No Secure Three-Legged Stool to Support Seniors

November 17, 2016

My recent post on Social Security left out two related pieces of the story — why retirement benefits don’t cover basic living costs and why the concept underpinning Social Security merits rethinking.

Why Social Security Doesn’t Give Seniors Income Security

If Social Security afforded seniors financial security, we wouldn’t have about 6.5 million of them in poverty — or nearly 13.8 million more constrained to live on incomes less than twice the applicable, very low threshold.

This, as I’ve said, is partly because Social Security retirement benefits are based on past wage income. But it’s also because they’re not supposed to suffice for financial security. And they never were.

Sometime in the late 1940s, financial security for retirees came to be commonly characterized as a three-legged stool, supported by Social Security benefits, pensions and private savings.

We see this assumption baked into the benefits, which now average $1,348 a month. That’s less than 150% of the poverty threshold for a single senior.

And the average, of course, masks the range. At the low end, roughly 30% of retirees and their dependents get less than $1,000.

How Other Legs of the Stool Don’t Support It

“All three legs of the stool have been whittled away,” says economist Jesse Rothstein in a paper that proposes a multi-part expansion.

But for Social Security, the whittling is only prospective, i.e., benefits cuts that will occur if Congress doesn’t do something to shore up the Trust Fund — or if Republican policymakers take a knife to them sooner.

What then about the other two legs? Pensions, as you know, are going the way of the woodbine and twine, especially in the private sector.

Employers that can have replaced them with 401(k) accounts or the equivalent — at least, those that think they’ve got to provide some sort of retirement benefit. Far from all do.

The rest don’t necessarily let all their workers participate. They can legally exclude those who don’t work, on average, close to half time. They may, in some cases, exclude workers supplied by temporary agencies — and in all cases, those they’ve misclassified as independent contractors.

Workers who are eligible don’t all seize this opportunity to save for retirement. About 16% of those nearing retirement age don’t — roughly the same as the percent of workers nearing middle age.

Those who do participate often don’t contribute the maximum they can. Only 10% did shortly before the Great Recession set in. Many of the rest presumably couldn’t afford to. Probably still can’t.

Rothstein flags other problems with the 401(k)-type plans. First off, they generally allow workers to decide how to invest the money they’ve contributed, within limits imposed by the financial plan or plans their employers offer.

These come with fees that look small, but add up over time. And, face it, knowing enough to choose which funds to invest in — stocks, bonds, a variable mix — and knowing when to move money around and when to sit tight require considerable expertise.

This is one, but far from the only reason that long-time workers lost, on average, 25% when the Great Recession set in.

These hazards apply equally to Individual Retirement Accounts, though the much lower limit on contributions necessarily limits losses. Gains also, of course.

Don’t look to the third leg to offset the weaknesses of the others. Seems that a very large number of working-age adults simply don’t have enough money to save — or at the very least, spend all their take-home pay.

Well over a third who earn less than $50,000 a year have no money in a savings account, according to a recent survey. An additional 35% have less than $1,000 — a minimal cushion against any unusual expense or income loss.

Low-income households headed by someone nearing retirement age have less than $10,000 in liquid assets, including money in bank accounts, retirement savings accounts and other sources they could readily tap, e.g., the cash value of a life insurance policy.

For all these reasons, Social Security is the major source of income for most of us older folks — and virtually the only source for 21% of married couples and about 43% who aren’t married, including presumably those whose spouses have died.

What If We Do Nothing

Rothstein is far from the only expert to seize on problems with our current system for financial security in our “golden years.” A team of economists predicts that the number of poor and near-poor retirees will increase 146% by 2022 if nothing’s done about Social Security and retirement savings accounts.

The increase could actually be larger because they don’t project for seniors over 74 years old. Even so, nearly 24% of all but the top-earning workers who were nearing retirement age in 2012 will be poor or near-poor only four years from now.

And if they’re struggling then, they sure won’t be better off if they manage to survive to a ripe old age, despite the hardships they’ll have suffered.



Better Poverty Measure Shows Worse U.S. Poverty Rate

November 6, 2013

We should be used to this by now. The Census Bureau has just reported a higher national poverty rate than the rate it reported in September. According to its Supplemental Poverty Measure, the rate is 16%, instead of 15%, as the official measure indicated.*

This means that somewhat over 2.7 million more people — a total of 49.7 million — were living in poverty last year. On a somewhat brighter note, the percent of people living in severe poverty, i.e., below 50% of the applicable threshold, is again lower — by 1.5% — than the official measure shows.

