Financial Security of Elderly Americans at Risk

Reference: Economic Policy Institute

Proposed changes to Social Security and Medicare could make a majority of seniors ‘economically vulnerable’

June 6, 2013

By Elise Gould and David Cooper

Executive summary

Policymakers considering changes to social insurance programs such as Social Security and Medicare must consider the economic realities confronting elderly Americans. Many of America’s 41 million seniors are just one bad economic shock away from significant material hardship. Most seniors live on modest retirement incomes, which often are barely adequate—and sometimes inadequate—to cover the costs of basic necessities and support a simple, yet dignified, quality of life. For these seniors, and even for those with greater means, Social Security and Medicare are the bedrock of their financial security. Any proposed changes to these programs must be evaluated not just for their impact on future budget deficits, but for their impact on living standards of the elderly.

In this study, we use the Supplemental Poverty Measure (SPM) from the U.S. Census Bureau to assess the economic health of the elderly population in the United States, overall and by age, gender, and race and ethnicity. Using evidence on elderly economic insecurity from Wider Opportunities for Women (WOW), we identify the share of the elderly population that is particularly vulnerable to changes in social programs. Our analysis enables us to estimate how proposed increased cost-sharing by Medicare beneficiaries or reduced Social Security benefits would impact the well-being of a significant portion of the elderly population.
Our main findings include the following:
• Nearly half (48.0 percent) of the elderly population in the United States is “economically vulnerable,” defined as having an income that is less than two times the supplemental poverty threshold (a poverty line more comprehensive than the traditional federal poverty line).1 This equates to roughly 19.9 million economically vulnerable seniors.
• The older elderly—people age 80 and older—have a far higher rate of economic vulnerability (58.1 percent) than people age 65 to 79 (44.4 percent).
• Women are 10.7 percentage points more likely to fall below two times the supplemental poverty threshold than men (52.6 versus 41.9 percent)
• The majority of elderly blacks and Hispanics are economically vulnerable: 63.5 percent of blacks and 70.1 percent of Hispanics, age 65 and older, have incomes less than two times the supplemental poverty threshold. In comparison, 43.8 percent of whites are economically vulnerable.
• The share of economically vulnerable elderly varies across the United States, from a low of 35.4 percent in North Dakota to a high of 59 percent in the District of Columbia.
• Under House Budget Committee Chairman Paul Ryan’s proposed changes to Medicare, the predicted increase in seniors’ out-of-pocket health costs would raise the share of economically vulnerable elderly (those below two times the supplemental poverty threshold) by 8.4 percentage points, pushing the share up to 56.4 percent. That means almost 3.5 million more seniors would be economically insecure.
• Reductions in Social Security benefits arising from a proposed shift to indexing cost-of-living adjustments to the chained consumer price index (chained CPI) would also push more elderly into economic insecurity. For example, a switch to the chained CPI would boost the share of 70- to 75-year-olds below two times the supplemental poverty threshold by 1.2 percentage points, resulting in 132,000 more economically vulnerable seniors.

Measuring income security

Elderly individuals, on average, have much lower family incomes than non-elderly adults. Table 1 shows average and median annual family incomes of non-elderly adults and elderly adults in various age groups. As measured over 2009–2011, the average family income of working-age adults, ages 18 to 64 years old, is $67,659 compared with $52,355 for those 65 to 79 years old and $33,535 for those 80 years old and older. The average family income of those 80 and older is less than half the income of those between 18 and 64 years old. While averages can be skewed by a relatively small number of particularly-high-income families, the same pattern emerges within median family income. Individuals age 18 to 64 have a median family income of $48,430 compared with $35,690 for those age 65 to 79, and $23,370 for those age 80 and older. Once again, the median family income of non-elderly adults is more than twice that of the older elderly. Some of this difference is certainly caused by family size: Non-elderly families are more likely to have more people, particularly more income-earning adults. However, even when controlling for family size, elderly adults have family incomes that are, on average, $13,470 lower than non-elderly adults.2

Table 1

Average and median annual family income, by age group, pooled years 2009–2011 (2011$)
Age group…………….Average family income……..Median family income
Non-elderly (18 to 64)……….$67,659……………………….$48,430
Elderly All (65+)………………..$46,925……………………….$31,114
………….(65 to 79)……………….$52,355………………………..$35,690

Source: Authors’ analysis of pooled 2009–2011 Current Population Survey Annual Social and Economic Supplement microdata

When we compare elderly and non-elderly adults using the official definition of poverty, the picture of elderly economic security is somewhat misleading. Figure A shows for both groups the share of people at various income-to-poverty-threshold ratios, where poverty is measured by the official poverty line (roughly three times a basic food budget, adjusted by family size and composition), and the poverty rate is the share with incomes under that line. Over the three-year period described in this study, the poverty rate of non-elderly adults (ages 18–64) is 13.4 percent, considerably higher than the 8.9 percent poverty rate of elderly adults.3 This is primarily because non-elderly families are more likely to have larger families (typically with children), thus elevating their respective poverty thresholds.

Figure A (click):

Share of elderly

However, while the elderly may be less likely than the non-elderly to fall below the official poverty line, the non-elderly are, on the whole, more likely to be well-off. About 70 percent of non-elderly adults have incomes at or greater than two times the official poverty line compared with 66 percent of the elderly. And 40.0 percent of non-elderly adults have incomes at least four times the poverty line, compared with only 31.6 percent of the elderly.

One important reason why elderly poverty rates are lower even though their average and median incomes are lower is that elderly families receive the income support of Social Security, which typically prevents them from falling below the poverty line. However, because this support is by no means lavish, households relying on it for a significant share of their income often live dangerously close to the poverty line.

Figure A also shows precisely that there is a disproportionately large group of elderly Americans with incomes between the federal poverty line and two times the poverty line. One fourth (25.1 percent) of elderly adults fall into this group, compared with only 16.6 percent of non-elderly adults. This is an economically precarious group of Americans: Modest income levels leave them dangerously vulnerable to changes in federal social programs, even though they are not officially classified as being in poverty.

To read the complete paper, “Financial Security of Elderly Americans at Risk,” click here.