The Real Retirement Crisis

  I recently picked up a book that states “why (almost) everything you know about the US retirement system is wrong” — and it’s definitely worth a read.

The book — titled The Real Retirement Crisis: Why (Almost) Everything You Know About the US Retirement System Is Wrong — is the work of American Enterprise Institute senior fellow Andrew Biggs — and it’s a comprehensive assessment of any number of the misstatements, mischaracterizations, flawed assumptions and downright obfuscations that plague any realistic assessment of the nation’s retirement system. Indeed, he argues that “factoids, however compelling, are no substitute for facts.”  

The Goal

Biggs outlines the goal of a retirement system as one that “allows individuals to maintain their preretirement standard of living in retirement.” In that regard, he (and academics generally) would say that lower-income individuals' preretirement are well-served by Social Security’s benefit structure. Indeed, the argument — based on a “lifecycle model,” with rational tradeoffs in terms of the present and future — means that some shouldn’t be saving — or expected to save — at the rates promoted. 

“Low earners and younger households are often saving for retirement in a textbook fashion, even if financial columnists and other well-intentioned but not well-informed commentators chide them for doing so,” he writes.

That said, the coverage of the nation’s retirement system in the media (and academia) is often skewered by both a misunderstanding of the past and present state of work and retirement and, sadly, many in the retirement industry itself suffer from the same myopia. 

Cost(s) of Bad Data

In a chapter titled “The Cost of Bad Data is the Illusion of Knowledge,” Biggs references a quote attributed (perhaps incorrectly) to Stephen Hawking — “the greatest enemy of knowledge is not ignorance, it is the illusion of knowledge.” Something that we hope those — both in “the industry” and out — are mindful of going forward.       

In that regard, Biggs devotes a fair amount of the book to delving into those misalignments of perception and understanding that distort an objective evaluation of the system, and its progress. He buttresses those points with actual tax data, sentiment surveys of actual retirees (rather than those who haven’t yet experienced the realities), and any number of studies based on objective, administrative data, which are well-documented in the 31 pages of footnotes. 

Now, if you’ve kept up with Mr. Biggs’ writing over the years (and I have), you’ll find a fair amount of the criticisms familiar, though this format[i] provides more space for things like charts and graphs — and there are those aplenty here. 

In it (among other things) he debunks the notion(s) that:

There was a “golden age of pensions” with data that affirms just how uncommon such things were in the private sector, how few individuals actually qualified for a full pension (due to things like job turnover and steep vesting schedules), and how the costs of those benefits were rationally deemed not to be worth the cost by corporations (later in the book he points out that a similar conclusion might well be drawn by public-sector pensions, were they held to the same funding and accounting standards imposed on the private sector).

A large number of the population is unable to work longer (granted, some can’t — but consider that even way back in 1940, the average Social Security claiming age was 68.1 for men and 67.4 for women — and as Biggs notes, at a time when manual labor was more prevalent, and age/gender discrimination was not barred).

Social Security is the primary income source for the vast majority of Americans. Biggs points out that government surveys (notably the Current Population Survey[ii]) understate income in retirement by only considering “income on a regular basis” — ignoring money drawn from retirement accounts. That, in turn, misstates the average income of retirees, the official poverty rate for retirees, AND the percentage of retirees who receive nearly all their income from Social Security (as it turns out, only 12% of retirees receive 90% or more of their income from Social Security, though 42% receive half or more from that source).

Retirement healthcare expenses — especially long-term care — are a big financial concern for most individuals. It turns out that a small number of households spend a lot — but most spend little or nothing on long-term care. A 2017 study found that 75% paid less than $1,000, 90% paid less than $20,000 — versus the $150,000+ reported in some surveys for long-term care).

Individuals spend as much, and consistently, in retirement (note: families with kids, once those kids leave the nest, they actually spend a lot less).    

The United States’ private retirement system is inferior to those found in other countries. On one of my pet peeves, he also points out the flaws in reports that claim the U.S. system is inferior to other nations (“focuses on a consultant checklist, not actual income”), noting that the U.S. system[iii] produces a disposable income for 65 year-olds that is the highest among 24 OECD countries, and 60% higher than the median.[iv] Moreover, when retirees in these countries are asked about their confidence in maintaining their pre-retirement standard of living, the U.S. comes out well ahead — even besting the Netherlands, which is a perennial “favorite” of these ranking systems.  

