Order Coder RL32697
CRS Report for Congress
Received through the CRS Web
Topics in Aging: Income and Poverty Among Older
Americans in 2004
Updated November 7, 2005
Debra Whitman
Specialist in the Economics of Aging
Domestic Social Policy Division
Patrick Purcell
Specialist in Social Legislation
Domestic Social Policy Division
Congressional Research Service The Library of Congress Washington DC, 20540
Topics in Aging: Income and Poverty Among Older
Americans in 2004
Summary
Older Americans are an economically diverse group. In 2004, the median
income of individuals age 65 and over was $15,199, but incomes varied widely
around this average. Twenty-eight percent of Americans 65 or older had incomes of
less than $10,000 in 2004, while 10% had incomes of $50,000 or more. As Congress
considers reforms to Social Security and the laws governing pensions and retirement
savings plans, it may be helpful to consider how changes to one income source would
affect each of the others, and thus the total income of older Americans
Older persons receive income from a variety of sources, including earnings,
pensions, personal savings, and public programs such as Social Security and
Supplemental Security Income. Using data from the March 2005 Current Population
Survey, this report describes the number of elderly receiving income from each of
these sources and the extent to which income from each source is either concentrated
at the high- or low-end of the income distribution or is evenly distributed.
Retirement benefits from Social Security and pensions are the most common
source of income among the aged. In 2004, Social Security paid benefits to 88% of
Americans age 65 and older. Social Security is also the largest single source of
income among the aged. Sixty-nine percent of Social Security beneficiaries age 65
or older receive more than half of their income from Social Security. For 39% of
elderly recipients, Social Security contributes more than 90% of their income, and for
nearly one-quarter of recipients, it is their only source of income. In 2004, 35% of
people age 65 and older received income from a private or public pension. Among
people age 65 and older who reported income from a government pension, the
median annual amount was $15,600. Among recipients of private pensions, the
median amount received in 2004 was just $6,720.
Many Americans prepare for retirement by saving and investing some of their
income while they are working. Of the 35.2 million Americans age 65 or older who
were living in households in 2004, 19.7 million (56%) received income from assets,
such as interest, dividends, rent, and royalties. Most received small amounts of
income from the assets they owned. Of all individuals age 65 or older who received
income from assets in 2004, half received less than $952.
Earnings from work continue to be an important source of income for older
Americans, especially those under age 70. Although there was a trend toward earlier
retirement from about 1960 to 1985, over the past 20 years more Americans have
continued to work at older ages. In 2004, median earnings for individuals age 55-61
who worked were $34,000, while median earned income for workers age 62-64 was
$27,000. For workers 65 and older, the median earned income was $15,000.
Poverty among those age 65 and older has fallen from one-in-three older persons
in 1960 to one-in-ten today. While the overall rate of poverty is relatively low, it
remains high for women, minorities, the less-educated, and those over age 80.
Contents
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Poverty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Income from Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Social Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Pensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Income from Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Work-Related Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Unemployment Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Workers’ Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Income from Veterans’ Compensation and Veterans’ Pensions . . . . . 18
Income from Public Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
List of Figures
Figure 1. Income sources of people age 65+ in 2004, highest quartile . . . . . . . . 5
Figure 2. Income sources of people age 65+ in 2004, second quartile . . . . . . . . 5
Figure 3. Income sources of people age 65+ in 2004, third quartile . . . . . . . . . . 6
Figure 4. Income sources of people age 65+ in 2004, lowest quartile . . . . . . . . . 6
Figure 5. Mean Income by Source and Income Quartile, 2004 . . . . . . . . . . . . . . 7
Figure 6. Median Total Income of Group in 2004 . . . . . . . . . . . . . . . . . . . . . . . . 7
Figure 7. Percentage of People Age 65 and Over in Poverty in 2004 . . . . . . . . . 8
Figure 8. Amount of Social Security Income in 2004 . . . . . . . . . . . . . . . . . . . . 10
Figure 9. Income from Pensions in 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Figure 10. Percentage of People Age 65 and Over with Income
from Assets, by Total Income in 2004 . . . . . . . . . . . . . . . . . . . . . . . . 14
Figure 11. Employment Rates by Age and Gender, March 2004 . . . . . . . . . . . . 16
Figure 12. Earned Income by Age, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
List of Tables
Table 1. Percentage of Older Americans with Income in 2004,
Mean and Median Amounts, by Source . . . . . . . . . . . . . . . . . . . . . . . . . 4
Table 2. Social Security as a percentage of income among recipients
age 65 and older in 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Table 3. Income from Assets Among People 65 and Older, 2004 . . . . . . . . . . . 15
Topics in Aging: Income and Poverty
Among Older Americans, 2004
This report describes the income and poverty status of the 35.2 million
Americans age 65 and older living in the community in 2004.1 Older persons receive
income from a variety of sources, including earnings, pensions, personal savings, and
public programs such as Social Security and Supplemental Security Income. The
substantial variation in the number of people receiving income from each source and
the amounts they receive from each source are the main topics of this report. Using
data from the March 2005 Current Population Survey, we describe both the number
of elderly receiving income from each of 10 major sources and the extent to which
income from each source is either concentrated at the high- or low-end of the income
distribution or is more evenly distributed among the elderly population.
