by We see stories about the elderly in poverty. How can someone who’s worked their entire life end up in poverty? Are most of the elderly in poverty or just a small minority? Are more and more of the elderly living in poverty? I did some research to answer some of these age old questions (pun intended). I also included lessons learned from stories of the elderly in poverty that you can incorporate into your own life.
Contents
Elderly in Poverty Stories
I noticed a few articles that mention elderly people who need to continue working out of necessity.
Roberta Gordon, 76, works at her local grocery store and hands out samples, earning $50 a day because she needs the money.
Tom Coomer, 79, has retired twice in his life. After realizing his social security check was not enough, he returned to work as a full time greeter at Walmart.
We’ll dissect these articles in greater detail later on in this post.
1 in 12 seniors aged 60 and older — 5.5 million or 7.7% of the senior population — didn’t have enough food in 2017, according to a study by Feeding America, a nonprofit organization that operates food banks. Source: Marketwatch
After reading these stories, I felt terrible. I felt sad that it appeared that many seniors could not retire comfortably.
I had so many questions. Why couldn’t these people retire comfortably? Was it sheer bad luck? Was it “the system”? Did they make financial mistakes, and if so, what can we learn from them? How widespread is the problem?
Trying to find the Truth
I decided to do my own research to determine how widespread poverty is among seniors.
According to a Congressional Research Service report:
In 2017, approximately 9.2% of Americans aged 65 and older had income below the poverty thresholds.
In 2017, the 9.2% poverty rate among Americans aged 65 and older was lower than the 11.2% poverty rate among adults aged 18 to 64 and the 17.5% poverty rate among children under 18 years old.
Wait, what?
This means that the poverty rate among seniors is LOWER than the poverty rates of either children or adults.
The report goes on to say that the poverty rate among Americans aged 65 and older has declined by almost 70% in the past five decades.
In other words, the issue of poverty among the elderly has not gotten worse. On the contrary, it has improved rather notably.
Who are the Congressional Research Service, the author of this report? Are they just some fiscally conservative greedy capitalists who want to eliminate social security to save money on their taxes? According to their website, the answer is probably not.
“The Congressional Research Service (CRS) works exclusively for the United States Congress, providing policy and legal analysis to committees and Members of both the House and Senate, regardless of party affiliation. As a legislative branch agency within the Library of Congress, CRS has been a valued and respected resource on Capitol Hill for more than a century. […]
CRS is well-known for analysis that is authoritative, confidential, objective and nonpartisan.”
Source: https://www.loc.gov/crsinfo/
Furthermore, The New York Times in its 2015 article titled “An Aging Society Changes the Story on Poverty for Retirees” provided a chart with a similar narrative. Poverty among the elderly has clearly been on the decline.
Dissecting the Poverty Stories
Based on the data, it’s clear that the poverty rates among the elderly are dropping, and poverty rates among the elderly are lower than that for adults or children.
Armed with my newfound knowledge, I decided to revisit the previous stories about the elderly in poverty and attempt to answer several questions including the purpose of the articles and what can be learned:
The Atlantic article about Roberta Gordon, 76, grocery store clerk
- What was the purpose of the article?
I can only hypothesize what the purpose of the story is.
The full title of the Atlantic article is: “This Is What Life Without Retirement Savings Looks Like… Many seniors are stuck with lives of never-ending work—a fate that could befall millions in the coming decades.”
I wouldn’t necessarily call it clickbait, but it is definitely alarmist.
The article states, in part:
“The problem is growing as more Baby Boomers reach retirement age—8,000 to 10,000 Americans turn 65 every day, according to Kevin Prindiville, the executive director of Justice in Aging, a nonprofit that addresses senior poverty. Older Americans were the only demographic for whom poverty rates increased in a statistically significant way from 2015 to 2016, according to Census Bureau data. While poverty fell among people 18 and under and people 18 to 64 from 2015 to 2016, it rose to 14.5 percent for people over 65, according to the Census Bureau’s Supplemental Poverty Measure, which is considered a more accurate measure of poverty because it takes into account health-care costs and other big expenses.”
I haven’t fact checked these numbers, but even if they are true, it can be misleading to characterize this as a problem that is growing, based on one year’s worth of data.
The article concludes with two possible solutions to help seniors.
The first is to establish a federal program to help people save for retirement through payroll deductions.
- My interpretation: While the intent is good, forcing people to save more into a federal program sounds no different than establishing a second Social Security program. By forcing people to save, you’re effectively, by force, decreasing the current standard of living for people of working age. People can elect to do this voluntarily through programs such as 401(k), Roth 401(k), IRA, Roth IRA, among many other options.
The second possible solution the article mentioned include “affordable-housing options, creating programs to help seniors cover medical costs, and reforming the Supplemental Security Income program so that poor seniors can receive more benefits.”
- My interpretation: Once again, while the intent is good, hardly is there a situation in which one benefits without a cost. Who pays for seniors to receive additional benefits? Are the 20-year olds paying to receive a benefit they may or may not receive 45 years later? Should they be doing that by paying a forced tax or should they have the freedom to do that voluntarily through their own savings?
