How We All Made More Money And Didn't Even Know It
Thank goodness!
After 17 long years, the median U.S. household income has finally broke above the previous record set in 1999. According to a Census Bureau report released last week, median income increased 3.2% in 2016, to $59,039 after inflation.
That eclipsed the last record of $58,665 set at the end of the 20th century.
Every news source that carried the story seemed to lead with the assertion that we’re finally on our way in terms of rising incomes, and have recovered from the Great Recession.
Well, every source except one – the Census Bureau. That bastion of statistics, which compiles the very data in question, published the record-setting number with a caveat: don’t compare it to prior years. Hmm.
It turns out that the income numbers have a Barry Bonds (of baseball fame, or infamy) quality about them. The new numbers are indeed the highest on record, but they’ve been juiced.
The former San Francisco Giants outfielder allegedly took body-enhancing steroids to propel himself to the top of the home-run record books. The statisticians at the Census Bureau just cooked the books. But at least they told us about it.
In 2011 the Urban Institute estimated that the Census Bureau pencil-pushers missed 90% of income from retirement accounts in their calculations.
Reasonably, Americans don’t consider withdrawals from their personal IRAs as income. We generally consider it a reduction of principal because it reduces our account balance. The thinking makes sense to me, but the Urban Institute didn’t ask for my opinion.
In response, the Census Bureau employed a bunch of consultants to help them find those missing dollars. They decided on a two-pronged approach: 1) Ask people what they’ve got in assets, and 2) estimate income if they don’t give you an answer.
If you have a retirement account but don’t remember how much you withdrew, er, received in income, don’t worry. They’ll help you guesstimate. The same goes for interest on things like checking accounts.
I have a couple of small bank accounts that pay interest, but I don’t think about them much. I know the numbers are small. If the Census Bureau asked me and I don’t have an exact number, they’ll start with a range.
After volunteering that I earned less than $1,000 in interest, they’ll parse the records a bit more, getting down to less than $100. After that, they assign me $50 of interest income on my checking account, when I know the real number is somewhere south of $25. Woohoo! I just made more!
Too bad I can’t spend it. Chances are you have the same phantom income swirling around in your bank accounts.
Disclosure: None.