In addition to looking at sources and amounts of income, the report examines
the income of the elderly relative to the federal poverty thresholds. In 2004, just
9.8% of Americans 65 and older had family incomes below the federal poverty
threshold. This was lower than both the poverty rate for the population 18 to 64
years old (11.3%) and the poverty rate among children under age 18 (17.8%).2
Although income is an important measure of a person’s economic well-being,
it is not the only such measure, nor is it always the best one. Individuals with the
same cash income may have significantly different levels of financial assets or other
forms of wealth. Some own their own homes while others rent. Some receive non-
cash benefits from their former employer — such as fully or partially paid health
insurance — while others have to pay for health services or insurance out-of-pocket.
The federal and state governments also provide many non-cash benefits and services
such as Medicaid, Food Stamps, and the Low-Income Home Energy Assistance
Program that improve the financial circumstances of lower-income families, but
which do not show up in measures of cash income. Finally, some older Americans
live with family members or receive considerable non-financial assistance from their
families, while others live alone and pay someone to perform household chores or to
provide personal care services. Even with these limitations, however, the amount of
income that older Americans receive is an important measure of their ability to
purchase the goods and services that contribute to their economic well-being.
The Data. The findings in this report are based on data collected in the March
2005 Current Population Survey (CPS), conducted by the Bureau of the Census. The
CPS is a survey of approximately 100,000 households comprising a representative
1 This number does not include approximately 1.6 million elderly who live in nursing homes.
2 U.S. Census Bureau, Income, Poverty, and Health Insurance Coverage in the United
States, 2004; P60-229, Table 3, p. 10, [http://www.census.gov/prod/2005pubs/p60-229.pdf].
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sample of the civilian, non-institutionalized population of the United States. Each
March, the survey includes detailed questions on sources and amounts of income
received during the previous calendar year. The CPS is widely used by researchers
in government, academia, and the private sector, and it is the source of the official
statistics published annually by the Census Bureau on median family income, the
number of Americans living in poverty, and the number of people without health
insurance. Like any survey, the CPS is subject to error. Sampling error occurs if the
households selected to participate in the survey are not representative of the
population. Non-sampling error occurs if survey participants provide inaccurate
information or if their responses are incorrectly recorded.
How We Counted Income
All income figures in this report are for individual elderly persons. Focusing on the
income of individuals rather than families or households may overstate the resources
available to some elderly and underestimate the resources available to others within the
same family. For example, an elderly couple may receive a pension from a husband’s
former employer. The pension income would only be attributed to the husband and not
his wife even though she may share in the benefits of that income. While the income
figures may not reflect the total income available within a family, the advantage of this
methodology is that it provides an accurate count of the number of older Americans who
receive income from specific sources such as pensions or public assistance. To calculate
poverty rates, however, we combined income for all family members before comparing
it to the official federal poverty thresholds.3
Total Income
Both the sources of income and the amounts received from each source differ
among elderly in different age groups. For example, individuals 80 and older are
more likely to receive income from pensions and Social Security and are less likely
to work than the elderly who are between the ages of 65 and 69. (See Table 1)
Comparing those 80 and over to those age 65 to 69, the older group received, on
average, $9,428 less in earnings, $6,000 less in public pensions, $3,888 less in
private pensions, and $100 less in asset income. The older group received $336 more
in Social Security than their younger counterparts. Total income also declined with
age. Median total income in 2004 was $18,249 for persons 65 to 69 years old,
$14,857 for those age 70 to 79, and $13,999 for individuals age 80 or older.
