Poverty Among the Elderly
Inadequate retirement saving and poor risk management increase the likelihood that a person will spend at least a portion of retired life in poverty. Using the U.S. government’s official poverty line, poverty rates among the elderly have declined long-term (Wentworth and Pattison, 2002). Another study focused on more recent changes (Issa and Zedlewski, 2011, p. 5):
The Great Recession, which began in December 2007, reduced incomes and increased poverty for younger Americans. Between 2007 and 2009, the poverty rate for those younger than 65 increased from 18.0 to 20.7 percent. For adults age 65 or older, however, poverty rates fell from 9.7 to 8.9 percent, and the share living in low-income families fell from 36.1 to 33.7 percent [see Figure 7-1-1]. Old-age poverty declined primarily because Social Security’s cost-of-living adjustment formula increased benefits by 5.8 percent in January 2009 (following a temporary surge in prices in mid-2008), while the price level fell slightly in 2009. This benefit increase significantly boosted incomes for low-income older adults, who rely primarily on Social Security. Poverty and near-poverty rates for adults age 75 or older declined more than for adults younger than 75 because Social Security makes up a larger share of their incomes. The incidence of near poverty fell slightly between 2007 and 2009–0.2 percentage points—among adults age 65 to 74. Their poverty rate fell more sharply, from 8.8 to 8.1 percent.
Still another study (Short, 2011) computed new poverty numbers using a broader definition of income, and it finds poverty among the 65+ group to be 15.9 percent, versus 15.6 percent for those aged 10–64. The new measure differs from the official poverty line as follows (p. 8): “The official poverty measure does not take account of
concepts/measurements of poverty. It is quite conceivable that many people could save too little yet not be in poverty. One of the goals of the follow-on study to this report will be to quantify inadequacy according to different definitions and measurements and thereby obtain a better understanding of the relationship between poverty and retirement saving.
Workplace Retirement Income Plan Risk
Americans’ retirement saving adequacy is strongly influenced by whether people participate in a workplace retirement income program. In the United States, pensions are usually of the DB or DC variety, though a plan may also be structured as a hybrid with both DB and DC characteristics. Employers who sponsor a DB plan typically offer coverage to most employees and require participation in the plan.7 Private sector employers
7It should be noted that while a DB plan generally offers broad coverage, workers may lose any rights to pension benefits if they leave the organization that sponsors the plan. In other words, there is individual risk in DB plans associated with worker mobility.