David Lerner Associates News: Elder Poverty Is Projected to Rise
There has been a lot of talk recently about a looming financial crisis when it comes to Social Security. The Social Security Administration (SSA) itself acknowledges the challenges, noting that the Social Security system “is facing serious financial problems, and action is needed soon to make sure the system will be sound when today’s younger workers are ready for retirement.”
However, what you don’t often hear as much about is how successful Social Security has been in reducing poverty among elderly Americans. Fewer than one in seven seniors today live in poverty, an elderly poverty rate that is substantially lower than it was before Social Security was first signed into law in 1935. In fact, there are fewer poor seniors today than any other age group. The official poverty rate for Americans 65 years of age or over is 9.1 percent, compared to 15.1 percent for all Americans.
How Long Will It Last?
Unfortunately, this good news with regard to elder poverty may not last much longer, as elder poverty rates are projected to rise over the next few decades. The U.S. Census Bureau’s Supplemental Poverty Measure projects that senior poverty will rise by nearly three-quarters (72 percent) between now and 2040 to 17.9 percent.
Underlying these projections are the sheer demographics when it comes to future retirees, as 75 million baby boomers are currently on the verge of retirement. Over the next 20 years, an average of 10,000 people will reach the traditional retirement age of 65 every day. And by 2030, 18 percent of the U.S. population will be 65 years of age or older, up from 13 percent today, and the total number of Americans in this age range will more than double by 2050 — from 40 million currently to 89 million.
Also consider that in the years to come, Social Security benefits will replace a smaller share of seniors’ pre-retirement income. This is due to a gradual increase in the full retirement age from 65 to 67, the taxation of Social Security benefits for higher-income seniors, and changes in how Social Security cost-of-living adjustments (COLAs) are calculated.
In 2015, Social Security will replace just 35 percent of the pre-retirement income of a median worker retiring at age 65. This is down from 39 percent in 2002. By 2030, this replacement rate will fall all the way to 31 percent. Also, more than half (55 percent) of all Social Security beneficiaries this year will pay taxes on their benefits, up from 39 percent in 2000. This figure will rise to 61 percent by 2030, according to SSA data.
Another factor in the projected rise in elder poverty is the drop in the percentage of U.S. households that are covered by defined benefit pension plans. Only 18.3 percent of 55- to 64-year-old households and 10.4 percent of 45- to 54-year-old households now have access to a defined benefit pension plan, and this percentage drops sharply for younger age groups.
Still another big factor in the looming rise in elder poverty is the soaring cost of healthcare, as healthcare inflation continues to outpace Social Security COLAs. Medicare premiums, deductibles, co-pays and out-of-pocket costs for expenses not covered by Medicare rose by approximately one-third (34 percent) between 1992 and 2010 to a total of $5,197 in real terms, according to the advocacy group Social Security Works.
The 2013 Medicare trustees’ report projects that Medicare Part B and Part D premiums will consume 14.3 percent of retirees’ Social Security benefits in 2030 and 15.6 percent in 2035, up from 11.2 percent today.
Statistics like these reinforce the importance of starting to save money for retirement by participating in a retirement plan as soon as possible. Whether this means participating in a 401(k) plan at your workplace or opening an Individual Retirement Account (IRA) on your own, saving early and often for retirement is one of the best ways for many individuals to avoid falling into poverty during their retirement years.
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities. Member FINRA & SIPC
Founded in 1976, David Lerner Associates is a privately-held broker/dealer with headquarters in Syosset, New York and branch offices in Westport, CT; Boca Raton, FL; Teaneck and Princeton, NJ; and White Plains, NY. For more information contact David Lerner Associates Call 1-800-367-3000 Visit our website: http://www.davidlerner.com