Social Security benefits, which many supplement with income from other sources. Not long ago, many received a traditional defined benefit (DB) pension, whereby employers paid retirees and their survivors a monthly benefit for life. In the private sector, DB pensions have been largely replaced by newer forms of retirement income in which employers and employees contribute funds to pension and profit-sharing accounts that the employees manage as financial investments until they need to withdraw funds to meet needs in retirement. DB pensions generate a regular income flow, very much like Social Security benefits, but the newer, defined contribution (DC) pension plans do not. Similarly, individual retirement accounts (IRAs) allow individuals to create their own tax-advantaged savings plans completely separate from employment. Here, too, the resources that people accumulate in such plans are later tapped by making withdrawals rather than receiving fixed payments. These new options for replacing the earnings that are forgone in retirement have given rise to both conceptual and measurement issues in determining how to value the resources that these plans generate.
Withdrawals from savings, in general, are not construed as income under the Census Bureau or alternative income concepts discussed below, but the tax-advantaged savings plans that are replacing DB pensions receive a different treatment. Thus, for purposes of federal income taxes, distributions from these plans are counted in adjusted gross income (AGI)—and taxed as ordinary income—except for returns of contributions made with after-tax dollars and rollovers to other tax-advantaged retirement vehicles. Similarly, CPS ASEC money income includes regular payments from an IRA, Keogh, 401(k), 403(b), or similar thrift plan. “Regular” is interpreted by the respondent, but comparisons with fund withdrawals that can be documented with administrative data indicate that very little of what is withdrawn from these funds is being reported as income in the CPS ASEC. For example, in 2004, Americans withdrew $139.9 billion from IRAs, excluding rollovers, according to data collected by the Internal Revenue Service (IRS) (Bryant, 2008). Of this total, $101.7 billion or 73 percent was taxable—that is, counted in AGI. For the same year, the CPS ASEC estimated only $6.8 billion in regular payments from not only IRAs but also Keogh and thrift plans (Czajka and Denmead, 2011). Another Census Bureau survey, the Survey of Income and Program Participation (SIPP), separates regular and lump sum withdrawals from IRAs, Keoghs, and thrift plans. The CPS ASEC estimate for 2009 was 23.4 percent of the SIPP estimate of regular withdrawals from these plans and 15.5 percent of the SIPP estimate of total withdrawals (Czajka and Denmead, 2011).
Withdrawals from the newer sources of retirement income are still dwarfed by payments from more traditional plans—namely, Social Security benefits and DB pension payments—and the CPS ASEC captures high percentages of these income sources (over 90 percent for Social Security; see