Retirees' Incomes Rising, Dependence On Social Security Benefits Lower

Retirees are “increasingly dependent on Social Security benefits,”says U.S. News and World Report. “Social Security made up 38 percent of the total income of people age 65 and older in 2009—up from 30 percent in 1962.” According to figures released by the Social Security Administration, in 2009 66 percent of Americans age 65 and over received the majority of their income from Social Security, up from 62 percent in 1984 and approximately 51 percent in 1967.

These types of figures are common, and lend support to the idea that Americans haven’t saved enough, that 401(k)s don’t work, that retirees have little other than Social Security to live on. And that things are only getting worse.

But what if I told you that all these claims are wrong? In fact, retirement incomes are increasing, the typical retiree today is less dependent on Social Security benefits than in the past, and rising private retirement saving is the reason. Data that accurately capture IRA and 401(k) withdrawals show rapidly rising incomes  and high "replacement rates" for many types of retiree households.

Here’s the story. The SSA’s figures on retirement incomes – the figures that many media reports rely upon –  come from the Current Population Survey (CPS), which is designed by the Bureau of Labor Statistics. The CPS is the source of official statistics on unemployment, poverty and more. In theory, the CPS measures the different sources of income that retirees rely upon.

The problem is what the CPS counts as “income.” In the CPS, money is counted as income only if it’s received on a regular basis – say, every week or every month. If you receive money only irregularly, it’s not counted as income.