By Andrew G. Biggs and Mark J. Warshawsky
The Wall Street Journal recently published an article reporting on the 2022 Social Security Cost of Living Adjustment that included a significant misstatement by the AARP. The article states, “according to an AARP analysis of Census Bureau data . . . [a]bout a quarter of seniors 65 and older relied on the benefits for 90 percent or more of their income, the analysis found.” While compelling, this claim significantly overstates the share of seniors who rely so heavily on Social Security benefits.
First, multiple studies have shown that the Census Bureau household survey data the AARP relies upon dramatically understate the incomes of the elderly, in particular their incomes from employer retirement plans and individual accounts. A 2017 Census Bureau analysis found that the median income of Americans aged 65 and over was 31 percent higher when measured using IRS tax return data than when using the survey data the AARP’s factoid relies upon. As a result, true dependence on Social Security in old age is lower than AARP claims.
Second, while the AARP refers to the share of seniors who rely on Social Security for at least 90 percent of their incomes, their data actually measures the incomes of households. Single seniors have lower incomes and are more reliant on Social Security than married couples, and so a household-based measurement again overstates reliance on Social Security benefits.
A 2021 study released by the Social Security Administration that used Internal Revenue Service data and focused on individuals rather than households found that only 13.8 percent of seniors received 90 percent or more of their incomes from Social Security. Moreover, when looking at the percentage distribution of aggregate income among older individuals, instead of Social Security representing 35 percent and pensions and retirement accounts only 22 percent, accurate statistics flip the story — Social Security is 30 percent of incomes but pensions and retirement accounts are 36 percent.
While Social Security remains crucial for low-income seniors, accurate data show there is room to adjust Social Security benefits for middle- and high-income retirees as a means to restore the program to solvency. These data also show the efficacy of the financial-market-based system of retirement accounts and plans in raising retirement incomes.
Although there is a natural tendency for the media to rely on familiar statistics from familiar sources, it is important to get the data right, especially when it involves such an important program, like Social Security, which is badly in need of modernization and reform.