We again see shifts up and down for state-level rates as well.

For example, the rate for the District of Columbia rises from 19.3% to 22.7%, according to the three-year averages the Census Bureau uses for the SPM. Rates based on the three-year averages dropped in 28 states and increased more than the District’s in five.

As in the past, we also see shifts in rates for different age and race/ethnicity groups. For example, the poverty rate for blacks dips from 27.3% to 25.8%, while the poverty rate for Asians rises from 11.8% to 16.7%.

The poverty rate for non-Hispanic whites is still the lowest, but it’s higher than the official rate — 10.7%, as compared to 9.8%.

The rate changes all reflect differences between the crude, official measure and the SPM, which goes at poverty measurement in a different — and more sensible — way.

I’ll forgo another summary of how the SPM works. I took a stab at one last year and the year before. And the Census Bureau has a more extensive (and wonkish) explanation in its report.

From a policy perspective, both the overall higher poverty rate and the rate shifts are especially important because they show both the impacts and the limits of major federal benefits programs.

So far as the rate shifts are concerned, the most striking are those for the young and the old.

  • The child poverty rate drops from 22.3% to 18%, reducing the number of children in poverty by about 3.2 million.
  • For children, the severe poverty rate is less than half what it is under the official measure — 4.7%, as compared to 10.3%.
  • The poverty rate for seniors rises from 9.1% to 14.8%, increasing the number of poor people 65 and older by nearly 2.5 million.
  • The severe poverty rate for seniors also rises, from 2.7% to 4.7%.

The higher rates for seniors reflect principally the amount they spend on medical out-of-pockets, e.g., deductibles, copays.

This seems to me pretty good evidence that the chained CPI, which could still become the new cost-of-living adjustment measure for Social Security benefits, would disadvantage the 36% of seniors who rely almost entirely on them, as well as younger people who receive them because they’re severely disabled.

At this point, however, Social Security remains by far and away the single most effective anti-poverty program we’ve got. The SPM report shows that, without it, 26.6 million more people of all ages would have been poor — and the poverty rate for seniors a whopping 54.7%.

The report speaks to another issue that Congress is debating — and one that it isn’t, but should deal with swiftly.

The hot issue is SNAP (the food stamp program) — not whether to cut it because Congress has already done that, but by how much more.

So it’s useful to know that pre-cut SNAP benefits lifted well over 4.9 million people, including 2.2 million children, out of poverty last year. They were the single most important factor in the marked drop in severe child poverty, the Center on Budget and Policy Priorities reports.

The back-burner issue is the soon-to-expire Emergency Unemployment Compensation program, i.e., cash benefits for workers who’ve been jobless longer than their regular state programs cover.

I may have more to say about this, but will note here that unemployment insurance benefits generally reduced the SPM poverty rate by somewhat less than 1% — about 2.54million people.

UI benefits have lifted fewer and fewer people out of poverty since 2009 — mainly because fewer jobless workers are receiving them, according to a recent CBPP analysis based on other Census figures.

Retrenchments Congress made in the EUC program in early 2012 are part of this story. I suppose more recent figures would show the impact of sequestration as well.

House and Senate negotiators apparently still hope to stop the across-the-board cuts — at least for while. But this is a far cry from an agenda that would bring the very high poverty rate back down to where it was when we rang in the 21st century.

* The SPM report cites 15.1% for the official measure, noting that this is not statistically significant from the previously reported figure. Several other official measure figures in the report also differ from those the Census Bureau earlier reported.

The differences, if I understand correctly, reflect the fact that the SPM universe includes children under 15 who are living in a household with adults to whom they’re not related. For comparability, I’m using the official measure figures in the SPM report here.

We Shouldn’t Have to Choose Between Kids and Seniors

March 6, 2013

A striking full-page ad in last Sunday’s Washington Post. A toddler and an elderly woman, both posed as boxers, below the headline “Who Is More Important?”.

Here we go again, I thought. Another message about how spending on Social Security retirement benefits and Medicare is impoverishing the next generation.

But no. The actual message is “We Shouldn’t Have to Choose.” Helping to lift seniors out of poverty is good. We should make the same choice for kids.

The evidence the ad gives is a contrast between child and senior poverty rates. The former is a year out of date, but this doesn’t make much difference because the most current official rate — 21.9% — isn’t significantly lower than the rate for 2010.

