Elderly Poverty in the United States in the 21st Century: Exploring the Role of Assets in the Supplemental Poverty Measure
Official estimates of elderly poverty do not take into account either the medical needs of the elderly, which can be quite extensive, or the assets at their disposal, which may also be extensive. The new Supplemental Poverty Measure (SPM) explicitly takes into account medical needs but has been criticized for not concomitantly taking into account asset portfolios. In this paper we consider both jointly, using an approach adapted from a recent National Academy of Sciences report recommending methods for measuring poverty and medical risk while taking account of assets. We use longitudinal data from the Health and Retirement Study (HRS).
The paper found that:
- Confirming previously published research, the elderly have considerably higher poverty rates under the SPM than under the official measure, and this disparity is driven by the SPM’s treatment of medical out-of-pocket expenditures.
- SPM poverty rates are considerably lower than actual SPM rates when an annuitized portion of liquid assets is incorporated into the measure of resources.
- When both liquid and near-liquid assets are considered, trends and levels of SPM poverty rates are extremely close to official poverty rates.
- SPM poverty rates would be even lower than official rates if all assets, including reverse mortgages on homes, were considered, though this might be considered a less “reasonable” approach by some observers.
- Incorporating assets has differing effects on pre-existing disparities in poverty rates: it exacerbates inequalities by race and marital status but reduces inequalities by age and has little effect on inequalities by gender.
The policy implications of the findings are:
- Government agencies should consider examining the role of assets when assessing the trends and levels of poverty rates among older Americans.
- Promoting savings and asset ownership among younger Americans is likely to pay substantial dividends with respect to the economic well-being of older Americans in the future.