That said, however interesting, I doubt that this single tome will persuade those who (want to) continue to proclaim there’s a retirement crisis, though one might well hope there might at least be some acknowledgement that what people think, and what they fear — might not be as dire as their imaginations create.

Ultimately, whether or not one concludes that there is a retirement “crisis,” Biggs quotes Census Bureau economist Josh Mitchell as observing “there is a crisis of retirement plan data.” 

And with this new book, Biggs has, once again, done a great job of filling at least some of those gaps.

• Nevin E. Adams, JD

 

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[i] Biggs does devote about a third of the book to lay the foundation for his solution to shoring up Social Security — one that he has also published previously, and one that includes taking away the current tax preferences for private sector retirement plans. The focus there is on whether those preferences are necessary to encourage worker savings (Biggs says it isn’t) — though there’s an imbedded assumption that it would have no impact on employer sponsorship/adoption — and I’ve seen data that suggests it would, and if that were to be the case, then there ostensibly wouldn’t be workplace plans in which workers could save.

[ii] See also Question Err?

[iii] In fact, towards the end of the book is a chapter titled “The Retirement Savings Gap is Really a Government Funding Gap,” where Biggs basically holds out the notion that the private system has done a much better job than the government-run programs as a cautionary note to those who would advocate shifting responsibility from the private sector, because “voters wish to be promised things without being asked to pay for them, and elected officials are often willing to oblige them.”

[iv] Granted, the firms are entitled to prize/value/rate whatever criteria they want for their rankings, but they never include the cost of those systems in terms of tax structures, nor the restrictions on access to funds prior to retirement that have been proven to encourage higher rates of participation and savings. 

Less Than You’d Think

 “Larry Fink Knows Less About Retirement Than You’d Think an Investment Billionaire Would.”

That’s the provocative title of a recent Substack column by Andrew Biggs, a senior fellow at the American Enterprise Institute.[i] Not that Biggs offered a truly harsh criticism. Rather, he equated the comments of Larry Finks with that of “someone who reads the newspaper, the same as you or me.” 

Of course, and as yours truly has commented on any number of occasions — and what Biggs calls out — is that “much of what you read about retirement in the newspaper or online or even in so-called studies just isn’t correct.” To put it mildly.

In this recent column, Biggs offers a detailed account of what the actual data shows versus what Mr. Finks (and SO many others[ii]) have held out as reality.

Those with no retirement accounts don’t have retirement savings.

Fink is quoted as saying that 57 million Americans “don’t have any savings or retirement plan.” However, Biggs points out that “the Federal Reserve’s Survey of Household Economics and Decisionmaking acknowledges that many Americans save for retirement outside of an employer-sponsor plan.” That happens to be things like IRAs, an ordinary savings or investment account, real estate, a small business or farm. 

Biggs notes that Fed data show that 84% of non-retirees and 92% of retirees have retirement savings over and above Social Security. He puts the number with NO retirement savings as about 10% of 200 million American adults, or 20 million. Many of those are young enough that it shouldn’t be a problem (now), and others — Biggs notes that Fed data indicates that two-thirds of these non-savers make less than $50,000 — so no retirement savings makes economic sense (again, for now) — but Social Security stands to do a good job of replacing that level of income.

Those depending on Social Security alone will be living in poverty. 

Speaking of which, Finks also cautioned that those who have only Social Security as a resource will find themselves “living in poverty, below the poverty line.” Now, if you don’t know where the poverty line is these days — well, I’m sure you’re not alone. 

But for those interested in the actual numbers, Biggs cites Social Security Administration statistics that show that a middle-income two-earner couple retiring in 2023 would receive about $44,400 in Social Security benefits per year — which would be more than TWICE the official poverty threshold. Even if only one member of the couple worked, they still would receive around $33,300, about 1.8 times the poverty line, he notes.  It’s not a LOT of income, mind you — but it’s not below the poverty line.

Most Americans only used to live to age 67.