Personal savings, Social Security, and employer-sponsored pensions are
sometimes referred to as the “three-legged stool” of retirement income. While this
term may be useful as a metaphor, for many older Americans, at least one of the legs
of the stool is missing. Figure 1 and Figure 4 illustrate this point for individuals in
the top and bottom quarters of the income distribution. In 2004, 86% of the income
received by elderly individuals in the bottom income quartile (those with less than
$9,390 in total income) came from Social Security. For this group, less than 5% of
3 Calculations using the same survey and income categories but based on an aged unit —
a mix of couples and individuals — can be found in the Social Security Administration’s
Income of the Population 55 or Older, at [http://www.ssa.gov/policy/docs/statcomps/].
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their income came from savings and only 2% was received from pensions. Older
Americans with higher incomes had more diversified sources of income. In 2004,
just 21% of income received by individuals in the top quartile of the income
distribution (those with $26,800 or more in income) came from Social Security.
These individuals also were more likely to have wage income and to receive income
from pensions and assets. They received, on average, three-fourths of their income
from these three sources. Figure 2 and Figure 3 show that Social Security
comprised 58% and 82% of income, respectively among older Americans in the
second-highest and second-lowest income quartiles in 2004.
The average amount received in 2004 from each income source by people in the
lowest and highest income quartiles is shown in Figure 5. Those in the poorest
quarter of the elderly population received an average of $5,470 from Social Security,
$79 from earnings, $153 from pensions, and $297 from assets. Older Americans in
the top income quartile received on average $11,847 from Social Security, $19,681
from earnings, $14,392 from pensions, and $9,571 from assets. There are significant
financial advantages from continuing to work past age 65. On average, members of
the highest income brackets received $1 out of $3 of their income from working.
Income of the elderly varied significantly by age, sex, race, education and
marital status. Figure 6 shows that in 2004, individuals between the ages of 65 and
69 had a median income of $18,250 while those who were 80 or older had a median
income of $14,000. Men 65 and older had a median income of $21,200, compared
to just $12,079 for women. The median income of older African Americans —
$11,450 — was just 71% of the median income of older white Americans —
$16,170. The median income of older Americans increases substantially with their
educational level. Those without high-school diplomas had a median income of
$10,800 in 2004 while college graduates had incomes nearly three times as high.
Married individuals had median incomes $1,800 higher than single individuals.
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Table 1. Percentage of Older Americans with Income in 2004, Mean and
Median Amounts, by Source
Age
Total, 55+
55 to 64
Total, 65+
65 to 69
70 to 79
80+
Total number of people (000s)
64,745
29,532
35,213
10,124
15,860
9,230
Percentage with no income
4.4
6.3
2.9
3.3
3.0
2.3
Earnings
Percentage with earnings
40.2
66.5
18.0
32.6
16.2
5.1
M ean
$41,010
$44,673
$29,672
$32,792
$27,256
$21,101
M edian
$29,000
$32,000
$15,000
$19,428
$12,000
$10,000
Social Security
Percentage with Social Security
56.0
17.7
88.2
83.1
89.6
91.2
M ean
$10,578
$9,952
$10,683
$10,586
$10,636
$10,858
M edian
$10,399
$9,516
$10,399
$10,303
$10,399
$10,639
Public pensions
Percentage with public pensions
9.2
6.3
11.6
11.5
11.9
11.4
M ean
$20,948
$23,538
$19,765
$21,865
$19,548
$17,840
M edian
$16,824
$19,200
$15,600
$19,200
$16,200
$13,200
Private pensions or annuities
Percentage with private pensions
17.2
9.4
23.8
20.7
24.5
26.1
M ean
$11,906
$16,453
$10,402
$12,535
$10,493
$8,395
M edian $7,428
$11,134
$6,720
$9,000
$6,960
$5,112
Income from assets
Percentage with income from assets
57.1
58.3
56.0
57.2
56.2
54.5
M ean
$5,111
$4,810
$5,374
$5,890
$5,244
$5,009
M edian
$777
$600
$952
$1,000
$947
$900
Veterans’ benefits
Percentage with veterans’ benefits
2.8
2.3
3.2
2.3
3.1
4.3
M ean
$10,512
$13,363
$8,802
$10,169
$8,651
$8,172
M edian
$6,599
$9,995
$5,639
$7,919
$4,799
$5,746
Public assistancea
Percentage with public assistance
