Measuring the relative importance of Social Security benefits to the elderly.

Introduction Financial adequacy in retirement largely depends on Social Security, pensions, and savings-commonly referred to as the "three-legged stool" of retirement income. Correspondingly, the elderly who receive all of their income from Social Security benefits are recognized as being economically vulnerable. Income of the Population 55 or Older, 2004, produced by the Social Security Administration (SSA 2006), reported that 21 percent of beneficiary aged units 65 or older received all of their income from Social Security. Three other articles in this issue of the Bulletin examine how the estimate of the percentage of elderly beneficiaries receiving most or all of their income from Social Security changes depending on the unit of observation and the source of the data. This article presents the combined effects of the unit of observation and the data source and evaluates the relative impact of each measurement option. The unit of observation is an important methodological choice related to what constitutes an economic resource. The measure of the relative importance of Social Security income that SSA has been using in its data series includes only income received by an aged unit (aged nonmarried person or aged couple). In addition, each married couple counts as one unit, just as one nonmarried person counts as one unit. Different units of observation have been used for other measures of economic vulnerability; for example, the official poverty measure includes income received by all members of the family and counts each person as a unit when determining poverty rates. This article constructs statistics similar to official poverty measures for comparison with the aged-unit statistics produced by SSA. The publicly available Annual Social and Economic (ASEC) Supplement to the Current Population Survey (CPS), referred to here as the March Supplement, is used to produce both Income of the Population 55 or Older and Income of the Aged Chartbook. One alternative to using the CPS as the data source would be to generate statistics from the Survey of Income and Program Participation (SIPP). Another option would be to combine administrative data on Social Security benefits and Supplemental Security Income (SSI) with reported data from the CPS or the SIPP. This article uses data on annual income for 1996 from both surveys and administrative data in its analysis. The article illustrates the effects of these measurement alternatives in combination. The cumulative effect of switching from the CPS to the SIPP, using administrative data in place of survey-reported data, and considering family income of persons rather than aged units is striking. The published statistic of 17.9 percent of elderly beneficiary aged units being completely reliant on Social Security in 1996 falls to an estimated 4.8 percent of elderly beneficiary persons based on family income using the SIPP and administrative data. Unit of Observation The Social Security Administration produces two series on the income of the elderly and near-elderly: Income of the Population 55 or Older (since 1976) and Income of Aged Chartbook (since 1990). Both publications primarily provide income data for aged units, which consist either of nonmarried persons or married couples. Although these SSA publications focus on aged units, researchers may choose to use different units of observation, such as persons, families, or households, based on the resources they wish to measure. One prominent example is the official poverty statistic produced by the U.S. Census Bureau, which includes family income when determining whether a person is in poverty. To demonstrate the effect of the unit of observation, this article compares estimates of the relative importance of Social Security using aged units with estimates using the family income of aged persons. Statistics for aged units treat each marital unit (married couple or nonmarried individual) as one unit. …