Incorporating Assets Into the Measurement of Retirement Income and Poverty Among Older Americans

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by Christopher Wimer, Columbia University

One of the crowning achievements of the War on Poverty has been the remarkable declines since the 1960s in elderly income poverty rates. These declines have been largely credited to the expansion of Social Security benefits and their indexation to inflation, which have been thought to bolster retirees’ incomes and prevent large numbers of retirees from falling beneath the poverty line. But recent advances in poverty measurement now suggest that elderly poverty is much higher than we previously thought, particularly because the Census’ new Supplemental Poverty Measure now subtracts out-of-pocket medical expenses from income. This methodological choice leads to substantially higher elderly poverty rates among older Americans, but it has been criticized because it doesn’t take into account the fact that many older Americans have potentially sizable savings and assets with which to meet their needs. This project uses data from the Health and Retirement Study to formally build assets into an augmented measure of poverty for the first time. Based on a method recently developed by the National Academy of Sciences for building assets into a measure of Medical Care Economic Risk, this project adds a portion of liquid assets into measures of retirees’ incomes in order to reassess recent levels and trends of elderly income poverty in a way that accounts for both higher medical spending and the existence of savings and assets.

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