This by way of commenting that the current retirement system is outdated — designed for a time when people didn’t live as long as they do today — true enough — to a point. But as Biggs points out, there’s a difference between life expectancy at birth — and life expectancy in retirement. He explains that in 1940 — the first year in which Social Security paid retirement benefits — a 65-year-old man could expect to live an additional 13 years and a 65-year-old woman an additional 15 years (according to the Social Security Administration). In 2025, life expectancy as of age 65 has increased to 19 and 22 years for men and women. So, that’s more years — but not nearly the gap implied by data that includes life expectancy at birth.

You’re now “on your own” when it comes to retirement.

The implication here is that people didn’t used to be “on their own” — presumably because everybody had an employer-provided pension. This is one of the more persistent myths of our time because we have actual data that not only shows that the absolute peak of pension coverage in the private sector was 39%. Moreover, Biggs reminds us that a 1972 NBC News investigation revealed that “9-in-10 employees who nominally participated in a traditional pension never received a penny from it, thanks to strict vesting rules and the occasional corporate bankruptcy.” That’s right — nary a penny. 

And — as Biggs reminds us, “according to the Bureau of Labor Statistics, 72 percent of private sector employees in 2024 had access to a retirement plan at work, far more than ever were offered a traditional pension.” In a real sense, most of us have always been on our own, we just didn’t know it. And now, thanks to the 401(k), we’re ever so much more likely to retire with something to show for it.

The good news? 

Biggs closes by noting that “more Americans are participating in retirement plans than in the past, Americans and their employers are contributing more to retirement plans, and we’re working longer and delaying claiming Social Security. In short, pretty much everything experts say Americans should be doing, we already are doing.” Which, of course, (as Biggs notes), “helps explain why Congressional Budget Office data show the average over-65 household’s income in 2021 was over twice the average in 1979, even after accounting for inflation. And why retirees’ incomes have grown significantly faster than incomes for working-age Americans.”

The scary thing to me is that the comments like those above — made in public forums and in the headlines — are viewed as not only factual, but uncontroversial — even by retirement industry leaders.  

In this business we tend to see the challenge of helping Americans prepare for retirement as a glass that’s only half-full, rather than appreciating the amazing progress we’ve made — progress that might be less than you’d think… especially if it’s based on flawed assumptions. 

- Nevin E. Adams, JD

 

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[i] You can read the rest of his impressive bio at Andrew G. Biggs | American Enterprise Institute - AEI

[ii] Some of these are a “repeat”:  Talking Points: Facts Versus Factoids and Talking Points: A Retirement Crisis of Complicity.

A Retirement Crisis of Complicity

 A recent headline asks: “Why Aren’t We Talking About America’s Retirement Crisis?”  Really? It seems to me that that’s ALL we’re talking about!

Even more ironically, that headline appeared in an op-ed crafted by none other than Teresa Ghilarducci (and her new co-author, Christopher Cook) who, so far as I can discern, talks (and writes books) about little other than the so-called “crisis.” And this specific op-ed, as hers often do, got picked up in syndication (see this link for details).  

But then, this week I stumbled across a LinkedIn post from Andrew Biggs, which matter-of-factly stated, “After a period of trying-in-good-faith, I've concluded I have to be more, um, forthright in calling out, shall we say, misinformation regarding Americans' retirement income security.” Said another way, it appears that Mr. Biggs has come to the conclusion – as I have – that polite commentary and even-handed discussions are insufficient to put to bed what continue to be extreme mischaracterizations (and, in some cases, outright lies) about the true state of retirement in America.

Thankfully, in an article posted on Forbes (titled “Fact-Checking Cook and Ghilarducci on Retirement (Again),” Biggs once again takes to task a follow up to his earlier response to (yet) another set of exaggerated claims and assertions by the pair. 

Here’s the latest:

“Nearly half of today’s middle-class adults will be poor or near-poor in retirement.”

Now, that’s a pretty bold statement – and one made without much backing. Actually, the article links to work by the New School (where Ghilarducci is the Bernard L. and Irene Schwartz Professor of Economics at the New School for Social Research in New York City) and is based on “Authors’ calculation using the 2014 Survey of Income and Program Participation.” Note “author’s calculation.” 

