In conversations about Social Security, opponents of reform sometimes point to the senior poverty rate to explain why the program cannot be changed. In 2024, 9.7 percent of Americans aged 65 or older had incomes below the poverty line, according to the official government poverty statistics reported by the Census Bureau. That proportion has basically been the same since 2000, suggesting that any progress in reducing senior poverty has basically stopped. This would be bad news if it were true.
Andrew Biggs of the American Enterprise Institute explains in a Substack post the simple reason that this statistic looks the way it does: It doesn’t count withdrawals from retirement accounts as income.
Biggs writes:
The bizarre reality is that official government poverty statistics don’t count retirement account withdrawals as “income.” That doesn’t matter for kids or working-age adults. But it’s increasingly important for seniors, so much so that the official poverty rate for Americans aged 65, which largely ignores income from retirement accounts, is nearly double the true rate when retirement account withdrawals are included.
Social Security benefits, pension checks, and paychecks from part-time retirement jobs count as income. But withdrawals from 401(k) accounts and IRAs do not. As more workers rely on 401(k) accounts and IRAs rather than pensions in retirement, the official senior poverty statistics are becoming unmoored from reality.
Biggs writes that we know the Census Bureau statistics overstate actual poverty because “the Internal Revenue Service doesn’t give a crap where you got your income from. They just want their slice of it.” The retirement income that seniors report to the IRS is 72 percent higher than the income recorded by the Census Bureau.
In 2018, the Census Bureau combined the IRS data with its own data and found that median household income for seniors was really $55,760, rather than the $34,520 it had previously reported. “Put another way, official government statistics claim the poverty rate for Americans 65 and over is nearly twice the actual rate,” Biggs writes. The Census Bureau has not recalculated the more accurate measurement since 2018.
It’s truly bizarre:
When a retiree files their taxes, their retirement account withdrawals are counted as income. If a retiree applies for a means-tested government program, such as Medicaid, their retirement account withdrawals are income. It’s only in measuring incomes for calculating the poverty rate that retirement account withdrawals are for some reason ignored.
The poverty rate for seniors is far lower than it is for working-age people or for children. The Social Security cost-of-living adjustment far outpaces the inflation rate, giving seniors significant real increases in their benefits over time. The net effect of Social Security is to redistribute wealth from the relatively poor to the relatively rich. That’s a terrible way for a federal government running a $2 trillion deficit to spend money.