The Evolution of Late-Life Income and Assets: Measurement in IRS Tax Data and Three Household Surveys
Using a 5% random sample of administrative IRS tax records covering households born from 1933 to 1952, we evaluate how three widely-used household surveys—the Health and Retirement Study, the Survey of Income and Program Participation, and the Current Population Survey—capture the level of and trends in late-life income and assets. First, relative to the tax data, survey data underestimate total income levels and overestimate declines in income at the median during the initial transition from working life to retirement. Survey estimates of median income at age 73 are lower than tax data estimates by an average of 4.5% in the HRS, 14.2% in the SIPP, and 25.1% in the CPS. Median total income declined from 58 to 68 by an average of only 11.7% in the tax data, compared with 24.4% in HRS, 16.8% in SIPP, and 29.0% in CPS. Second, survey sources overestimate income growth across birth cohorts at older ages but do a better job of capturing these trends at younger ages. Third, lower-income households have not experienced income growth across birth cohorts outside of the Social Security system. Averaging across ages 68 to 74, the 25th percentile income excluding Social Security fell by 16.5% from the 1933 birth cohort to the 1943 birth cohort in the tax data. These declines are larger in the HRS (26.9%) and SIPP (45.5%) and smaller in the CPS (11.1%). The fraction of households in the tax data with no non-Social Security income and no assets at age 72 rose from 18.9% to 20.5% from cohorts born in 1933 to 1945. The fraction of such households is captured well by the HRS and SIPP, but overstated by the CPS.
The research reported herein was performed pursuant to grant RDR18000003 from the US Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium. The opinions and conclusions expressed are solely those of the author(s) and do not represent the opinions or policy of SSA, the U.S. Department of the Treasury, the Office of Tax Analysis, the Federal Reserve Bank of Chicago, the Federal Reserve System, or any agency of the federal government, Harvard, Yale, the NBER or the authors’ RDRC affiliation. Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.