Seniors 'Near Poverty' at Risk in Deficit Cuts

Social Security, Medicare, and Medicaid have lifted many from poverty, but just barely.

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Anyone living on a fixed income has to look uneasily at the federal government's rendezvous with deficit destiny. Beyond partisan calls to cut more or less, sooner or later, from different programs, the underlying reality is that stiff budget cuts must be enacted to at least begin narrowing the deficit. Older Americans who don't have the option of seeking additional income have very little choice but to reduce their standard of living should their benefits be trimmed. And for millions of older Americans, there is simply nothing to cut.

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During the past 40 years, one of the seldom trumpeted successes in the United States has been the enormous reduction in senior poverty. Social Security, Medicare, and Medicaid have provided income and health supports that reduced poverty among people age 65 and older from well over 30 percent to less than 10 percent—the lowest poverty rate of any population group in the country. When the dust cleared from the Great Recession, poverty rates had risen for all groups except the elderly. For that group, the poverty rate fell further, to 9.7 percent in 2009 and 8.9 percent last year. By contrast, the poverty rate among children is roughly twice as high.

Now these three big entitlement programs are all in the cross hairs of deficit-reduction proposals. It may be tempting to conclude that seniors have had a great run and that it's time they absorb some hits to help improve Uncle Sam's fiscal health. However, the financial status of America's seniors is more precarious than reflected in that single poverty indicator.

Most senior advocates say the ability of many seniors to weather the recession was due largely to a fluke jump in energy prices in the summer of 2008. This spike drove up overall consumer prices and, even though oil prices retreated, the summer jump caused a record 5.8 percent annual cost-of-living adjustment (COLA) in Social Security benefits in 2009. In 2010 and 2011, by contrast, there has been no increase in the COLA, while healthcare costs continued to rise. And now, food and energy price increases are expected to take a serious bite out of consumer budgets. Such cyclical price swings don't get included in so-called core inflation, and the formal news on the inflation front is still for little changes in these core prices. But in the real world, prices are going up.

[See Public Supports Continued Strong Senior Benefits.]

The federal poverty level (FPL) for pretax income of people 65 and older was $10,289 for a single individual living alone and $12,968 for a couple with at least one older member, according to a recent analysis of U.S. Census Bureau poverty reports done by the Urban Institute, a Washington-based research nonprofit. People with less income made up the 8.9 percent official poverty rate. In addition, nearly three times that many older Americans lived in what's called "near poverty," with pretax incomes between 100 percent and 199 percent of the FPL.

"Of the more than 38 million Americans who were at least 65 years old in 2009, 13 million lived in low-income families, defined as having income less than twice the federal poverty level," the Institute analysis said. Furthermore, the percentages of low-income seniors rise with age. While about a third of all people 65 and older had low incomes in 2009, the total for those ages 75 to 84 was 37.7 percent, and rose to 44.2 percent for people 85 years and older.

Among seniors in poverty, pretax cash income in 2009 averaged $7,783, the Institute reported. Of this amount, nearly 72 percent came from Social Security, 10 percent from earnings, about 5 percent from assets and retirement accounts, and 13 percent from other sources. "Near poor" seniors relied even more heavily on Social Security, getting nearly 75 percent of their average pretax cash income of $18,602 from that source, 12 percent from earnings, 7.5 percent from assets and retirement accounts, and about 5.5 percent from other sources.

[See 4 Retirement Pillars Have Serious Cracks.]

As deficit-reduction proposals circulate, expect AARP and other defenders of senior safety-net programs to speak out about the impact of any cuts on poorer seniors. In addition, there will be renewed pressure to revise the official poverty statistics, which many critics feel sharply understate the true poverty levels of Americans. Federal officials have developed a supplemental poverty measure, the Institute noted. It adds non-cash income from food, housing, and energy support programs, and subtracts income and payroll taxes, child care and work-related expenses, child support payments to other households, and out-of-pocket medical expenses.

"The Census Bureau's preliminary 2009 estimates indicate a 16.1 percent poverty rate among adults age 65 or older using" this measure, the Institute says, "compared with 9.7 percent using the official measure." The poverty rate for younger adults is also higher, it says, while the rate for children is lower. Medical spending was a major component of the higher poverty rate for persons 65 and older.

Twitter: @PhilMoeller