Older Americans are faring much better than younger ones, and they have been for well more than a decade. Between 2000 and 2011, the median income of households headed by people aged 65 or older grew 10 percent, after adjusting for inflation. At the same time, the median income of households headed by adults under age 55 fell by a steep 12 to 16 percent.
Now we find out it's even worse than we thought. Little known fact: when measuring household income, the government does not count money withdrawn from defined-contribution retirement accounts. That's right, the Current Population Survey, the American Community Survey, and the Survey of Income and Program Participation do not count withdrawals from IRAs and 401(k)s unless they are taken as annuities—a rare occurrence these days.
We're not talking pocket change here. According to a Social Security Bulletin study, one in five households headed by a person aged 65 or older withdrew money from a defined-contribution retirement account in 2009 (the most recent year analyzed). The median withdrawal was $3,300. Among those who took distributions, median household income grew from $42,000 to $50,000—an 18 percent boost.
The authors of the study conclude with this warning: "If household surveys—especially the CPS, which is used to develop official estimates of household income and the number of persons in poverty—do not accurately identify sources and amounts of income, they will provide misleading results. Inaccurate statistics about household income could lead to inappropriate policies."
If nothing else, a more accurate estimate of the incomes of the elderly will fully reveal the expanding economic sinkhole into which younger generations are disappearing.
Source: Social Security Bulletin, The Impact of Retirement Account Distributions on Measures of Family Income
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