3.5
3.5
3.5
3.8
3.2
3.7
M ean
$5,057
$6,024
$4,238
$4,639
$3,933
$4,241
M edian
$4,800
$6,540
$3,600
$3,600
$3,156
$3,600
Other incomeb
Percentage with other income
4.2
6.2
2.6
3.6
2.4
1.9
M ean
$7,815
$7,732
$7,983
$8,583
$7,723
$7,289
M edian
$4,000
$4,080
$3,600
$4,000
$4,000
$3,600
Total Income
Percentage with any income
95.6
93.7
97.1
96.7
97.0
97.7
M ean $31,490
$40,894
$23,878
$29,641
$23,052
$19,028
M edian
$19,255
$28,600
$15,199
$18,249
$14,857
$13,999
Source: The Congressional Research Service (CRS) analysis of the M arch 2005 Current Population Survey.
a. Includes mainly Supplemental Security Income, Temporary Assistance for Needy Families, and state
general assistance.
b. Includes unemployment compensation, workers’ compensation, and income from unidentified sources.
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Figure 1. Income Sources of People Age 65+ in 2004, Highest
Quartile
Figure 2. Income Sources of People Age 65+ in 2004, Second
Quartile
Source: Both figures from CRS analysis of the M arch 2005 Current Population Survey.
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Figure 3. Income Sources of People Age 65+ in 2004, Third Quartile
Figure 4. Income Sources of People Age 65+ in 2004, Lowest
Quartile
Source: Both figures from CRS analysis of the M arch 2005 Current Population Survey.
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Figure 5. Mean Income by Source and Income Quartile, 2004
Figure 6. Median Total Income of Group in 2004
Source: Both figures from CRS analysis of the M arch 2005 Current Population Survey.
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Poverty
Poverty among the elderly has decreased dramatically over the past four
decades. In 1959 the poverty rate of those age 65 and older was 35%. Largely due
to increases in Social Security benefits, the elderly poverty rate fell dramatically
between the mid-1960s and mid-1970s, declining to about 15% by 1975. The
percentage of older Americans in poverty has stayed steady at roughly 10% since the
mid 1990s. Although a smaller percentage of the elderly are in poverty than are
people under 65, in 2004 nearly 3.5 million older Americans had family incomes
below the federal poverty threshold.4, 5
Figure 7. Percentage of People Age 65 and Over in Poverty in
2004
Source: CRS analysis of the M arch 2005 Current Population Survey.
4 This Section combines the total income of each family member and compares it to the
official poverty threshold based on the size of the family. The official poverty threshold in
2004 for a single person age 65 or older was $9,060. The poverty threshold for a couple in
which at least one member was 65 or older was $11,418. See Poverty Thresholds for 2004
by Size of Family and Number of Related Children Under 18 Years, at
[http://www.census.gov/hhes/poverty/threshld/thresh04.html].
5 Note that there are two slightly different official government versions of the level of
income at which one is considered poor. The first — and the one used in this analysis —
is the poverty threshold which the Census Bureau uses to count the number of poor in the
United States. The second measure, the poverty guideline, is used by the Department of
Health and Human Services to set eligibility criteria for a number of federal programs.
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While the poverty rate for all persons age 65 and over was 9.8% in 2004, the
poverty rates among women, minorities, single individuals, those with low education,
and the oldest old were higher. (See Figure 7.) Twelve percent of women age 65
and older were in poverty in 2004 compared to only 7% of men. Because women
live longer, the number of poor older women in 2004 (2.4 million) was more than
twice the number of poor older men (1.1 million). Poverty rates were especially high
among minorities. In 2004, nearly one-quarter of elderly African-Americans and
almost one-fifth of elderly Hispanics were in poverty. About 81% of all older
Americans identify themselves as white. Thus, while only 7.5% of older white
Americans were poor, poor whites comprised 62% of all poor elderly in 2004. Older
individuals with low education also had high poverty rates. Nineteen percent of
those without a high school education had family incomes below the poverty line in
2004 compared to only 5% of those with a college degree. There is a significant
difference in the poverty rates of married persons and single elderly individuals.
