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Poverty Increasing Among Retirees

By Emily Brandon

U.S.News & World Report LP 
May 21, 2012 

http://finance.yahoo.com/news/poverty-increasing-among-retirees-164453772.html

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."

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."

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