Tuesday, December 02, 2014

Trouble with CPS Retirement Income Data

Do census data understate retirement income? That's the question asked by a Center for Retirement Research report. The answer is yes. Here's why: the Census Bureau's Current Population Survey (CPS), the nation's official source of income data, does not count as income the money withdrawn from IRAs and 401(k)s unless it is taken as an annuity. It's a big problem. The CPS estimates that only $18 billion was withdrawn from defined-contribution accounts (IRAs and 401(k)s) in 2012. The actual amount is closer to $220 billion, according to IRS data. That's a lot of missing money.

Fortunately, the under-reporting of defined-contribution income understates the income only of high-income households because most lower- and middle-income households have no or minimal IRA/401(k) assets. "The CPS provides a reasonably good measure of income for the typical middle-income household," concludes the report. Upper-income retirees, however, are much richer than it appears in the CPS statistics.

Soon, we might know just how rich they are. The Census Bureau is testing a redesign of the Current Population Survey to capture the missing money.

Source: Center for Retirement Research at Boston College, Do Census Data Understate Retirement Income?

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