Fact-Checking Cook and Ghilarducci On Retirement (Again)

Back in August I published an entire study through the American Enterprise Institute that fact-checked 10 reasons Americans should get over their “denial” there’s a retirement crisis, from Christopher Cook and Teresa Ghilarducci. My conclusion is that none of their 10 reasons really hold up.

Cook and Ghilarducci have a new article out that contains some of the same errors — but also some new ones.

Cook and Ghilarducci’s column, “Why Aren’t We Talking About America’s Retirement Crisis?” has been syndicated in newspapers across the country. Ghilarducci herself is one of the most prominent academics working in the retirement field today. I’m not here to quibble over a decimal point or two.

But there are much larger claims, of much greater importance to public disucsssion of retirement income security. It’s important to get those facts right.

For instance, Cook and Ghilarducci write:

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

Let’s run through what the data tell us.

For background, the Census Bureau defines “near poverty” as having an income between 100 and 125 percent of the federal poverty threshold. According to Census Bureau research, about 6.9 percent of age 65+ Americans have incomes below the poverty line. About 14.8 percent had incomes below 150 percent of the poverty line, which is above near-poverty. If we split that group in half, then around 12.9 percent of current seniors are either poor or near-poor.

But that’s today. All credible projections of future retirement incomes that I’m aware, such as from the Social Security Administration and the Urban Institute, conclude find that elderly poverty will decline in coming decades. So 12.9 percent probably overstates the future number of poor or near-poor seniors.

Moreover, the vast majority of Americans who are poor in old age also were poor prior to retirement. That same Census Bureau research shows that poverty declines significantly as households enter retirement. On net, more people move out of poverty in retirement than move into it.

Given this, it’s very hard to make the math work such that half of middle-class Americans, who weren’t poor prior to retirement, will become poor or near-poor in old age. Given credible estimates of the size of the near-poor senior population, there just aren’t enough spaces for half the middle class, even if every previously poor person miraculously leaped out of poverty.

Next, Cook and Ghilarducci make a double-claim, that “Nearly half of older Americans have no retirement savings and must rely solely on Social Security in old age.”

I disagree with both.

The claim that “Nearly half of older Americans have no retirement savings” counts only retirement accounts. If you’re a federal, state or local government employee and you’ve got a (typically pretty generous) traditional pension, Cook and Ghilarducci say that’s not savings. According to the Federal Reserve, Americans’ accrued benefits under traditional pensions top $16 trillion. That’s a lot of money to ignore.

Or, if you have assets outside of a retirement account that will provide income in retirement, such as a taxable investment account, real estate, a farm or small business, and so forth, that’s also excluded. I’ve previously shown that even retirees who lack any formal retirement plan — either a retirement account or a pension — are doing okay. They’re not heavily dependent on either Social Security or welfare benefits, because they draw significant income from farms, small businesses or investments outside of retirement accounts.

If you include all forms of retirement savings — retirement accounts, traditional pensions, and savings outside of retirement plans that will generate income in retirement – you find a totally different picture. The Federal Reserve, relying on its s Survey of Household Economics and Decision-making , finds that 88 percent of Americans aged 60 and over have retirement savings on top of Social Security.

The latter half of Cook and Ghilarducci’s sentence — “…and must rely solely on Social Security in old age” — also asks for correction.

Social Security Administration researcher Lynn Fisher used IRS data matched to government household surveys to examine how heavily retiree households rely on Social Security. What did she find? Only 4.5 percent 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.

Since then most researchers haven’t bothered measuring 100 percent dependence on Social Security, since it’s so rare. However, the Census Bureau analyzed the number of seniors who receive at least 90 percent of their income from Social Security. The Census Bureau’s answer: just 12.2 percent, despite using a lower bar than Cook and Ghilarducci.

Cook and Ghilarducci next argue that “About 79 percent of people aged 62 to 70 can’t afford their pre-retirement living standards.”

Again, it’s not clear how to support this figure. For instance, economists Peter Brady and Steven Bass used IRS data to track American’s incomes from ages 55 through 72. To check Cook and Ghilarducci’s claims, I’ll compare income at 65 to income at 55. For the typical household, income drops by only 12 percent from age 55 to 65. Retirement planners say that retirees need an income equal to 70 to 80 percent of their pre-retirement earnings. The typical 65-year old has a “replacement rate” of about 88 percent. For the poorest 25 percent of seniors, their incomes increase in retirement. These data do not support Cook and Ghilarducci’s claims.

Alternately, we can just ask people. The Fed’s Survey of Household Economies and Decision-making asks Americans to describe their financial security in one of four ways: “Finding it difficult to get by;” “Just getting by;” “Doing okay;” and “Living comfortably.” Among 52 to 61 year olds from 2019-2023, 76 percent said they were at least “Doing okay.” Among 62 to 70 year olds, 82 percent did so. And self-reported financial security continues to improve with age: at ages 75 and over, 86 percent said they were at least doing okay financially, the best in any age group. Moreover, if we look at objective questions regarding financial security – Can you pay a $400 expense with cash? Do you have a rainy day fund? Can you pay your bills? Are you carrying credit card or medical debt? – seniors are again financially healthier than younger Americans.

It’s possible for people to look at the same data and in good faith come to different conclusions. I’m on the optimistic side regarding Americans’ retirement income security, but others who look at the same fact feel differently. That’s fine.

But it’s crucial for Americans to be presented with full, complete and accurate information regarding how well they are saving for retirement.