Estimates of unreported asset income in the survey of consumer finances and the relative importance of Social Security benefits to the elderly.

Introduction Throughout the 1990s and the early 2000s, the Social Security Administration's publication Income of the Population 55 or Older has reported a decline in the proportion of the elderly receiving asset income and a corresponding rise in the proportion of the elderly receiving all of their income from Social Security. The decrease in receipt of asset income is puzzling because greater numbers of people were participating in a booming financial market. 1 Thus one would expect that a greater proportion of the elderly would have asset income and a smaller proportion would receive all of their income from Social Security. Because retirement income ideally is composed of multiple sources of income (savings, pensions, and Social Security), the elderly receiving all of their income from any single source of income are deemed to be economically vulnerable. The Social Security Administration is thus particularly concerned about beneficiaries whose only source of income is their Social Security benefits. The question arises of whether receipt of asset income is actually declining among the elderly or whether some asset income is merely unreported. After addressing that question, the article attempts to ascertain how unreported asset income affects our understanding of how many of the elderly receive income only from Social Security. The Income of the Population 55 or Older is based on the Current Population Survey (CPS). Ideally, this analysis would examine the asset holdings of those reporting no asset income in the CPS, but data on asset holdings are not collected in the CPS. Consequently, this analysis uses the Federal Reserve Board's Survey of Consumer Finances (SCF), which collects detailed data on asset holdings. Both surveys show a drop of 10 percentage points over the 1990s in the receipt of any asset income by the population aged 65 or older and a corresponding increase in the proportion of the elderly receiving all of their income from Social Security. This analysis uses the SCF from 1992 to 2001 to examine the financial asset holdings of the elderly not reporting asset income to determine if they in fact hold assets that are likely to generate income during the given year. Income from interest is also estimated for savings and money market accounts as well as certificates of deposit, bonds, and mutual funds. Finally, estimates of asset income are used to determine what proportion of the elderly would have received all of their income from Social Security if estimated asset income had been reported. Ownership of Financial Assets Among Elderly Individuals The first question is whether respondents not reporting asset income have financial assets. Of those aged units 65 or older not reporting asset income in the 2000 SCF, 87 percent reported holding one or more assets.2,3 The aged unit is chosen as the unit of observation because the trends in declining reports of asset income and rising reports of all income coming from Social Security are evident in the Income of the Population 55 or Older, which has primarily used the aged unit as the unit of observation.4,5 This analysis focuses solely on the importance of unreported asset income, making it important to keep as constant as possible other factors affecting the relative importance of Social Security, including the unit of observation. Holding assets without reporting asset income is less pronounced for 1991 than for 2000; 77 percent of those not reporting asset income held one or more assets in 1991 compared with 87 percent in 2000. Table 1 separates elderly aged units into groups based on whether or not they reported asset income. The table reports the percentage of units in each group that own a particular type of asset.6 For example, 39 percent of elderly units who reported asset income had a savings account in 1991, but 61 percent of elderly units who reported asset income did not have one; in contrast, 24 percent of elderly units who did not report receiving asset income had a savings account, while 76 percent of elderly units who did not report receiving asset income did not have one. …