For 1 Out Of 2 Americans, Old Means Poor

Nearly half of people over 65 lives in relative poverty.

That’s higher than I had ever heard. The familiar senior poverty rate is around 10 percent, but it turns out that is a dramatic underestimation. Our retirement crisis is far deeper than we know.

Here’s why: The government’s official poverty measure is out of date and does not take into account the effect of government programs and health costs.

The standard federal poverty threshold is $11,173 for a person 65 or older. That is $931 a month. Think about your life on that income. Typically that amount is doubled to match it closer to reality; still pretty low at $22,574, or $1,862 a month.

But, as I mentioned, that rate was a bit out of date. The official threshold is set at three times the subsistence food budget from 1963, adjusted annually for inflation. That’s a pretty crude instrument.

So, a group of federal agencies came up with the supplemental poverty measure (SPM) in 2010. That not only takes into account more realistic conditions, but also geography. So, it ranges from $9,600 for a single homeowner without a mortgage living in Charlotte, N.C., to about $16,500 for a single adult with a mortgage in San Jose, Calif. It does not change with age. But it is still typically doubled to assess actual poverty.

That means 45 percent of people over 65 are living in poverty, according to the Kaiser Family Foundation, citing 2013 figures.

That picture is likely to darken for tomorrow’s seniors. Here are three reasons why:

• Pensions are dying. Some of today’s seniors have a defined benefit plan that still pays them a monthly check. But few employers offer them (do any anymore?). And the funds that exist are often underfunded.
• Inheritances are burning away. Lengthening longevity means more Americans are living in poor health longer. Just about every family has relatives in some form of expensive long-term care. It’s becoming more common for estates to be drained by health expenses. In fact, more boomers and succeeding generations will find themselves paying rather than receiving.
• Debt is common among older people. Even student debt is sticking around into later years.

I guess I should apologize for sending out this downer bomb on a Friday, but we had just run into the chart that accompanies this post. Ran into it like a wall. How are we going to grapple with this as a country? Given this, we have to do something better than have red or blue people point at red or blue people for blame.

Annuities are part of a real answer to the question. People need to be able to buy a pension that they can call their own. That’s the security on top of Social Security.

Should agents and advisors be making unreasonable money on it? Absolutely not. That issue should be resolved by a partnership between regulators and industry. But the Department of Labor prefers to leave that to the courts.

OK, I don’t want to just leave this as another DOL thing. I just wanted to shed light on these facts and on the larger fact that the American retirement crisis deeper than we might suspect.
We can’t shrug this one away.

Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. He was also vice president of communications for an insurance agents’ association. Steve can be reached at smorelli@insurancenewsnet.com.

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