Income of the Aged, 2019

The resources available to people ages 65 and older depend on several factors. For those working full-time, earnings from work can often cover expenses. For those with little or no earnings, income depends on private assets, pensions, Social Security, and welfare and public assistance, and is not always enough to avoid poverty. Despite gaps in the program, Social Security is by far the most important poverty reduction tool in the US. Social Security reduces the age 65 and older poverty rate by more than 30 percentage points. 

The US Social Security Administration (SSA) Income of the Aged Chartbook, 2014 contains several charts and tables that aid in thinking about resources available to people ages 65 and older. In this blog post, I discuss two of my favorite charts from the SSA publication, update the charts for 2019, and create new versions that emphasize the importance of Social Security for disadvantaged groups.

Shares of aggregate income

The SSA chartbook includes a chart (page 17) showing how different income sources contribute to total income for both low- and high-income “aged units”. SSA “aged units” are married couples where at least one partner is age 65 or older and unmarried people ages 65 and older. Aged units are ranked by total income and divided into five equal groups, called quintiles. In 2014, the lowest quintile aged units have total income below $13,500, while the highest quintile aged units have total income above $72,129.

The SSA chart on shares of aggregate income, copied below, shows the importance of Social Security to low-income people ages 65 and older. In 2014, Social Security benefits are 80.7 percent of total income for those in the lowest income quintile, meaning Social Security benefits are more than four of every five dollars received by the group. Cash public assistance and welfare, including Supplemental Security Income, comprise an additional 9.5 percent of total income for the lowest quintile. Those in the highest income quintile also receive Social Security benefits, and the dollar amounts of their individual benefits are often higher than the dollar amounts received by the low-income group. However, the high-income group has high income because of access to other sources of income, such as earnings and pensions.

Using the latest data from the same source, I’ve recreated and updated the above SSA chart for 2019. The story is mostly the same in 2019 as it was in 2014, with a couple differences1. The 2019 quintile limits are higher, meaning overall income has increased; the lowest quintile now captures the fifth of aged units with total income below $15,000 a year, while the highest quintile covers the one-fifth with total income above $89,627. Also, cash public assistance represents a smaller share of income for the lowest quintile in 2019, and asset income provides a larger share of income for the highest quintile. In 2019, Social Security comprises 81.6 percent of total income for the lowest income quintile, compared to 80.7 percent in 2014.

Shares of aggregate income in disadvantaged groups

Total income received by people ages 65 and over, and the sources of this income, both depend heavily on race and ethnicity. Two additional charts showing the shares of aggregate income for Black and Hispanic aged units2 illustrate this point.

Compared to the overall US, the income of Black aged units is much lower at all points of the income distribution; one in five has total income below $10,434 in 2019, and four in five have total income below $54,670. Additionally, Black aged units in the lowest income quintile depend more on cash public assistance, a patchwork of income- and asset-tested welfare programs, including Supplemental Security Income, that fill some of the gaps in Social Security. Among the lowest income quintile of Black aged units, Social Security provides 70 percent of total income.

Additionally, relative to the overall US highest quintile group, the highest quintile of Black aged units have less total income and much less asset income, and depend more heavily on Social Security, earnings, and pensions. Less asset income among Black families is a result of the massive US racial wealth gap. The Federal Reserve reports that the typical White family above age 55 has $260,000 more wealth than the typical Black family in the same age group.

Aged units of Hispanic or Latino origin also have lower income when compared to aged units of any ethnicity. In 2019, one in five Hispanic aged units has total income below $10,128, while four in five have total income below $54,507. Hispanic aged units are relatively less likely to receive Social Security benefits (see chartbook page 11) and depend particularly heavily on income from working. Still, Social Security is nearly 70 percent of income for the lowest quintile of Hispanic or Latino aged units.

Among people ages 65 and older with low income, Social Security provides the vast majority of resources. Yet for many, including the bottom fifth of Black and Hispanic aged units, income is below the US poverty threshold and comes from a patchwork of complicated sources. One way to resolve this is to set the minimum Social Security Old Age benefit to the poverty threshold. Doing so would simplify many older peoples’ lives, increase their income, and eliminate the need for Supplemental Security Income and other public assistance programs. 

Poverty among those ages 65 and older

A 2014 SSA chart shows the poverty rate for subgroups of older people (page 28 and copied below). The chart uses the official poverty measure developed by the SSA in the mid-1960s. The official poverty measure compares pre-tax cash income to a threshold that was initially set to three times a minimal food budget in 1963 and that is adjusted for inflation and by family size. In 2014, ten percent of people ages 65 and older are officially in poverty in the US. An additional 5.2 percent of the age group are considered “near poor” because their total income is between the poverty threshold and 125 percent of the poverty threshold. Poverty rates vary dramatically by group; almost one in five Black people ages 65 and older is in poverty in 2014, with an additional 8.5 percent nearly in poverty.

