Retirement Income Measures Should Adapt to Changing Landscape

According to “Shifting Income Sources of the Aged,” the Census Bureau’s Current Population Survey (CPS)—one of the primary sources of income data—greatly underreports distributions from defined contribution (DC) plans and individual retirement accounts (IRAs), posing an increasing problem for measuring retirement income in the future. While the CPS shows current retirees still receive significant retirement income from defined benefit (DB) plans, the data also indicated DC and IRA balances for those not retired is increasing.  

The CPS measures IRA distributions as money income if they occur “regularly,” like annuity payments. However, because most IRA distributions are irregular, they are not measured as income in the CPS, the report says. In addition, very few DC plan participants take their retirement distributions as annuities.   

Excluding periodic (irregular) distributions misses much of the money distributed from IRAs and DC plans that supports retirement consumption. As retirees increasingly rely on periodic distributions from DC plans and IRAs, the problem of underreporting pension income in the CPS could become increasingly serious, the report authors contend.

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As an example, the report notes that the CPS recorded withdrawals of only $6.4 billion from IRAs in 2006, while the Federal Reserve Board’s Survey of Consumer Finance (SCF) recorded $95.2 billion and an Investment Company Institute (ICI) survey recorded $71.6 billion. From 2006 tax records, all tax returns recorded $124.7 billion in distributions from IRAs, and tax returns for primary taxpayers ages 55 and older recorded $105.7 billion in distributions.  

An ICI report from 2009 said of the CPS: “While IRA withdrawals have risen in importance as a source of retirement income, the most widely cited income measure has failed to capture that growth. Looking ahead, that trend is likely to continue.” According to the SSA report, that measurement gap applies to money withdrawn from all tax-qualified retirement savings plans, not just IRAs.   

“The major nationally representative surveys of household income must accurately measure annual distributions from retirement accounts in order to provide a complete picture of the economic well-being of the aged and the general U.S. population. That may require the survey questions to be revised to inquire more directly about distributions from retirement accounts, whether taken as lump sums, regular distributions or irregular periodic withdrawals,” the authors conclude.  

The report is here.