Growing numbers of older Americans are spending their retirement years in poverty, according to a recent Employee Benefit Research Institute study. The proportion of older people living below the poverty line has been growing steadily since 2005, and many of those people are falling into poverty as they age and spend down their savings.
Poverty rates for people ages 65 to 74 climbed from 7.9 percent in 2005 to 9.4 percent in 2009, according to the EBRI analysis of University of Michigan health and retirement study data. For older retirees ages 75 to 84, there was an even steeper increase, from 7.6 percent to 10.7 percent over the same time period. But it's the oldest retirees who are the most likely to live in poverty: 14.6 percent did so in 2009.
Many older Americans are falling into poverty as they age. In 2009, the most recent year included in the study, 6 percent of those age 85 older were new entrants in poverty, up from 4.6 percent in 2005. And while 3.3 percent of people ages 75 to 84 fell newly into poverty in 2005, that number increased to 5.6 percent by 2009.
One of the biggest drivers of poverty in old age is failing health and the associated medical costs. Most retirees living below the poverty line (70 percent) have suffered acute health conditions such as cancer, lung disease, heart problems, or stroke, compared with 48 percent for those above the poverty line, according to health and retirement study data. And almost all senior citizens living in poverty (96 percent) have some sort of health condition, such as high blood pressure, diabetes, psychological problems, or arthritis, versus 61.7 percent of retirees with incomes above the poverty line.
"Medical expenditures go up for the elderly as they age and medical expenses have been rising over the past decade very rapidly," says Sudipto Banerjee, a research associate at EBRI and author of the report. "A lot of people have to move to nursing homes, and nursing homes are very expensive. People who live there, they lose their income and assets very quickly."
Many people also spend down their retirement savings too quickly, especially during recessions. "As people age, personal savings and pension account balances are depleted," says Banerjee. "Also, the rising poverty rates noted correspond to the two economic recessions that occurred during the last decade. I would expect that as the economy does better, the rates will go down."
Comment: Alas, the economy is not doing better. As medical expenses have continued to rise and interest rates have remained at virtually zero for the last four years, we can only assume a very sharp increase in the rate of poverty among the elderly since 2009.
Once you have spent your nest egg, your only remaining source of income is likely to be Social Security. Social Security payments are based on your earnings during your 35 highest earning years in the workforce. Those who didn't work for 35 years get smaller payments because zeros are included in the average.
Poverty rates for women were nearly double that of men in almost all years between 2001 and 2009. In 2009, poverty rates were 7 percent for men and 13 percent for women. And both men and women who are single have significantly higher poverty rates than married couples. When one spouse dies, the total Social Security benefit received by the household often decreases.
The Census Bureau reports that 9 percent of people age 65 and older lived below the poverty threshold in 2010. But there is an incredible amount of geographic diversity in poverty rates, ranging from over 25 percent in Opelousas-Eunice, La., and Gallup, N.M., to less than 2 percent in Pocatello, Idaho, Helena, Mont., and Ames, Iowa.
A recent Urban Institute study predicts that poverty rates for people at age 67 are likely to decline in the future. The analysis projects that 7 percent of Depression-era babies are expected to live in poverty at age 67, compared with 6.1 percent of late baby boomers and 5.7 percent of Generation Xers. However, retirement poverty is expected to increase for people without advanced education. For example, the study predicts that retirement poverty rates for high-school dropouts could increase from 13.5 percent among Depression-era babies to 24.9 percent for the oldest baby boomers.
Older retirees may have few opportunities to pull themselves out of poverty once they have crossed that threshold. The elderly may not have many opportunities for employment, and could be limited by health issues.
The Urban Institute expects retirement income inequality to increase dramatically over time. The study found that among Depression-era babies, the median income in the top income quintile will be 7.5 times higher than in the bottom income quintile. For Generation Xers, the retirement income gap will increase to a factor of 10.4. "More income for boomers and Generation Xers is from retirement accounts and less from defined-benefit pensions, and a larger share of income will be from earnings," says Barbara Butrica, senior research associate at the Urban Institute and coauthor of the report. "If we look at their [retirement income] replacement rates, Generation Xers and boomers are projected to be significantly worse off on a relative basis."