Where the ad creators got their senior poverty rate (9.3%) is a mystery to me. The latest official poverty rate for seniors is 8.7% — surely better for the case the nonprofit advertiser is making.

If the figures aren’t right, the overall message surely is. Our child poverty rate is shamefully high. And Social Security is undoubtedly one of our most successful anti-poverty programs — arguably the most successful.

Though we don’t have poverty rates dating back to 1939, when it was created, we do have figures showing a dramatic drop from 1960 forward. The latest reported rate is about four times lower than the rate that year.

And Social Security benefits were the most important factor. The senior poverty rate without them would have been a mind-boggling 54.1%.

These are the official poverty rates, of course. The Census Bureau’s Supplemental Poverty Measure produces a higher senior poverty rate, mainly because it factors in out-of-pocket medical expenses.

The latest SPM boosts the senior poverty rate to 15.1%. This is nevertheless far lower than it would be without Social Security benefits.

So how would we achieve anything like the same result for kids?

The organizations named in the ad — the Next Generation and its campaign spin-off Too Small to Fail — clearly don’t want a replica of Social Security and have thus far said little about affordable health care insurance for kids.

Their aim at this point is to start a national conversation — and apparently to build a sense of responsibility among businesses, policymakers, parents and other caregivers.

The fact sheets on the Too Small website tee up a host of issues gathered under four main headings — education, health, work-life conflict and 24/7 media, i.e., the benefits and perils of access to computers and other digital technologies.

Most, but not all of the issues disproportionately affect low-income children and youth. And addressing them would, as the campaign says, increase social mobility — specifically, the likelihood that children born at the bottom fifth of the income scale will move up in adulthood.

But it’s hard for me to see how the agenda one might derive from the fact sheets would significantly reduce poverty among this generation of kids while they’re still kids — or for that matter, significantly mitigate the hardships that affect them, e.g., hunger, homelessness, acute parental stress.

These, as we’ve been told many times, help explain why so many low-income children perform so poorly on the achievement tests that are now the make-or-break for schools, teachers and ultimately students.

Perhaps the diverse topics for our national conversation will eventually shake out into an actionable policy agenda.

My own sense, however, is that they wouldn’t “create the protections and level of support that are afforded our seniors” — as limited as those are.

For that, we’d need to revisit the principles underpinning major elements of our safety net. First and foremost, however, we’d need a reset of the priorities reflected in the across-the-board cuts that began this week.

Education alone will take a $2.1 billion hit this fiscal year and possibly additional cuts thereafter as Congress parcels out spending so that the totals will come in below the mandatory spending caps — unless, of course, it can agree on an alternative.

A remote possibility now, but down the road apiece a big threat to Social Security benefits.

We need to “fight together for America’s next generation,” as the Post ad says. But we may well need to fight together for the elder generation too.

Census Bureau Reports 16.1% Poverty Rate

November 15, 2012

Another round of news on poverty in the U.S. — this time from the Census Bureau’s latest report on the results of analyses using its Supplemental Poverty Measure.

Once again, the national poverty rate is higher than the rate the Bureau earlier reported, using its official measure — 16.1%, as compared to 15.1%.

In other words, about 3 million more people — a total of nearly 49.7 million — were living in poverty last year.

On the other hand, the percent of people living in extreme poverty, i.e., below 50% of the applicable threshold, is 1.5% lower than the official measure shows.

We get a mixed picture for state-level poverty rates, for which the Bureau uses three-year averages. Some of the rates are higher than the official rate. Some lower.

The rate for the District of Columbia rises sharply — from 19% to 23.2%. This is higher than the rate for any state except California.

As I’ve written before, the official measure sets poverty thresholds at three times the annually adjusted costs of what used to be the U.S. Department of Agriculture’s cheapest food plan.

The SPM starts from the costs of basic living expenses, adjusted for differences among major geographic areas and also differences in living situations, e.g., renting versus owning.

To these, it adds some other “necessary expenses,” e.g., payroll taxes, health care co-pays and other out-of-pocket costs.

On the other side of the ledger, it takes account of not only cash income, but some “near-money” federal benefits like tax credits and also some in-kind benefits, e.g., food stamps, two forms of child nutrition assistance, housing subsidies.

And it uses actual household size, rather than counting only household members who are related to one another, as the official measure does.

These differences explain not only the difference between the overall SPM rate and the official rate, but shifts in rates for different age and race/ethnicity groups.