Biggs provides his own analysis of data, noting that the Census Bureau defines “near poverty” as having an income between 100% and 125% of the federal poverty threshold, while, according to Census Bureau research, (only) about 6.9% of age 65+ Americans have incomes below the poverty line. He then notes that about 14.8% had incomes below 150% of the poverty line, which is above near-poverty – and that if you split THAT group in half, then around 12.9% of current seniors are either poor or near-poor – TODAY.  

But by most objective measures (Biggs cites the Social Security Administration and the Urban Institute), he suggests that elderly poverty will DECLINE in the coming decades. Beyond that, he comments – as he has previously – that the vast majority of Americans who are poor in old age were poor PRIOR TO retirement. So, where does the conclusion that “nearly half” will be poor or near poor come from? While some of that might be attributed to the specifics of the aforementioned “author’s calculation,” another subtle clue can be found in the reference to “according to internationally-recognized measures”; we’ve seen those in Ghilarducci’s recommendations before – those are the ones that unfavorably compare the economic standards of life in America to Kazakhstan.   

“Nearly half of older Americans have no retirement savings and must rely solely on Social Security in old age.”

As it turns out, this is a two-fer – and Biggs breaks it down as follows. He points out – as he has previously – that the “nearly half of older Americans have no retirement savings” counts only individual retirement accounts. It completely ignores things like pensions (which, according to the Federal Reserve, Americans’ accrued benefits under traditional pensions top $16 trillion). It also excludes a taxable investment account, real estate, a farm or small business, and so forth. Biggs notes that, if you include all forms of retirement savings (and why wouldn’t you, unless you were trying to make a point?), you find a totally different picture. He cites the Federal Reserve, relying on its Survey of Household Economics and Decision-making, in finding that 88% of Americans aged 60 and over have retirement savings on top of Social Security. 

The second part – the level of reliance on Social Security – is also overstated. Biggs cites Social Security Administration researcher Lynn Fisher’s research using IRS data matched to government household surveys to examine how heavily retiree households rely on Social Security. She found that only 4.5% of elderly persons received all their income from Social Security for all of their income. “In other words, literally one-tenth of the figure Cook and Ghilarducci claim,” Biggs notes.  He also explains that the Census Bureau analyzed the number of seniors who receive at least 90% of their income from Social Security – just 12.2%, despite using a lower bar than Cook and Ghilarducci.

About 79% of people aged 62 to 70 can’t afford their pre-retirement living standards.

There’s plenty of actual IRS data – you know, the kind that people provide to the IRS under penalty of law – available to show that retirement income tends to compare favorably with pre-retirement.  Biggs turns to data from economists Peter Brady and Steven Bass that tracked incomes from ages 55 through 72 – and found that for the typical household, income drops by only 12% from age 55 to 65. Which, of course, means that the typical 65-year-old has a “replacement rate” of about 88%.  Beyond that, he explains that for the poorest 25% of seniors, their incomes increase in retirement.

And then there’s the alternative of just asking folks in retirement. Again, he references the Fed’s Survey of Household Economies and Decision-making which found that among 52-to-61-year-olds from 2019-2023, 76% said they were at least “Doing okay” – but among 62-to-70-year-olds, 82% did so. Among those age 75 and over, 86% said they were at least doing okay financially, the best in any age group. 

Of course, op-eds aren’t subjected to the same level of scrutiny as news – not that there’s been any shortage of news coverage on the topic of the looming retirement crisis. Let’s face it, there have been – and continue to be – a series of one after another industry survey that simply parrots the concerns of working Americans – the vast majority of which don’t seem to have ever tried to figure out their financial needs or reserves in retirement, apparently relying solely on the screaming headlines that assure them that retirement Armageddon is just over the horizon. It doesn’t help matters that retirement industry leaders echo and reinforce that perception.    

That said, and to answer Ghilarducci’s question, at least some of us are not just talking, but are actively working to forestall the retirement “crisis” she and others have been “promoting” for the past several years. No doubt, some will struggle in retirement – as they have prior to that date. But we need to quit excusing such “promotion” as anything other than hyperbole designed to sell books, inspire televised interviews and promote “solutions” that would undermine the amazing success of the private retirement system. 

If we don’t – well, we’re quite simply being a complicit enabler in helping spread that narrative by our silence.

- Nevin E. Adams, JD

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.