By Mark Miller
CHICAGO Feb 11 "Without Social Security, nearly
half of seniors would be living in poverty," President Barack
Obama said last month, noting the 50th anniversary of the war on
poverty. "Today, fewer than one in seven do. Before Medicare,
only half of seniors had some form of health insurance. Today,
virtually all do."
Is the war on elder poverty over? Fewer older Americans are
poor than any other age group - we heard that often in
retrospectives on the war on poverty, and it comes up often in
debates about possible cuts to programs like Social Security and
Fewer seniors fall into the federal government's official
measure of poverty than younger Americans. The official poverty
rate in 2010 for Americans over age 65 was 9.1 percent, much
lower than the 15.1 percent rate for all Americans.
But the numbers mask a worrisome trend: Senior poverty rates
are projected to rise in the years ahead. The only question is
by how much.
A debate is taking shape in Washington over how to measure
elderly poverty rates. Beyond the official numbers, the U.S.
Census Bureau publishes a Supplemental Poverty Measure (SPM)
that includes non-cash income such as as housing assistance,
food stamps or energy subsidies. But some experts say both
measures fall short by failing to adequately measure retirement
Taking savings into account wouldn't affect poverty rates
much for very low-income households, which tend not to have
retirement savings and rely mainly on Social Security. But it
would affect the number of older middle-class households
considered at risk to be impoverished.
The SPM projects that the senior poverty rate will spike by
72 percent between 2010 and 2040, from 10.4 percent to 17.9
percent, says Karen Smith, a senior fellow at the Urban
Institute. But that's misleading on both sides of the ledger,
she says - it misses assets such as retirement saving accounts
and housing, and liabilities such as taxes and health insurance
In a new study, Smith and two co-authors use a sophisticated
income modeling program developed by the Social Security
Administration to project elderly poverty incorporating all
those factors. That model still shows senior poverty rising in
the coming decades, but from a much lower base and on a less
dramatic curve - from 5.9 percent in 2010 to 8.5 percent in
Even if the Census Bureau changes its poverty-measuring
yardstick, the factors driving that increase underscore why this
is no time to declare a truce in the war on elderly poverty.
SOCIAL SECURITY AND PENSION EROSION
Social Security benefits will replace a smaller share of
income in the years ahead, owing to reforms enacted in 1983.
Those reforms included the introduction of taxation of benefits
for higher-income seniors and changes in cost-of-living
adjustments. The big change was a gradual increase in the full
retirement age from 65 to 67. Higher retirement ages act as a
benefit cut, since they raise the bar for receiving full
benefits, no matter what age you retire.
The National Academy of Social Insurance projects that in
2015, Social Security will replace 35 percent of the median
worker's pre-retirement income at age 65 - down from 39 percent
in 2002. And the replacement rate will fall further by 2030, to
Meanwhile, a greater share of Social Security benefits will
be taxed in the future because the tax thresholds aren't indexed
for inflation - more people will be subject to the tax as their
incomes rise. In 2000, 39 percent of beneficiaries paid taxes on
benefits; this year, it will be 55 percent and will hit 61
percent in 2030, according to Social Security Administration
At the same time, fewer households will be covered by
defined-benefit pensions. Federal Reserve data shows that 18.3
percent of 55- to 64-year-old households had defined-benefit
pensions in 2010, but the younger age groups coming up behind
them are much less likely to be covered - just 10.4 percent of
households age 45-54 had a defined-benefit plan, and the numbers
fall sharply from there.
Healthcare inflation has outpaced Social Security
cost-of-living adjustments for two decades. Medicare premiums,
deductibles, co-pays and out-of-pocket costs for items such as
long-term care, dental and vision care (not covered by Medicare)
rose 34 percent from 1992 to 2010, to $5,197 in real terms,
according to research by Social Security Works, an advocacy
The 2013 Medicare trustees' report projects that the program
will keep eating a bigger portion of Social Security benefits -
the average Part B plus Part D premium is projected to go from
11.2 percent of the average benefit in 2013 to 14.3 percent in
2030 and 15.6 percent in 2035.
SHIFTING RETIREMENT DEMOGRAPHICS
Unmarried people and members of minority groups will account
for a greater share of retirees in the years ahead, and will
enter retirement with fewer resources than married, white
households. Black and Latino households are far less likely than
their white counterparts to be covered by a workplace 401(k) or
traditional pension, according to a recent report by the
National Institute on Retirement Security, and two-thirds or
more of minority households have no retirement savings.
There's also an aging effect related to the large baby boom
cohort. "Seniors experience higher poverty rates at advanced
ages," says Smith, "because they tend to have spent down their
retirement savings. As boomers move into very old ages, they
will have the effect of boosting the overall poverty rate."
The trends all suggest this is no time for a truce in the
war on elder poverty. The irony in Obama's hat-tip last month to
Social Security and Medicare is that he has been all too willing
to embrace changes that would cut the value of both programs,
tipping more seniors into poverty in the years ahead.
For example, the "chained CPI" formula for making annual
cost-of-living adjustments to Social Security benefits would
trim inflation adjustments by three-tenths of a percentage point
annually, according to the Social Security Administration. The
president also has proposed shifting a greater share of Part B
premiums to seniors.
President Obama should remember the war on poverty next time
those ideas surface in Washington.