We see, for example, that:

  • The child poverty rate drops from 22.3% to 18.1%, reducing the number of children in poverty by about 3 million.
  • The poverty rate for seniors rises from 8.7% to 15.1%, increasing the number of poor people 65 and older by somewhat more than 2.6 million.
  • The poverty rate for blacks drops from 27.8% to 25.7% — still far higher than the non-Hispanic white rate of 11%, but now 2.3% lower than the rate for Hispanics.
  • The poverty rate for Asians rises from 12.3% to 16.9% — the largest percent change for any race/ethnicity group reported.
  • For children, the extreme poverty rate is less than half what it is under the official measure — 5.1%, as compared to 10.3%.
  • For seniors, however, the extreme poverty rate rises — from 2.3% to 4.3%.

This year’s report is unusually timely because it gives us a read on the anti-poverty effects of some benefits that are at immediate risk. It tells us that:

  • Food stamp benefits lifted more than 4.6 million people, including  about 2.1 million children, out of poverty last year.
  • Well over 8.6 million more people, including nearly 4.7 million children, would have fallen below the poverty threshold if their family’s disposable income hadn’t been boosted by refundable tax credits.
  • Unemployment insurance benefits kept nearly 3.4 million people out of poverty — mostly adults, but about 963,400 children too.
  • And Social Security — the single most effective anti-poverty program we’ve got — accounted for 25.6 million fewer poor people than there would have been without its benefits. Poverty rates for all age groups would have been higher. The rate for seniors would have soared to 54.1%.

So there are the benefits. Now here are the risks.

The farm bills now pending in Congress would cut food stamp benefits for at least half a million households — 1.3 million if the House version prevails. The House bill would also mean no more food stamps at all for as many as 3 million people.

As you’re well aware, the Bush-era tax cuts are expiring. We can be quite confident that most will be renewed.

But Congressional Republicans want to extend earlier versions of the refundable Earned Income Tax Credit and Child Tax Credit, not the expanded versions that have made a significant difference to low-income working families.

The federal program that funds unemployment insurance benefits for longer-term jobless workers will also soon expire. Some two million workers and their families may face the new year with no source of cash income.

Lead Republicans in Congress are about to sit at the bargaining table with their Democratic counterparts and White House officials to thrash out an alternative to the so-called fiscal cliff.

They say they’ll be amenable to increased revenues (not to be confused with higher tax rates for the wealthiest 2%).

But the deal must also include “real changes to the financial structure of entitlement programs” — apparently something along the lines of the recommendations in the plan produced by the co-chairs of the President’s fiscal commission, a.k.a. Bowles-Simpson.

These recommendations would cut Social Security retirement benefits in several different ways. With the average benefit now only $1,230 a month, we could see more seniors in poverty if the Democrats don’t hold firm to the position they’re taking now.

NOTE: A couple of the benefits impact figures reported by the Center on Budget and Policy Priorities are a bit higher than mine. This is also true for figures reported by the Center for American Progress. I’m at a loss to explain the discrepancies.

Census Poverty Rates Defy Predictions

September 12, 2012

Well, the crystal ball gazers blew it. The Census Bureau just reported that the poverty rate didn’t rise last year. The official 15% rate isn’t statistically different from the 2010 rate, it says.

This is surely good news. It nevertheless means that more than 46.2 million people were so poor as to fall below the Bureau’s very low poverty thresholds.

And well over 20.3 million — 6.6% — were so extremely poor as to fall below 50% of the applicable threshold. This is what’s commonly referred to as severe poverty.

What also hasn’t changed is the distribution of poverty across different age and race/ethnicity groups. For example, in 2011:

  • The child poverty rate was 21.9% — not statistically different from the rate in 2010.
  • The poverty rate for seniors was 8.7% — again, virtually the same as the 2010 rate.
  • The black poverty rate was nearly triple the poverty rate for whites — 27.6%, as compared to 9.8%.
  • The poverty rate for Hispanics was 25.3%.

Poverty rates among family types also replicate a familiar pattern. The percent of married couples who were officially poor was 6.2%, while the rate for single-woman households was five times higher — 31.2%.

Severe poverty rates were, of course, lower. But they mirror the same disparities. For example:

  • Nearly 1 in 10 of America’s children — 9.8% — lived in severe poverty last year.
  • The severe poverty rate for blacks was 12.8% and for Hispanics, 10.5%.
  • By contrast, severe poverty afflicted 4.4% of whites and only 2.3% of seniors of all racial/ethnic groups combined.

What we’re to make of all this I’m really not sure. We’ll undoubtedly have many analyses in days to come.