Married couples, who often have more than one source of income, had a poverty rate
of only 4.5% in 2004. In contrast, 16.2% of unmarried individuals age 65 and older
had incomes less than the official poverty threshold in 2004. The oldest Americans
had the highest poverty rates. Eleven percent of individuals age 80 and older were
poor in 2004 compared to 9% of individuals between the ages of 65 and 69. Nearly
half of all Americans age 80 and over had family incomes of less than twice the
poverty threshold in 2004.
The Near-Poor. Many older Americans have family incomes that put them
just above the official poverty threshold. In 2004, while just 9.8% of people age 65
and over had incomes below the poverty thresholds of $9,060 for an individual and
$11,418 for a couple, 24% of older Americans had family incomes below 150% of
the thresholds ($13,590 for an individual,$17,127 for a couple). Thirty-eight percent
of people 65 and older had incomes less than twice the poverty thresholds ($18,120
for an individual, $22,836 for a couple).
Income from Retirement Benefits
Social Security.6 Retirement benefits from Social Security are the most
common source of income among the aged. Social Security is a social insurance
program designed to protect workers, their dependent children, and surviving spouses
in the event that a worker dies, becomes disabled, or reaches retirement age. In 2004,
Social Security paid benefits to 88% of Americans age 65 and older. Social Security
is the largest single source of income among the aged. Sixty-nine percent of Social
Security beneficiaries age 65 or older receive more than half of their income from
Social Security. For 39% of elderly recipients, Social Security contributes more than
90% of their income, and for nearly one-quarter of recipients, it is their only source
of income. (See Table 2) While Social Security is an important source of income
for a majority of the elderly, the benefit amounts paid by Social Security are
relatively small compared to many recipients’ pre-retirement incomes. According to
the Social Security Administration, Social Security retired worker benefits replace
6 For a complete description of the Social Security program, see the House Committee on
Ways and Means, committee print, WMCP: 108-6, 2004, 2004 Green Book, Chapter 1, at
[http://waysandmeans.house.gov/media/pdf/greenbook2003/Section1.pdf].
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approximately 56% of the earnings of a career-long low-wage earner, 42% of the
earnings of a career-long average-wage earner, and 27% of the earnings of a career-
long high-wage earner. Average monthly Social Security benefits in 2005 are $963
for a retired worker and $1,583 for an elderly couple. As Figure 8 shows, 46% of
all beneficiaries received less than $10,000 from Social Security in 2004 and just 3%
received more than $20,000 in Social Security benefits.
Table 2. Social Security as a Percentage of Income among
Recipients Age 65 and Older in 2004
Percent of Income from
Recipients
Percentage of
Social Security
(thousands)
Recipients
Less than 20%
2,470
8.0%
20% to 39%
4,613
14.9
40% to 49%
2,495
8.0
50% to 69%
4,818
15.5
70% to 89%
4,433
14.3
90 to 99%
4,804
15.5
100% of income
7,411
23.9
Source: CRS analysis of the M arch 2005 Current Population Survey.
Note: In 2004, 31.0 million people age 65 or older received income from Social Security and 4.2
million people had no Social Security income.
Figure 8. Amount of Social Security Income in 2004
Source: CRS analysis of the M arch 2005 Current Population Survey.
