Retirement

“Andrew Biggs (Isn’t) Wrong,” Part 1.

My friend and occasional sparring partner Teresa Ghilarducci Tweeted out her most recent op-ed with the subtitle, “Andrew Biggs is wrong about America’s retirement crisis.” As long as they spell your name right, I guess.

If only it were so, for Teresa’s sake and for the Senator her op-ed defends, Vermont’s Bernie Sanders. Because it was an article I published in The Hill criticizing Sanders’ claims that America faces a “retirement crisis” that started this mini-brouhaha. But I’m happy for this debate to occur. The more we talk, the more we’ll understand.

In this piece, I’ll cover one claim that is seemingly ever on Sen. Sanders’ lips: “Nearly half of Americans 55 and older have no retirement savings,” a report published by Sanders’ staff states. Teresa’s article quotes Sanders, as if repeating something twice makes it correct.

Now, whether Sanders’ factoid is accurate doesn’t tell us whether we have or don’t have a retirement crisis. But the fact that Sanders claim isn’t true, or even close to true, tells us about the quality of the discussion over the U.S. retirement system.

Sanders’ claims his frightening factoid derives from a 2019 Government Accountability Office (GAO) study.

A quick look at the GAO report tells a more comforting story: that report defines “retirement savings” only as balances in 401(k) or IRA accounts. If a person is entitled to a traditional “defined benefit” (DB) pension, which both Sanders and Ghilarducci think is a superior way of preparing for retirement, that’s not counted as “savings.” I know, it’s strange.

But, as the GAO acknowledges, if you do count pensions as retirement savings then it’s not nearly half of 55+ Americans who have no savings. It’s just 29%. But that’s not all.

Some people save for retirement outside of either a retirement account or a pension. Think of small business owners or farmers. The Federal Reserve’s Survey of Household Economics and Decision making (SHED) asks specifically about these less-traditional retirement savings.

The Fed asks Americans, “Do you currently have each of the following types of retirement savings?” In addition to retirement accounts and pensions, the SHED asks about “savings outside a retirement account,” “a business or real estate that will provide income in retirement,” or “other retirement savings.”

According to the Fed itself, in 2022, 88 percent of households aged 60 and over had retirement savings. The reason I’m running through this in such detail is to show how silly Sanders’ claim is, and how odd that people bother to defend it.

Teresa, for her part, sets up a straw man: “Biggs insists there is no retirement crisis because, according to his numbers,” far more than Bernie’s claimed 55% of near-retirees have some form of retirement savings. It’s misleading, she says, to cite a simple yes/no question to disprove the so-called retirement crisis. Ok.

But I never claimed that. Merely because Sanders cites false evidence doesn’t mean his conclusion is false. Although it doesn’t help. I’ve found that if people can support their arguments with actual facts rather than made-up ones they tend to do so.

The real reasons I insist there isn’t a retirement crisis, which Sanders and Ghilarducci won’t wrestle with:

· Retirement savings are dramatically higher than in the past, not just on average but within every age, income, educational and racial or ethnic group.

· Retirement plan access is at a record high: 70% of private sector workers in 2023 had access to a retirement plan at work, according to the Bureau of Labor Statistics, up from 57% in 2003

· Retirement plan contributions have skyrocketed since the heyday of traditional pensions, rising from 5.8% of employee wages in 1975 to 9.2% in 2021, according to the Department of Labor. That’s a 58% relative increase in what Americans are saving for retirement.

· Labor force participation among 55- to 64-year-olds is at record highs, according to the BLS. People say Americans can’t work longer. Guess what: they already have.

· Americans today are claiming Social Security 1.5 years later than in 1990, according to the Social Security Administration.

· Average Social Security benefits for new retirees in 2022 were 39% higher than in 2000, even after inflation.

· Retirement incomes are at record highs, according to the Census Bureau, not just on average but across the income distribution.

· Elderly poverty, measured using the most accurate data available, fell from 9.7 percent in 1990 to just 6.4% in 2018, an over one-third decline in the risk of being poor in old age.

· Seniors tell us they’re doing okay: in the Fed’s SHED survey, only 4% of seniors in 2022 said they’re “finding it difficult to get by”; just 4% describe their financial situation as a “retirement crisis,” according to Vanguard; 77% tell Gallup they have enough money, not just to survive, but to “live comfortably.” Are all these people just lying?

Teresa seems puzzled that I don’t believe in the retirement crisis. But given these facts – and unlike many of the statements coming from Sen. Sanders, these are actual checkable facts – why would I?

Now, all of this doesn’t mean you have to agree with me. There are many people I like and respect who are more pessimistic about Americans’ retirement preparation than I am. That’s perfectly fine. And even I don’t think the system is perfect. There’s lots I would do to improve it.

But the first step to resolving this debate and improving the U.S. retirement system is for people to stop saying things that aren’t true.

In Part II, I’ll discuss how believers in the retirement crisis draw those beliefs from bad data. And why they should know better.

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