Robert Samuelson February 5, 2014

How well-off are the elderly? The answer is crucial to public debateabout Social Security, Medicare and other programs to help olderAmericans. If most live on the edge, then cuts are hard to justify. Onthe other hand, if many elderly are financially comfortable, then theirgovernment benefits and taxes should be open to change — just like other Americans’.

For years, we’ve been told that low incomes make most elderlyvulnerable. The reality is that this describes only a minority of thevery poor and very old, often single women.

It’s routinely saidthat the elderly’s median household income — the income of the household exactly in the middle — is lower than that of the non-elderlypopulation. That’s true. In 2012, it was $33,848 compared with $57,353for the under-65 population. We’re then supposed to imagine that themedian income accurately reflects the lot of most elderly. That’s nottrue.

For starters, the median almost certainly understates theactual income of many older Americans. Writing recently in the WallStreet Journal, Andrew Biggs and Sylvester Schieber argued that withdrawals from individual retirement accounts (IRAs) and 401(k)plans are systematically under-counted by the government’s CurrentPopulation Survey (CPS), which estimates median incomes. In 2008, forexample, the CPS captured only $5.6 billion in IRA income, when retirees paid taxes on $111 billion of IRA income as reported to the InternalRevenue Service.

“People are reporting a lot more money on their tax returns thanin these surveys,” says Biggs, a former deputy commissioner of theSocial Security Administration now at the American Enterprise Institute, a conservative think tank. “The IRS data is better, because no one pays taxes on income that they don’t have.” Schieber, who detailed the CPS’s underreporting, is a consultant and once headed the Social SecurityAdvisory Board.

The two tables below give a more realistic viewof the elderly’s economic well-being. The first comes from data in aCongressional Budget Office study. It shows the average pretax incomesof the poorest to the richest fifth of older Americans. Because the CBOstudy uses IRS data, it includes most income underreported by the CPS.It also counts the value of Medicare as income; the CPS does not.

Average Incomes of Older Americans, 2010

Poorest fifth: $19,900

Second fifth: $34,400

Middle fifth: $55,100

Fourth fifth: $82,100

Richest fifth: $219,500

Between 60 percent and 70 percent of older Americans arecomfortable — or should be. This includes everyone in the three richestgroups and perhaps some in the second poorest group. Although theirhealth costs have gone up, many other expenses (for children, work,mortgages) have presumably gone down. (Note: In the richest fifth, a few very wealthy people substantially increased average incomes. Still,even people in the bottom half of this richest group had average incomes of $117,500.) But the 30 percent to 40 percent of the elderly at thebottom live more precariously: not necessarily impoverished but notflush.

The second table confirms this picture. It comes from NORC at the University of Chicago, which does public opinion surveys forscholarly research. One question asks respondents whether they are“satisfied,” “more or less satisfied” or “not satisfied”with their financial situation. Since the 1970s, older Americans haveconsistently rated themselves more favorably than have youngerAmericans. The gap is wide, as the table shows. Compared to other agegroups, many more elderly count themselves “satisfied” and many fewer“not satisfied.”

Satisfaction with Financial Situation, 2012

Part of the elderly’s satisfaction probably reflectstheir confidence in Social Security and Medicare. But if they feelbetter about their finances than the non-elderly, why increase theirbenefits — as some have proposed — or exempt them from benefit cuts andtax increases? To repeat: There are poor elderly, many of them singlewomen. Some may need extra help, but giving the elderly as a classspecial treatment heaps the costs of deficit reduction on workers andchildren.

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