Panel Paper: Poverty Status of Older Americans: How You Measure It Matters

Thursday, November 7, 2013 : 12:10 PM
Thomas Salon (Washington Marriott)

*Names in bold indicate Presenter

Barbara Butrica1, Karen Smith1 and Howard Iams2, (1)Urban Institute, (2)Social Security Administration

Individuals, particularly older adults, devote a large share of the economic resources to health care costs. Butrica, Johnson, and Goldwyn (2004) found that after housing expenses, health care costs were the largest spending category among older adults. Married adults ages 65 and older spent 20 percent of their total household expenditures on health care, while nonmarried adults spent 16 percent.

The official poverty measure is based on cash income. In part, because of expensive and rising health care costs, the official poverty measure does not paint an accurate picture of older adults’ modern-day economic resources and spending needs. To address these shortcomings, the National Academy of Sciences panel on poverty proposed an alternative poverty measure that accounted for in-kind benefits, capital gains and losses, taxes, and out-of-pocket health spending.

Previous research has found that accounting for these factors is important. For example, Butrica, Murphy, and Zedlewski (2008) used the Health and Retirement Study (HRS) to examine how rates of poverty of adults 65 and older change using alternate resources and poverty thresholds. They found that poverty measures that account for health spending produce higher poverty rates than the official measure. They also found that poverty, even when they include the value of housing and financial assets, remains concentrated among single people, blacks and Hispanics, and adults 85 and older, regardless of how it is measured, because these populations have relatively little home equity or financial assets.

This paper uses the Social Security Administration’s dynamic microsimulation model, MINT, to compare the economic well-being of current and future retirees using the official and alternative poverty measures, including measures that account for retirement savings and other assets. Measures that account for retirement savings and assets highlight the importance of these sources for smoothing retirement consumption and their omission from traditional poverty measures overstates the financial need of seniors. The findings will improve our understanding of retirement security and how this will likely change in the coming decades given rising health care costs and premiums, lower Social Security replacement rates, higher taxation of Social Security benefits, and a rising share of retirement savings in 401k-type accounts.