The U.S. ‘Retirement Crisis’ Is a Media Myth

By contrast, incomes for working-age households increased by only 75%. Census Bureau research shows that retirement incomes have risen not just for the rich but across income distribution and have brought old-age poverty to record lows.

Every media story on the nation’s supposed “retirement crisis” can find someone for whom things have gone poorly, which isn’t a challenge in a country of 330 million people. But surveys that ask large numbers of actual Americans tell a story that mimics the hard data.

Eight in 10 retirees tell Gallup they have sufficient money, not merely to survive, but to “live comfortably.” Less than 5% of retirees tell a Federal Reserve survey they are “finding it hard to get by.” Likewise, in a survey from Vanguard, only 5% of U.S. retirees describe their own financial situation as a retirement crisis.

Seventy-six percent of Americans over 65 report in the Federal Reserve’s Survey of Consumer Finances that their retirement income is “At least enough to maintain your standard of living,” versus only 61% in 1992. The share describing their retirement income as “totally inadequate” has fallen by almost half, while the share of retirees calling their incomes “very satisfactory” nearly tripled. 

Americans are also are working longer, which is one of the most effective ways to boost retirement incomes. A longer work life means more savings, higher Social Security benefits, and a shorter retirement in which savings will be drawn down.

While for decades following World War II the labor force participation of older Americans had been declining, beginning around 1990, things turned around. By 2019, just before COVID, the share of Americans aged 55 to 64 who were working was the highest on record.

Americans are also delaying claiming Social Security benefits, retiring nearly a year and a half later today than in the mid-1990s. Higher earnings and delayed claiming led to Social Security benefits for new retirees in 2020 being fully 32% higher after inflation than benefits received by new retirees in 2000.

These may not be the only relevant facts to inform discussions of retirement income security. But they are facts nonetheless that provide much-needed context to discussions of how well the U.S. retirement system is working. 

Better Data, Better Story

The most interesting question is why so little of this story is known. Part of the story is technical. For instance, for years we have heard statistics claiming that one-third or more of retirees receive nearly all their income from Social Security. As it turns out, however, that figure is an error.

The household survey the government draws that figure from has been shown to dramatically understate the income that retirees derive from IRAs, 401(k)s and private pensions, coming in far short of what those same retirees report on their tax returns.

Subsequent research using IRS data has found that the median retiree’s income is nearly one-third larger than is claimed in household survey data, the poverty rate is lower by almost 2 percentage points, and the share of retirees receiving 90% or more of their income from Social Security is only 12% to 14%. 

The same data issues cause us to underestimate the share of Americans who participate in retirement plans at work.

In 2015, the Social Security Administration examined Americans’ responses to a survey asking about retirement savings at work. In the survey, 65% of private sector employees said they were offered a plan at work, and 45% said they participated.

But the SSA then matched each employee’s survey responses up to their IRS tax records. The SSA analysts found that 72% of private-sector employees were actually offered a retirement plan, and 58% were participating. IRS data show that, among married couples filing jointly, 81% have at least one spouse participating in a retirement plan.

Better data really do tell a better story.

But there’s more to it than that. The “retirement crisis” narrative is helped along by the fact that nearly no one has an incentive to deny it. Financial firms unsurprisingly want you to save more for retirement, so they’re not going to tell you that you’re over-saving. Political progressives distrust private markets and want Social Security to play a stronger role, so they downplay any progress.

The news media like frightening stories. No one clicks on an article with the headline, “U.S. retirement savings doing well.” But “Americans Entering Old Age the Least Prepared in Decades”? That Wall Street Journal article won a journalism award while getting key facts wrong about Americans’ savings and retirement incomes.

Congressional Republicans, still shell-shocked from George W. Bush’s unsuccessful 2005 effort to reform Social Security, have yet to find a new narrative.

But there’s a cost to excessive pessimism. As important as we all consider saving for retirement, households have other priorities — such as buying a home or sending their children to college, both of which have only become more expensive over time.

Expanding Social Security, as many congressional Democrats advocate to tackle our so-called retirement crisis, would leave less money for the government to tackle our other national priorities, including health care, education and infrastructure. 

The simple fact, as the data show, is that never before have so many Americans saved so much for retirement, nor had stronger incomes in old age or a lower risk of poverty. That doesn’t mean the U.S. retirement system doesn’t face challenges. But it does make those challenges easier to address.

Andrew G. Biggs is a senior fellow at the American Enterprise Institute.