Nearly one-quarter of elderly Americans are living in poverty, a rate that is one of the highest in the developed world, according to the Organization for Economic Co-operation and Development. Despite this, the U.S. Census Bureau's figures imply that the poverty level among the elderly is decreasing. Experts recommend ameliorating this issue by changing Social Security benefits, a proposal that would be quite expensive given the current instability of the program's budget.
The U.S. retirement system is a complex framework - often referred to as a "three-legged stool" - consisting of Social Security payments, workplace savings plans and individual wealth. Nevertheless, the primary aim of providing a secure retirement for all Americans is not being met. Analyzing why this might be occurring and to what extent seniors have been impacted is not as straightforward as it appears. Its solution, however, has serious implications for public benefits, employer-sponsored savings arrangements such as 401(k)s and pensions. According to Olivia Mitchell, a professor of business economics and public policy at the University of Pennsylvania and executive director of the Pension Research Council, “This is a tricky topic and there isn’t one clear answer.”
Think about this: What is an acceptable level of poverty among older Americans? Measuring it by one criteria, the U.S. is doing worse in comparison with most other nations considered to be developed. Based on statistics from the Organization for Economic Co-operation and Development, it is estimated that 23% of individuals over 65 in America live in poverty, putting the U.S. in last place among the 38 members of the bloc, as the collective poverty rate of these nations is 13.1%.
Data from the Organisation for Economic Co-operation and Development (OECD) indicates Mexico as having the highest old-age "poverty depth," meaning those who are poor have low incomes in comparison to the poverty line. The U.S. only ranks slightly higher, and is one of three countries that have poorer income inequality amongst senior citizens. Andrew Reilly, pension analyst at the OECD's Directorate for Employment, Labour and Social Affairs, believes there are multiple elements which lead to these poverty dynamics. Firstly, the U.S. poverty rate exceeds that of other developed nations, carrying over to old age. The implementation of the U.S. retirement system is believed to compound this existing poverty problem. To add, the basic U.S. Social Security benefit is less than the minimum government benefit granted in most OECD nations.
The U.S. is distinct from most other developed countries in that it does not afford mothers with maternity leave mandatory work credits, a factor which has an impact on the amount of one's retirement benefits. Other nations likewise provide mandatory recognition for those who leave the labor force for a time to care for their toddlers. Reilly commented that U.S. public benefits contain "very little security" in comparison with other countries. That being said, the U.S. benefit formula is more generous than its counterparts in some ways. Mitchell pointed out that, unlike in other nations, nonworking spouses may be eligible for partial Social Security benefits based on the work history of their partner.
Things become a bit more complicated when looking at the figures; certain researchers consider that the OECD's reports on elderly poverty are exaggerated when compared to those of the U.S. Census Bureau. This Bureau states that 10.3% of persons above 65 years old experience poverty, a number much lower than the one revealed by the OECD. To prove this fact, the Congressional Research Service has found that poverty among elderly Americans had diminished by over two thirds during the last half-century. Interestingly, elderly persons have had lower poverty rates than those aged 18-64 since the early 1990s, according to CRS.
"Mitchell stated that it is not the case that elderly individuals in the U.S. have been getting worse off; there has been growth in their standard of living," explained experts. "It is hard to define the level of poverty which would be considered acceptable in such a prosperous nation," said David Blanchett, head of retirement research at investment giants PGIM. "One could easily believe that there should be no poverty at all in a world-leading nation such as ours," he concluded. Li and Dalaker, CRS analysts, pointed out that some sections of the elderly population - notably widows, divorced women and single men and women - remain in positions of vulnerability where deprivation is concerned.
Experts maintain that at least some elements of the system should be modified. It is widely acknowledged that a significant Social Security funding shortage can have the greatest impact on retirees. As people live longer and the baby boomer generation begins their phase of retirement, there is an increasing amount of pressure on the Old-Age and Survivors Insurance Trust Fund which is anticipated to become depleted in 2033. In that scenario, payments from payroll taxes would just suffice to cover around 77% of the retirement benefits set out.
Mitchell noted, "You can make the claim that due to the looming insolvency of Social Security, the financial security of seniors is being placed at risk. This is the basis for the entire American retirement plan."
Experts said that boosting Social Security payouts for individuals with income at the low end of the spectrum would combat elderly poverty but would also require more money to be spent at a time when the program's finances are already shaky. Reilly commented that "The easiest way to combat poverty in retirement is to have a safety-net benefit at a higher level," and said that this would likely be "extremely expensive" in the United States, a country of vast size. Blanchett endorsed this stance, and suggested that these payouts could go hand in hand with a reduction in benefits for higher earning individuals, thus making the Social Security system more progressive. At present, Social Security replaces about 75% of income for those with a quite low income of around $15,000, and 27% for those with a maximum income of around $148,000. By decreasing benefits for some, households would be more inclined to fund their retirement through personal savings.
The lack of access to a workplace savings plan, also called the "coverage gap," is a problem that prevents people from getting more money for retirement, experts say. Studies show that when employers provide retirement plans, employees are more likely to save. But this type of coverage has been basically unchanged in the last 40 years, and employers have been switching from pensions to 401(k)-style plans.Mitchell commented that "about 40 years ago, half of employees had their employers sponsoring a plan, and today, it is still the same." Even if workplace plans are present, it remains voluntary for workers to contribute to them, and they have to make a financial commitment that is not necessitated in other countries like the U.K. Furthermore, it can be hard to accomplish this if they are already dealing with other expenses like housing, food, child care, and health care.
Comments