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Pensions. Since the late 1970s, the proportion of American workers who
participate in employer-sponsored retirement plans has remained fairly stable at about
half of the workforce. In 2004, 49% of wage and salary workers between the ages
of 21 and 64 participated in employer-sponsored retirement plans; however, a point-
in-time snapshot of pension participation is a poor indicator of who will receive
pension income in retirement. Some workers not covered by a pension plan today
may have earned a pension at a previous job, or they may earn a pension benefit in
the future. Others who are currently participating in a pension plan may never fully
vest in their pension benefit, or they might take their accrued benefit as a lump sum
before retirement and spend all or part of the distribution.7
To receive pension income in retirement, an individual must remain a
participant in the plan long enough to earn a pension benefit and must not spend the
accrued benefit before retirement. In 1986, Congress shortened the maximum
vesting period — the length of time it takes to earn a pension benefit — from ten
years to five years, thus making it easier for employees whose employer sponsors a
pension to earn a benefit under the plan.8 On the other hand, many employers offer
separating employees the opportunity to take their accrued retirement benefit as a
lump-sum distribution. Most defined contribution plans — such as those authorized
under §401(k) of the Internal Revenue Code — as well as a growing number of
defined benefit plans, now permit departing employees to take a lump-sum
distribution. While many employees roll these distributions into another employer-
sponsored retirement plan or into an individual retirement account, some spend all
or part of the distribution and thereby reduce the income that will be available to
them in retirement.9
In 2004, 12.2 million people age 65 and older — 34.5% of that age group —
received income from a private or public pension.10 Of this number, 4.1 million had
income from a public-sector pension — i.e., from previous employment in the
federal, state, or local government — and 8.4 million received income from private-
sector pension plans.11 Together, the federal, state, and local governments account
for only about a sixth of all jobs in the U.S. In 2004, for example, only 16.9% of
wage and salary workers between the ages of 21 and 64 — roughly one in six —
were employed at all levels of government. Nevertheless, nearly one-third of pension
recipients age 65 and older received income from government-sponsored pension
plans. The disparity between the percentage of jobs that are in the government sector
and the percentage of retirees with government pensions is accounted for mainly by
two factors, both of which make it more likely that a government employee will earn
7 To vest in a pension or other benefit is to earn a legally enforceable right to receive it.
8 Tax Reform Act of 1986, P.L. 99-514.
9 See CRS Report RL30496, Pension Issues: Lump-sum Distributions and Retirement
Income Security, by Patrick Purcell.
10 As reported here, “pension income” includes payments from a company or union pension,
payments from a federal, state, or local government pension, military retirement pay, regular
payments from an annuity or paid-up insurance policy, and regular payments from an IRA,
Keogh account, or a §401(k)-type account.
11 These numbers sum to 12.5 million. About 300,000 people had both types of pension.
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a pension benefit than will a worker in the private sector. First, more government
jobs than private-sector jobs offer pension benefits to their employees. In 2004, for
example, 85% of all government employees worked at jobs that offered retirement
benefits, compared to just 56% of private-sector employees whose employers
sponsored retirement plans. Second, government employees tend to stay in their jobs
longer than private-sector workers, making it more likely that the government
employee will fully vest in the pension benefits he or she has earned. The
Department of Labor reports that in 2004, the median tenure of government workers
with their current employer was nearly double the median tenure of workers in the
private sector. Public-sector employees had a median tenure of 6.9 years, while
private-sector workers had a median tenure of 3.5-years.12
Figure 9. Income from Pensions in 2004
Source: CRS analysis of the M arch 2005 Current Population Survey.
Public-sector employees not only are more likely to receive a pension in
retirement than are workers in the private-sector; they also receive larger pensions
than those who worked in the private sector. Among the 4.1 million people age 65
and older who reported income from a government pension in 2004, the median
annual amount was $15,600. Thirteen percent of government pension recipients
reported that their pension income was less than $5,000 in 2004, while 18.7%
reported pension income of more than $30,000. (See Figure 9) Among the 8.4
million people age 65 and older who reported income from a private-sector pension
in 2004, the median annual amount was just $6,720. Forty-one percent of private
12 U.S. Department of Labor, Bureau of Labor Statistics, news release USDL 04-1829,
Employee Tenure in 2004, Sept. 21, 2004, at [ftp://ftp.bls.gov/pub/news.release/tenure.txt].
CRS-13
pension recipients reported that their pension income was less than $5,000 in 2004
and 6.3% reported pension income of more than $30,000.
