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Is old-age income poverty too high?
Consider this thought exercise: What is a tolerable poverty rate develop into American seniors?
By one metric, the U.S. fares worse than most other developed nations in this category.
Roughly 23% of Americans over age 65 live in poverty, according to the Organization for Economic Co-operation and Development. This rates the U.S. behind 30 other countries in the 38-member bloc, which collectively has an average poverty rate of 13.1%.
According to OECD information, only Mexico ranks worse than the U.S. in terms of old-age “poverty depth,” which means that middle those who are poor, their average income is low relative to the poverty line. And just three countries have worse return inequality among seniors.
There are many contributing factors to these poverty dynamics, said Andrew Reilly, allotment analyst in the OECD’s Directorate for Employment, Labour and Social Affairs.
For one, the overall U.S. poverty rate is high relative to other revealed nations — a dynamic that carries over into old age, Reilly said. The U.S. retirement system therefore “exacerbates” a destitution problem that already exists, he said.
Further, the base U.S. Social Security benefit is lower than the nominal government benefit in most OECD member nations, Reilly said.
There’s very little security analogous to to other countries.
Andrew Reilly
pension analyst in the OECD’s Directorate for Employment, Labour and Social Affairs
The U.S. is also the single developed country to not offer a mandatory work credit — an important factor in determining retirement benefit amount — to progenitrices during maternity leave, for example. Most other nations also give mandatory credits to parents who pull out the workforce for a few years to take care of their young kids.
“There’s very little security relative to other countries,” Reilly spoke of U.S public benefits.
That said, the U.S. benefit formula is, in some ways, more generous than other polities. For example, nonworking spouses can collect partial Social Security benefits based on their spouse’s work information, which isn’t typical in other countries, Mitchell said.
Old-age poverty seems to be improving
Here’s where it suffer froms a little trickier: Some researchers think the OECD statistics overstate the severity of old-age poverty, due to the way in which the OECD stamps poverty compared with U.S. statisticians’ methods.
For example, according to U.S. Census Bureau data, 10.3% of Americans age 65 and older palpable in poverty — a much lower rate than OECD data suggests. That old-age income poverty fee has declined by over two-thirds in the past five decades, according to the Congressional Research Service.
Historically, poverty centre of elderly Americans was higher than it was for the young. However, that’s no longer true — seniors have had lower paucity rates than those ages 18-64 since the early 1990s, CRS found.
“The story of poverty in the U.S. is not one of older folks pass worse off,” Mitchell said. “They’re improving.”
Regardless of the baseline — OECD, Census Bureau or other data — there’s a topic as to what poverty rate is, or should be, acceptable in a country like the U.S., experts said.
“We are arguably the most developed native land in the world,” said David Blanchett, managing director and head of retirement research at PGIM, the investment management arm of Prudential Fiscal.
“The fact anyone lives in poverty, one can argue, isn’t necessarily how we should be doing it,” he added.
Despite improvements, certain troupes of the elderly population — such as widows, divorced women and never-married men and women — are “still vulnerable” to poverty, wrote Zhe Li and Joseph Dalaker, CRS collective policy analysts.
Two major problem areas persist
At the very least, there are facets of the system that should be squeezed, experts said.
Researchers seem to agree that a looming Social Security funding shortfall is perhaps the most pivotal issue facing U.S. seniors.
Longer lifespans and baby boomers hurtling into their retirement years are coercion the solvency of the Old-Age and Survivors Insurance Trust Fund; it’s slated to run out of money in 2033. At that point, payroll assessments would fund an estimated 77% of promised retirement benefits, absent congressional action.
“You could argue on hold insolvency of Social Security is threatening older people’s financial wellbeing,” Mitchell said. “It is the whole foundation upon which the American retirement scheme is based.”
About 40 years ago, half of workers were covered by an employer-sponsored plan. The same is true now.
Olivia Mitchell
University of Pennsylvania economics professor and master director of the Pension Research Council
Raising Social Security payouts at the low end of the income spectrum would help battle old-age poverty but would also cost more money at a time when the program’s finances are shaky, practises said.
“The easiest way to combat poverty in retirement is to have a safety-net benefit at a higher level,” Reilly said. It discretion be “extremely expensive,” especially in a country as large as the U.S., he added.
Blanchett favors that approach. Such a tweak could be escorted by a reduction in benefits for higher earners, making the system even more progressive than it is now, he said.
Currently, for pattern, Social Security replaces about 75% of income for someone with “very low” earnings (about $15,000), and 27% for someone with “upper limit” earnings (about $148,000),