- Providing resources to the elderly sounds like a noble ideal to better their lives. Nobody will outright say: “No, I don’t want to help the elderly in poverty.” But we have to think about the best solution. This particular solution may help the current generation of the elderly, but to sustain such a program would require massive upkeep to help next generations of the elderly year after year, decade after decade. Is this the best solution? What if we provided financial education to people early and often, teaching them how to budget, save, and invest? How many more people would we help?
I think if you’re not careful in reading this article, you might conclude that poverty among the elderly is getting worse (part-misleading, part-false), and that something needs to be done about the problem (debateable). The title of the article can invoke a sense a fear that can encourage you to click to read more about this “problem”. While I agree that even if one elderly person lives in poverty, it is a problem. But context and perspective matters.
2. What can be learned from the individual
This is a personal finance blog, after all. It takes long-term planning and solid execution to set yourself up for financial freedom (Which I hope you all achieve!). So, is there anything we can learn from Roberta Gordon’s story?
Yes. According to the article she worked many jobs previously: as a house cleaner, a home health aide, a telemarketer, a librarian, a fundraiser. Often times she didn’t have a steady job that paid into Social Security. She didn’t receive a pension. And she definitely wasn’t making enough to put aside money for retirement.
What can we learn? The key to financial freedom is investing early and often. Unfortunately it appears that she did not have either the financial means or the knowledge to do so. I certainly wish the best for Roberta and I hope she can work, save, and invest to reach her goals. It is never too late.
The Washington Post article about Tom Coomer, 79, Walmart greeter
- What was the purpose of the article?
The article tells a story about Tom Coomer and his financial situation, which I will explore later on.
It mentions how many people lost their jobs due to the closure of the McDonnell Douglas plant.
The article mentions how the rise of life expectancy of a 65-year old man went from 78 in 1950 to 84 today. This has put on strain on pension plans, which have decreased in usage from 60% in the 1990s to about 24% today.
I think the purpose of the article is to warn the reader that pensions, no matter how guaranteed they are, are NOT a guarantee.
No matter how small, there is a risk associated with pensions running out of money, companies going bankrupt, and reduced social security benefits.
Is it fair? No.
Should those who make false promises be held accountable? Absolutely.
Nobody has better control of your money than you. Even when the risks are small, we need to make plans to mitigate these risks. This includes supplementing your retirement savings with retirement accounts like 401(k) or IRAs.
- What can be learned from the individual
The facts of this story in the article are complicated:
Tom Coomer used to work at a McDonnell Douglas plant in Tulsa. Employees at McDonnell Douglas in the early ’90s enjoyed pensions known as “30 and out.” Employees with 30 years on the job could retire with a full pension once they reached age 55.
However, Mr. Coomer only worked there for 29 years, before the McDonnell Douglas plant that he worked at closed in 1994.
Tulsa, it was noted, had the oldest hourly employees — the average employee was 51 and had worked there for about 20 years.
When it closed, employees sued, and on average, each employee received about a $30,000 settlement, far less than what they would have been due from their pensions.
He currently receives about $300 a month from his McDonnell Douglas pension. Had he been able to continue working at McDonnell Douglas, he calculates that he would have gotten about five times that amount.
I attempted to understand just how much money he lost when the plant closed by comparing what he was due if the plant never closed vs. what he actually received. Of course I had to make a lot of assumptions in my calculations.
Pension that was due to him if the plant never closed:
Mr. Coomer has been receiving $300 a month checks since the plant closed in 1994 (he was 79 as of the 2017 article. Therefore he was 56 in 1994.)
His full salary was $1,500 a month (i.e. $18,000 a year in 1994).
At age 57, he would have put in his 30 years by 1995 and would have been eligible for a full pension.
Assuming he lived until 84, the company would have provided him a pension for 27 years.
The value of his pension he should have received in 1995 was $237,789.61. (assuming 6% discount rate) Source of Calculation: Financial Mentor
Pension he actually received:
The pension he actually received is the sum of his settlement and pension payments.
Settlement:
Mr. Coomer received a $41,428 settlement (assuming average employee received $30,000 working 21 years, whereas Mr. Coomer worked 29 years).
Pension payments:
He receives $300 a month, which is $3,600 a year. The present value of his pension payments in 1995 would have been $47,557.92 (assuming 6% discount rate).
Total pension (Settlement + Pension payments):
The value of his pension he actually received in 1995 was $88,985.
Therefore the plant closure cut his pension by about $148,800 in 1995 dollars, which equates to $254,131.65 in today’s (2020) dollars after inflation.
That is extremely painful to read and imagine.
What does this all mean?
Roberta Gordon’s and Tom Coomer’s stories are important. These are individual stories of misfortune which we can all learn from.
Are they characteristic of most elderly people or part of a rising trend?
According to data from the Congressional Research Service and the Census Bureau’s Supplemental Poverty Measure (cited in The New York Times), the answer is no.
We learned that whether you depend on a company pension or social security, there is still a risk that you will not have enough to retire comfortably.
To make things even more complicated, there is a risk that you will have too MUCH money in retirement, depriving yourself of experiences you could have today.
It is important to continue your financial education to get closer to financial freedom. When you read an article, it is important to think critically about authorial intent (What is the author trying to convey and what are his/her motives?), and on occasion, conduct your own research.
Finally, be sure to understand the appropriate amount of risk for YOU, and plan accordingly.
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