Two Types of Pension Plans
Over the past 25 years, there has been a shift in the distribution of retirement plans
and of plan participants from defined benefit plans to defined contribution plans. A
defined benefit or “DB” plan usually pays as a lifelong annuity based on the employee’s
length of service and average salary. Most DB plans are funded entirely by employer
contributions and investment earnings. Defined contribution or “DC” plans are much like
savings accounts maintained by employers on behalf of each participating employee. The
employer contributes a specific dollar amount or percentage of pay, which is invested in
stocks, bonds, or other assets. The employee usually contributes to the plan, too. In a DC
plan, it is the employee who bears the investment risk. At retirement, the balance in the
account is the sum of all contributions plus interest, dividends, and capital gains — or
losses. The account balance is usually distributed as a single lump sum. Many large
employers recently have converted their traditional DB pensions to hybrid plans that have
characteristics of both DB and DC plans, the most popular of which has been the cash
balance plan. In a cash balance plan, the benefit is defined in terms of an account
balance. The employer makes contributions to the plan and pays interest on the
accumulated balance. However, these account balances are merely bookkeeping devices.
They are not individual accounts owned by the participants. Legally, therefore, a cash
balance plan is a defined benefit plan.
Income from Assets
Many Americans prepare for retirement by saving and investing some of their
income while they are working.13 Of the 35.2 million Americans age 65 or older who
were living in households in 2004, 19.7 million (56%) received income from assets
(interest, dividends, rent, and royalties). Most received small amounts: half of those
who had income from assets in 2004 received less than $952. The data displayed in
Figure 10 show that low-income individuals were less likely to have received
income from assets. Among individuals age 65 or older whose total income in 2004
was less than $20,000, 47% had asset income. In contrast, of those whose total
income was more than $20,000, 76% had asset income.
Median income from assets also differed between the lower-income and higher-
income elderly. Among people 65 and older with total annual incomes under $5,000,
the median amount of asset income was only $200. For roughly one-third of the
older population — those with total annual incomes between $10,000 and $19,999
13 In 2001, the median value of financial assets among families headed by a person between
the ages of 65 and 74 that owned any financial assets was $51,400. The median for families
headed by someone age 75 or older that owned any financial assets was $40,000. The
median net worth of all families headed by a person between the ages of 65 and 74 was
$176,300. The median net worth of all families headed by someone age 75 or older was
$151,400. Net worth is the value of all assets (including a home) minus all liabilities. See
Ana M. Aiscorbe, Arthur B. Kennickell, et. al., “Recent Changes in U.S. Family Finances:
Evidence from the 1998 and 2001 Survey of Consumer Finances,” at
[http://www.federalreserve.gov/pubs/bulletin/2003/0103lead.pdf].
CRS-14
Figure 10. Percentage of People Age 65 and Over with Income from
Assets, by Total Income in 2004
Source: CRS analysis of the M arch 2005 Current Population Survey.
— the median amount of asset income in 2004 was $643. (See Table 3) Those with
the highest total incomes were more likely to receive asset income and also received
higher amounts. Over 85% of those with total incomes of $50,000 or more received
asset income in 2004. Their median income from assets was $7,784.
CRS-15
Table 3. Income from Assets Among People 65 and Older, 2004
Number of
Percent
Total Income, 2004
People
with Asset
Mean Asset
Median
(thousands)
Income
Income
Asset Income
Less than $5,000
1,866
42.6%
$670
$200
$5,000 to $9,999
7,569
36.9
850
300
$10,000 to $19,999
12,143
54.4
1,906
643
$20,000 to $29,000
5,216
69.0
3,430
1,212
$30,000 to $49,999
4,110
76.2
5,862
2,192
$50,000 or more
3,287
85.4
21,324
7,784
All persons with
any income14
34,190
57.7
$5,374
$952
Source: CRS analysis of the M arch 2005 Current Population Survey.
Work-Related Income15
Earnings. While some Americans continue to work into their 60s and beyond,
the labor force participation rate of older individuals drops dramatically as they age.
Although there was a trend toward earlier retirement from about 1960 to 1985, the
trend for the past 20 years has been that more Americans have continued to work at
older ages.16 In March 2005, 76% of men and 67% of women age 55 were working
either full-time or part-time. Of those age 60, 69% of men and 54% of women were
employed. Among 65-year olds, 34% of men and 26% of women were employed in
March 2005. While the share of older Americans who work declines rapidly after
age 65, Figure 11 shows that 21% of men and 19% of women who were 70 years
old in March 2005 were still working.
