long argued for increasing Social Security benefits for the lowest-income retirees, he explains that “these households’ unusual predicament says nothing about their own retirement savings, much less about the US retirement system as a whole.”

Claim 2: 10% of Seniors Live in Poverty

This claim Biggs acknowledges is accurate “if we exclude the income seniors receive from retirement accounts such as individual retirement accounts (IRAs) and 401(k)s.” Biggs doesn’t accuse Ghilarducci (and Christopher Cook) of deliberately glossing over this significant point, though he does point out that this “shortcoming” in poverty measures for seniors “has been well-known by retirement experts for over a decade.” 

Well-known, and well-documented, as it turns out, and Biggs provides a half-dozen written acknowledgements of that shortcoming over the years. Among those, he cites a 2012 report by Social Security Administration researchers that pointed to that Census Bureau data as “greatly” unreported distributions from DC plans and IRAs, “posing an increasing problem for measuring retirement income in the future.”

Perhaps more significantly, Biggs cites information from a new dataset put together by the Census Bureau that finds not only that “The true median income of households age 65 and over increased from $43,700 in the CPS to $55,610 in the more accurate NEWS dataset, while the incidence of poverty fell from 9.75 percent to 6.42 percent.” In other words, even by those measures, seniors’ risk of poverty fell by more than one-third over a 28-year period “in which seemingly everyone came to believe the US retirement system was doomed,” Biggs writes—oh, and the annual income of the median households age 65 and older increased by 32% over that same period.

Claim 3: Retirees Are Subject to Exorbitant Long-Term Care Costs   

Ghilarducci (and Cook) claim that the average American turning 65 today will incur $120,900 in future long-term services and paid care—an assertion Biggs characterizes as a “hall-of-fame level of misdirection”—and he’s kind in applying that label.

Biggs explains that the $120,900 figure cited by Ghilarducci is the total cost of long-term care, not the cost borne by seniors—EVEN THOUGH the source Ghilarducci relies on “makes clear that $120,900 is the sum of costs covered by Medicaid, other public programs, private insurance, and, finally, out-of-pocket expenditures.” Instead, Biggs notes that the true average out-of-pocket cost to seniors beginning retirement at age 65 is $24,029—and that’s NOT per year, but over their entire retirement.

Claim 4: Middle-Income Retirees Are at High Risk of Downward Mobility

Biggs notes a couple of issues with this assertion; that it’s meaningless (it’s widely accepted that individuals can maintain that lifestyle in retirement on less than 100% of pre-retirement income, hence the common targets) and—“it’s almost surely false.”

To that point, Biggs challenges Ghilarducci’s claim that 40% of seniors will see their incomes drop below 200% of the poverty line—pointing to a 2017 Census Bureau study that tracked household income five years before and after retirement—and ultimately concluding that (only) about 4.1% of near-retirees with incomes above 200% of the poverty line would meet Ghilarducci’s definition of “downwardly mobile, less than one-tenth the number she projects,” according to Biggs.

Claim 5: Seniors Cannot Afford Emergencies 

“Roughly half of Americans (49.4%) aged 55–64 say they could not afford an emergency of more than $2,000.”

Once again, a statement that is factually accurate is being misapplied to retirees. Biggs notes that while only 23% of respondents aged 18–24 could handle a $2,000 emergency bill, and just 47% of respondents aged 45–54 felt capable, more than two-thirds (68%) of 75-and-over households stated they could do so. “The fact that not every retiree can cover every financial emergency using cash says nothing negative about the US retirement system, since seniors are far better able to weather financial emergencies than are younger adults,” Biggs notes.

Claim 6: The United States Has a Low Ranking in the Melbourne Mercer Global Pension Index

Admittedly, this one is a pet peeve of mine. The index has been published for a bit over a decade now, and the U.S. winds up in the lower-middle grouping—Biggs comments that “this index should be treated with caution because it is not a measure of a retirement system’s results. Rather, it measures the features of a retirement system that pension consultants tend to favor.”

Biggs notes that the U.S. gets “dinged” for things like “not requiring that retirees annuitize part of their savings, even though Social Security benefits—which form the base of retirement income for everyone and the majority of income for lower-earning households—are already paid out as a lifelong inflation-indexed annuity.” He also notes that if you look not at design but at results, you get a whole different perspective. Among the data points he cites is this one: for median disposable incomes of residents aged 65 and above, the U.S. ranked second…after the tiny tax haven of Luxembourg. 

Claim 7: Too Many Seniors Claim Social Security Early

The claim here by Ghilarducci is that “Due to financial pressures and inadequate retirement savings, 1 in 5 seniors claim Social Security before their full retirement age, thus losing up to 30 percent of their full benefit.” As Biggs notes, “there’s a lot to unpack,” specifically “one (claimed) fact, that ‘1 in 5 seniors claim Social Security before their full retirement age’; one (claimed) cause, that these Social Security claiming patterns are ‘due to financial pressures and inadequate retirement savings,’ and one (claimed) consequence, of seniors ‘losing up to 30 percent of their full benefit.’” 

As it turns out, the 1 in 5 is understated—Biggs says it’s actually closer to 1 in 2. But then, he states what should be obvious; that people claim when they do for lots of reasons. Moreover, he notes that as recently as 2005, 74% of retirees claimed benefits before their full[iii] retirement age, “a far higher rate than today despite the Social Security retirement age in 2005 being nearly two years lower than at present.” He also comments that “whatever the reason for early Social Security claiming, fewer Americans are doing it today than they were in the past.”

