Is the incidence of poverty among elderly individuals too high? Let us consider this hypothetical scenario: What would be an acceptable poverty rate for seniors in America? According to the Organization for Economic Co-operation and Development (OECD), the U.S. has a higher poverty rate among individuals over the age of 65 compared to most other developed countries. Approximately 23% of Americans in this age group live in poverty, placing the U.S. behind 30 other countries within the 38-member bloc. The average poverty rate among these countries is 13.1%.
Furthermore, the U.S. ranks poorly in terms of old-age “poverty depth” compared to other nations, with only Mexico having a worse ranking. “Poverty depth” refers to the average income of individuals below the poverty line. Additionally, the U.S. exhibits higher income inequality among seniors compared to just three other countries. Andrew Reilly, a pension analyst at the OECD, suggests that several factors contribute to these poverty dynamics. The high overall poverty rate in the U.S. exacerbates the issue of poverty in old age. Moreover, the base U.S. Social Security benefit is lower than the minimum government benefit in most OECD member nations.
Reilly further highlights that the U.S. is the only developed country that does not offer mandatory work credits to mothers during maternity leave, which can affect retirement benefits. Other countries also provide mandatory credits to parents who temporarily leave the workforce to care for their young children. Reilly emphasizes that the U.S. public benefits system lacks the security provided by other countries.
However, the U.S. benefit formula is more generous in some aspects compared to other nations. For instance, nonworking spouses can receive partial Social Security benefits based on their working spouse’s history, a feature not commonly found in other countries.
Interestingly, certain researchers argue that the severity of old-age poverty may be overstated by OECD statistics due to differences in methodologies used by U.S. statisticians. According to U.S. Census Bureau data, the poverty rate among Americans aged 65 and above is 10.3%, significantly lower than the figure provided by the OECD. Congressional Research Service (CRS) data also indicates that the old-age income poverty rate has decreased by over two-thirds in the past five decades. While poverty has historically been higher among elderly Americans compared to younger individuals, this is no longer the case since the early 1990s.
Nevertheless, regardless of the baseline used to measure poverty, experts raise concerns about what constitutes an acceptable poverty rate for a highly developed country like the U.S. David Blanchett, a managing director at PGIM, suggests that the mere existence of poverty within a country like the U.S. may not align with societal expectations.
Despite improvements, certain groups of elderly individuals, such as widows, divorced women, and never-married men and women, still remain vulnerable to poverty. Zhe Li and Joseph Dalaker, social policy analysts at CRS, highlight these disparities among different segments of the elderly population.
Two major problem areas persist in the U.S. retirement system. First, a looming Social Security funding shortfall poses a significant challenge for American seniors. The increasing longevity of individuals and the retirement of baby boomers places severe strain on the solvency of the Old-Age and Survivors Insurance Trust Fund, which is projected to run out of money by 2033. Subsequently, payroll taxes would only cover 77% of promised retirement benefits without intervention from Congress.
Olivia Mitchell, an economics professor at the University of Pennsylvania, states that approximately 40 years ago, half of workers were covered by an employer-sponsored retirement plan. However, this figure remains unchanged today. This lack of coverage, known as the “coverage gap,” hampers the ability of individuals to accumulate sufficient retirement savings. Research suggests that individuals are more likely to save when their employers provide retirement plans, but this coverage has not improved despite the shift from pensions to 401(k)-type plans.
While workplace plans are not a panacea, their absence creates a hurdle for amassing retirement wealth. Such plans require voluntary contributions, unlike in countries like the U.K., where participation is mandatory. Additionally, contributing to these plans often necessitates financial sacrifice, which individuals may find challenging considering their other immediate needs, such as housing, food, childcare, and healthcare.
In conclusion, the U.S. faces challenges regarding poverty among the elderly population. While improvements have been made, certain subgroups are still vulnerable to poverty. Social Security’s funding shortfall poses a significant threat to older individuals’ financial well-being, and increasing access to retirement savings plans remains a pressing issue. Addressing these concerns requires a balanced approach that ensures social safety net benefits while promoting personal savings.
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