In the interim, we can ferret out of the Census report a couple of policy-relevant messages, based on examples it provides of what the statistically adept can find out by using its online tool.

One we might guess from the relatively low senior poverty rate. Without Social Security benefits, about five times as many elderly people would have been counted as poor.

This is surely a testimony to one of our oldest anti-poverty programs — and a warning of what could happen if some of the “reforms” that are being widely promoted became law.

An additional 2.3 million people were lifted above the poverty threshold by unemployment insurance benefits.

A more imminent danger here because more than 2 million jobless workers will lose these benefits in January if Congress doesn’t extend the only still operative federally-funded UI program.

Millions more will have, at most, 26 weeks of benefits — this at a time when 40% of those actively looking for work have been unemployed for longer.

So here’s a case where our federal policymakers could keep what are still really depressing poverty numbers from getting worse.

Whether they will or not depends on what voters decide in November.

Fabricating a War Between the Old and the Young

July 16, 2012

Popular centrist Matt Miller has joined the chorus against health care and pension programs for seniors, i.e., Social Security and retirement benefits for state public employees.

They’ve saddled the government with obligations that leave it without “the cash or flexibility to address emerging non-elderly needs.”

He’s not the only one to pit the interests of seniors against those of the younger generation.

Stephen Marche, for example, styles spending on Social Security and Medicare as “The War Against Youth.” The baby boomers, he says, are “eating the young at the dinner table.”

Congressman Paul Ryan warns that younger Americans are “on the hook for trillions of dollars in unfunded liabilities,” e.g., the commitments inherent in our Social Security and Medicare programs.

And they’re already “in a tough position” because those government “transfer programs” are building the “wealth gap between the elderly and the young.”

More and more of our limited resources are going to higher-income households that don’t need assistance. All those well-off baby boomers sucking up funds that could otherwise be spent on … well, it’s not altogether clear.

This, after all, is the Congressman whose budget plan would radically cut programs for the bottom fifth of households — those he’s purportedly concerned about.

Former Senator Alan Simpson takes the argument to a whole other level — up in heat and down in civility.

Back when he was co-chairing the President’s fiscal commission, he blasted individuals and organizations that had raised concerns about what the commission might do to Social Security — as well they should have, given what he and co-chairman Ernest Bowles came up with.

The advocates, Simpson said, “don’t care a whit about their grandchildren.” The people writing him were “old cats … who live in gated communities and drive their Lexus to the Perkins restaurant to get the AARP discount.”

He recently doubled down with a letter that calls a protesting organization “a group of wretched seniors” — “greedy geezers” who use young people as “a front for [their] nefarious bunch of crap.”

Set aside, if we can, the potty-mouthed language. Simpson too is framing the Social Security issue as a conflict of interests between the old and the young,” with the old winning out because the organizations that represent them “make money pretty good by juicing up the troops.”

I suppose I’m a tad sensitive to allegations that seniors care only about themselves — not to mention the notion that we advocate only because we’re juiced up by some rabble-rousing profiteers.

What got me going here, however, are two other things.

One is an egregious distortion of Social Security and Medicare benefits.

While it’s true that well-off seniors as well as others receive them, they’re already, to some extent, adjusted according to means.

High-income seniors receive lower Social Security benefits relative to the payroll taxes they contributed during their working years. They pay higher premiums for the portion of Medicare that covers non-hospital costs as well.

More importantly, relatively few seniors enjoy such wealth as to make Social Security benefits merely a source of discretionary income for fancy cars and the like.

More than half rely on their benefits for at least 50% of their cash income. Without those benefits, 13.8 million more seniors would have fallen below the Census Bureau’s very low poverty thresholds in 2010.

Second, this portion of the entitlements dialogue exemplifies a framing I’m seeing elsewhere.

We’re being given to understand that our federal budget is — and must be — a shrinking pie. A slice for one group necessarily deprives another. Or a slice for one need necessarily leaves another unmet.

No one, I think, would argue that every single program we have should be kept intact and amply funded.

But we’ve got more than enough wealth in this country to ensure that everyone has enough to live in reasonable comfort and opportunities, in Ryan’s words, to “make the most of their talents and dreams.”

We effectively deny this when we pit one group’s legitimate interests against another’s. We deny the common interests and mutual obligations we have as a community.

And we most surely, whether intentionally or not, foster the divide and conquer strategies of those who want to send us back to the radical individualism of the late 19th century, when social doctrine celebrated survival of the strong and death, by deliberate neglect, of the weak.