Claim 8: Available Jobs to Retirees Are Physically Demanding

To Ghilarducci’s claim that “More than 25 percent of older white workers and over 40 percent of older Black and Hispanic workers toil in physically demanding jobs,” Biggs comments that “the question isn’t whether Americans can work forever—we know they can’t—but whether today’s older workers can remain in the workforce longer than they did in the past.”

Among other studies, Biggs shares data from the Social Security Administration that—based on a definition that the job required regularly lifting up to 50 pounds—the share of retirees who were last employed in physically demanding occupations declined from 20.3% in 1950 to 9.1% in 1980—and that researchers at the Urban Institute updated these figures through 1996, finding a further decline to 7.5%. 

Claim 9: Widespread Retirement Anxiety

Biggs acknowledges that “Some people worry about retirement because they are not well prepared for retirement,” and that worrying about retirement planning is “fully understandable” even among those who are on track. But he then points to reports from EBRI, the RAND Corporation, and Gallup that revealed that individuals’ worries about retirement faded dramatically once they were actually IN retirement. He turned to the same Federal Reserve data on which Ghilarducci based her claims (caution—this is self-reported data), which revealed that while in 2013, 36% of Americans aged 55–64 reported they were “finding it hard to get by” or “just getting by,” but by 2021, when that group was approximately age 65–74, only 16% reported the same financial condition.

“Similarly, the share reporting they were ‘living comfortably’ increased by 22 percentage points,” Biggs explains. “If Americans nearing retirement in 2013 possessed inadequate savings and thus had something to truly worry about, one would expect nearly the opposite results.”

One can’t help but note that one big reason people might be worried about retirement is the merciless flow of scary headlines and interviews with prophets of doom…telling them they should be worried…

Claim 10: Retirement Income Has Flatlined

To this one, Biggs observes calmly, “If retirees are so poor, their savings so low, and their incomes so stagnant, how has their spending risen by 29 percent above inflation over 18 years? How did they afford it? Where did the money come from?” 

It’s really a rhetorical question—and one that he answered earlier: “Household surveys using the Census Bureau’s definition of ‘money income’—that is, only money received on a regular basis, while excluding the vast majority of withdrawals from IRAs and 401(k)s—dramatically understate retirees’ true incomes. The Consumer Expenditure Survey (CES), which is the source of Ghilarducci’s claim, uses the Census Bureau definition that fails to count most retirement account withdrawals as income.”

“According to Census Bureau research using IRS data, the median 65-and-older household in 2004 had an annual income of about $44,810, expressed in 2018 dollars,” Biggs writes. But by 2018, median incomes had increased to $55,610, implying an annual rate of increase of about 1.55% above inflation—and assuming that same rate of increase (1.55%), Biggs observes that the median 65-and-older income in 2021 would have been $59,149 in 2018 dollars—a 32% increase since 2004. “So, is it shocking that retiree households’ spending increased by 29 percent over a period when their incomes increased by approximately 32 percent? Not at all. Once again, a seemingly devastating factoid presented by Ghilarducci turns out to be a big ‘meh.’” Though I’d have a different adjective in mind.

Biggs closes the piece with a section titled “What Do Retirees Say?” where he notes that while he’s prepared to take the Federal Reserve data noted earlier, and take the 3% of 65-74-year-olds who say they are “finding it difficult to get by” as those actually in a retirement crisis. He groups together the 37% who say they are doing “ok” and the 49% (yes, 49%) who say they are “living comfortably” as having enough (there’s another 12% who describe their situation as “just getting by”). Ghilarducci took issue with this assessment (she actually referred to his stance as a “wave of denial”) deigning only to count the 49% as having adequate income. Fortunately, Biggs has done his homework here as well, and cites plenty of research to back the notion that financial security does seem to increase with age.

The Bottom Line

Biggs classifies the debate here as one between facts and factoids, noting that “most of Ghilarducci’s 10 factoids are either true but trivial or nontrivial but untrue.” The claim that one-fifth of retirees have less than $100,000 in net worth and no pensions is more or less true, but it not only doesn’t prove the U.S. retirement system is in crisis, “it doesn’t even prove that these specific households face a retirement crisis, given that the Federal Reserve’s data show they have higher incomes in retirement than they did before retiring,” Biggs notes. 

Among the untrue assertions: 10% of seniors live in poverty, that the typical retiree will pay anything approaching $120,000 for long-term care, or that retirement incomes flatlined in recent decades.

“What the discussion over retirement policy needs is not factoids but facts—that is, accurate answers to relevant questions that shed light on the underlying issues being examined,” Biggs notes. “There is no need to turn upside down a retirement system that by objective measures is among the most successful in the world.”

Amen to that.

- Nevin E. Adams, JD

[i] Biggs, a senior fellow at the American Enterprise Institute, was previously the principal deputy commissioner of the Social Security Administration (SSA), where he oversaw SSA’s policy research efforts.

[ii] Most recently in an Op-Ed published in The Hill with Christopher D. Cook, a senior writer for The Schwartz Center for Economic Policy Analysis (SCEPA). Teresa Ghilarducci is, of course, a professor of economics at The New School for Social Research and author of “Work, Retire, Repeat.”

[iii] Noting the Employee Benefit Research Institute’s (EBRI) Retirement Confidence Survey that found that more than a third (35%) retired early because they could afford to do so.