From 2014 to 2019, poverty fell in the US as more people found jobs and earnings increased. Recreating the above SSA chart for 2019 shows that the poverty rate has fallen among all groups but remains very high, particularly for disadvantaged groups. In 2019, 8.9 percent of people ages 65 and older are in poverty by the official poverty measure, and an additional 4.4 percent are near poverty. The poverty rate of Black people ages 65 and older is 18 percent in 2019, a decrease of only 1.2 percentage points since 2014, despite the unemployment rate for Blacks or African Americans ages 65 and older falling from 7.9 percent in 2014 to 4.6 percent in 2019. Among Hispanics or Latinos ages 65 or older, 17.1 percent are in poverty with an additional eight percent near poverty.

A different measure of poverty

The way poverty is measured in the 2014 SSA chartbook does not take into account some aspects of poverty that disproportionately affect older people in the US. The Supplemental Poverty Measure (SPM) was created in 2009 as a more complete measure of poverty. The SPM identifies whether the cash and non-cash resources that someone has available can meet a poverty threshold that adjusts for inflation and family size as well as additional characteristics such as geography. The SPM also accounts for various expenses, including medical expenses. Medical expenses increase the age 65 and older poverty rate by four percentage points.

The next chart uses the SPM poverty rate instead of the official poverty rate seen in the previous chart. Additionally, the next chart shows the share of each group that is removed from poverty by Social Security, meaning not in poverty specifically because of receiving Social Security benefits. For people ages 65 and older, the SPM poverty rate (12.8 percent) is higher than the official poverty rate (8.9 percent), primarily because the SPM accounts for medical expenses. Among those ages 65 and older in disadvantaged groups, the SPM poverty rate is particularly high. The SPM poverty rate is 21 percent for Black people ages 65 and older and 24.4 percent for people in the age group with Hispanic or Latino origin. 

While old-age poverty is higher than it should be, the importance of Social Security for reducing old-age poverty cannot be overstated. In 2019, despite a booming economy, an additional 31.1 percent of people ages 65 and older would be in poverty if they did not receive Social Security benefits. That is, the SPM poverty rate would be 43.9 percent for those ages 65 and older but instead is 12.8 percent because of Social Security benefits.

Further, more than a third of women ages 65 and older are taken out of poverty by Social Security; the poverty rate for women in the age group is 14 percent instead of 47.5 percent. Perhaps most astoundingly, despite the relatively good economic conditions, more than half of Black and Hispanic people ages 65 and older would be in poverty in 2019 without Social Security benefits. Nearly a third, 32.6 percent, of Black people ages 65 and older are taken out of poverty by Social Security. The figure is slightly less, 29.8 percent, for those of Hispanic of Latino origin.

1 The 2014 and 2019 income categories are not strictly comparable due to a redesign of the survey to better capture pension income. See my calculations

2 The race and ethnicity of a married couple aged unit is defined by the 2014 SSA chartbook as the race and ethnicity of the husband. In the 2019 data, same sex married couples are included, so for these couples I use the race of the older partner or the race of the partner appearing first in the survey if both are the same age.

Poverty and age

Mismatches between the timing in life of labor income and major expenses cause unnecessary poverty in the US. Labor income (earnings from working) is most common between the ages of 25 and 54 and tends to be highest in amount for people in their 40s and 50s. In contrast, education expenses accrue disproportionately to young adults, and healthcare expenses are higher for the elderly. As another example, new parents tend to have lower wages than parents of teenagers while childcare expenses are very high in the first few years of a child’s life. These mismatches between the timing of income and expenses create financial stress and poverty.

One way to see this is to look at poverty by age:

Screenshot from 2019-12-27 19-39-38

The blue area shows the dollar amount of poverty reduced by the combined welfare programs and tax credits. The green area shows the amount of poverty remaining after taxes, welfare, and medical, work, and childcare expenses. The large blue area on the right of each graph shows that market income leaves enormous poverty for the elderly, but that this poverty is reduced to below-average rates by programs such as social security, supplemental security, and medicare. These programs are absolutely critical to poverty reduction but still leave some elderly in poverty.

Two age groups that stand out as facing higher-than-average levels of poverty by disposable income are young adults (students and new parents disproportionately) and those before social security retirement/medicare eligibility age. These groups correspond to the bump in disposable income poverty (green area) around age 20 and again around age 60. These age groups are less likely to work relative to 25 to 54 year olds and therefore have less labor income. Unlike 25 to 54 year olds, those who are younger or older have expenses higher than their income, hence the poverty caused by the mismatch in the timing of income and expenses.

Technical note:

Total poverty is defined as the dollar amount of resources that people are below their Census-defined “poverty threshold”. In the case of market income it is the total amount of money that would need to be given to people for their before-tax labor and capital income to equal their poverty threshold, according to the Supplemental Poverty Measure (SPM). Total poverty by disposable income corresponds with the SPM-poverty-rate-based amount of poverty.