Are U.S. seniors among the developed world’s poorest? It depends on your point of view

by | Aug 5, 2023 | Financial

Peopleimages | E+ | Getty ImagesThe U.S. retirement system is a sprawling complex, a so-called “three-legged stool” of Social Security payments, workplace savings plans and individual wealth.But is the system falling short in its primary goal of achieving a secure retirement for all Americans?related investing news Fitch downgrade of long-term U.S. debt completely justified, Blackstone’s Schwarzman saysBrian Evansa day ago The Federal Reserve is likely to keep rates high. Here’s a strategy to generate income and reduce riskDarla Mercado, CFP®2 days agoJudging why and to what extent seniors may be falling behind is harder than it might sound, experts said.More from Personal Finance:You may be overlooking an important point about target-date funds37% of baby boomers have more stock exposure than they shouldSocial Security won’t run out, but your check might not be what you’re expectingBut the answer has huge policy implications, ranging from the generosity of public benefits to the prevalence of employer-sponsored plans such as 401(k)s and pensions.”This is a fraught area,” said Olivia Mitchell, a professor of business economics and public policy at the University of Pennsylvania and executive director of the Pension Research Council. “There’s not a simple answer.”Is old-age income poverty too high?Consider this thought exercise: What is a tolerable poverty rate among American seniors?By one metric, the U.S. fares worse than most other developed nations in this category.About 23% of Americans over age 65 live in poverty, according to the Organization for Economic Co-operation and Development. This ranks the U.S. behind 30 other countries in the 38-member bloc, which collectively has an average poverty rate of 13.1%.According to OECD data, only Mexico ranks worse than the U.S. in terms of old-age “poverty depth,” which means that among those who are poor, their average income is low relative to the poverty line. And just three countries have worse income inequality among seniors.There are many contributing factors to these poverty dynamics, said Andrew Reilly, pension analyst in the OECD’s Directorate for Employment, Labour and Social Affairs.For one, the overall U.S. poverty rate is high relative to other developed nations — a dynamic that carries over into old age, Reilly said. The U.S. retirement system therefore “exacerbates” a poverty problem that already exists, he said.Further, the base U.S. Social Security benefit is lower than the minimum government benefit in most OECD member nations, Reilly said.There’s very little security relative to other countries.Andrew Reillypension analyst in the OECD’s Directorate for Employment, Labour and Social AffairsThe U.S. is also the only developed country to not offer a mandatory work credit — an important factor in determining retirement benefit amount — to mothers during maternity leave, for example. Most other nations also give mandatory credits to parents who leave the workforce for a few years to take care of their young kids.”There’s very little security relative to other countries,” Reilly said of U.S public benefits.That said, the U.S. benefit formula is, in some ways, more generous than other nations. For example, nonworking spouses can collect partial Social Security benefits based on their spouse’s work history, which isn’t typical in other countries, Mitchell said.Old-age poverty seems to be improvingHere’s where it gets a little trickier: Some researchers think the OECD statistics overstate the severity of old-age poverty, due to the way in which the OECD measures poverty compared with U.S. statisticians’ methods.For example, according to U.S. Census Bureau data, 10.3% of Americans age 65 and older live in poverty — a much lower rate than OECD data suggests. That old-age income poverty rate has declined by over two-thirds in the past five decades, according to the Congressional Research Se …

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