More Older Americans are Poor than the Official Measure Suggests

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Abstract

The number of poor adults age 65 and older has declined dramatically since the official poverty rate was designed back in the 1960s. Today the federal government considers fewer than 1 in 10 older adults to be poor, compared with about 1 in 3 in the 1960s. These estimates show the share of people with insufficient income to meet basic living expenses, such as food and housing. However, substantial research shows that the official poverty measure no longer reflects the true resources or needs of older adults.

The lack of an accurate poverty measure for older adults hampers efforts to reform Medicare and Social Security, which face significant revenue shortfalls. Reform proposals often aim to reduce costs by combining benefit cuts with increased cost sharing for older adults. To target any cuts or increased costs to older adults with the greatest ability to pay, an accurate measure of economic well-being is critical.

Introduction

The number of poor adults age 65 and older has declined dramatically since the official poverty rate was designed back in the 1960s. Today the federal government considers fewer than 1 in 10 older adults to be poor, compared with about 1 in 3 in the 1960s. These estimates show the share of people with insufficient income to meet basic living expenses, such as food and housing. However, substantial research shows that the official poverty measure no longer reflects the true resources or needs of older adults.

The lack of an accurate poverty measure for older adults hampers efforts to reform Medicare and Social Security, which face significant revenue shortfalls. Reform proposals often aim to reduce costs by combining benefit cuts with increased cost sharing for older adults. To target any cuts or increased costs to older adults with the greatest ability to pay, an accurate measure of economic well-being is critical.

How Should We Measure Poverty?

In 1995 the National Academy of Sciences (NAS) recommended changing the way we measure poverty (Citro and Michael 1995). Researchers generally agree with their recommendation to update the thresholds that determine minimum needs. Recent Consumer Expenditure Survey data show that couples need 41 percent more income than singles to cover basic needs, rather than the 26 percent ratio used in the official thresholds. Also, adults age 65 and older require about as much to cover their basic needs as younger adults, not 92 percent as much as assumed in the official thresholds. As a result, the NAS panel recommended raising the needs thresholds by 4 percent for older singles (to $9,167 in 2004, up from $8,825) and by 16 percent for older couples (to $12,915 from $11,122).

Experts also agree with the NAS recommendations to change how income is determined. The official poverty rate considers only basic sources of cash income. The NAS proposed adding realized capital gains and losses and near-cash income, such as benefits from housing assistance and food stamps, and subtracting income taxes. The NAS expert panel also argued that nondiscretionary out-of-pocket medical expenses should be deducted from income because they limit individuals’ ability to purchase other goods. This is particularly important for older adults because they have relatively high medical costs.

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The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

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