Despite the trend to longer working lives, people are progressively less likely
to work as they pass age 55 and the average annual earnings of those who continue
to work begin to decline at about the same age. This decline can be attributed to two
factors: decreases in wages and decreases in the number of hours worked.
17, 18 In
14 Of 35.213 million individuals age 65 and older in 2004, 34.190 million (97.1%) reported
income from one or more sources and 19.731 million (56.0%) reported income from assets.
15 Because labor force participation rates begin to fall steadily beginning at about age 55,
this section includes information on individuals age 55 and over rather than age 65 and over.
16 Joseph Quinn, “Retirement Trends and Patterns Among Older American Workers” in
Stuart Altman and David Shactman (eds.), Policies for an Aging Society (Baltimore: Johns
Hopkins University Press, 2002), pp. 293-315.
17 As a worker ages, the likelihood that he or she will experience a decline in physical or
cognitive capacity increases. Increased incidences of illness and disability are partly
responsible for the decline in earned income that some workers experience after age 55. For
a discussion of the effects of aging on the ability to continue working, see C. Schooler, L.
Caplan, and G. Oates, “Aging and Work: An Overview,” in Impact of Work on Older Adults,
(continued...)
CRS-16
2004, the median earnings of workers age 55-61 were $34,000, while median
earnings of workers age 62-64 were $27,000. For those over age 65 who continued
working, median earnings were only $15,000 in 2004. Figure 12 shows the decline
in workers’ annual earnings as they age. At the top of the earnings scale, 32% of
workers age 55-61 earned $50,000 or more in 2004, while only 16% of those age 65
or older had earned income totaling more than $50,000 in that year. In contrast,
while only 6% of Americans age 55-61 who worked in 2004 had total earnings of
less than $5,000, 22% of workers age 65 or older had earnings of $5,000 or less.
Figure 11. Employment Rates by Age and Gender, March 2004
Source: CRS analysis of the M arch 2005 Current Population Survey.
17 (...continued)
K.W. Schaie and C. Schooler, eds. (New York: Springer Publishing, Inc., 1997).
18 While 72% of people age 55-61 were in the labor force in 2004, the labor force
participation rate was just 33% among those age 65 to 69 and 12% among people age 70 and
older. Similarly, while 85% of workers age 55-61 were employed full time in 2004, only
59% of workers age 65-69 and 42% of workers age 70 and over worked full time. For more
information on the labor force participation of older workers, see CRS Report RL30629,
Older Workers: Employment and Retirement Trends, by Patrick Purcell.
CRS-17
Figure 12. Earned Income by Age, 2004
Source: CRS analysis of the M arch 2005 Current Population Survey.
Unemployment Compensation. Unemployment Compensation (UC) is
provided through a joint federal-state system that provides temporary, partial wage
replacement to active job seekers who are involuntarily out of work. In 2004, just
over one million individuals age 55 and older — about 1.6% of people in this age
group — received income from unemployment insurance at some time during the
year. Most received UC benefits for six months or less. The median amount of
unemployment compensation received by individuals 55 and older was about $2,650.
The percentage of individuals receiving unemployment compensation decreases
with age. One reason for this is that older workers are less likely to be unemployed
than younger workers. Also, as workers age they are more likely to be eligible for
other sources of income, such as pensions and Social Security. In addition, the
unemployment benefit an individual receives usually is reduced by the amount of
other income he or she receives.19 This can make the UC benefit particularly small
for those age 65 and over. In 2004, the median income from UC benefits for
recipients age 65 and older was $2,400, and three-quarters of all individuals age 65
19 Federal law (P.L. 96-364) requires that when the earnings from an employer are used to
calculate the UC benefit, the UC benefit must be reduced if retirement income is received
from that employer. States are permitted to reduce benefits on less than a dollar-for-dollar
basis by taking into account the contributions made by the worker to finance the plan. Also,
the requirement applies only to those payments made on a periodic (not lump-sum) basis.
This is to ensure that workers who retires do not also collect UC benefits from the job from
which they retired. For more details see CRS Report 95-1180, Unemployment Benefits
Reduced by Pensions and Social Security: A Fact Sheet, by Celinda Franco.
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and over who received unemployment compensation received less than $5,265.
Although older workers are less likely to be unemployed than younger workers,
studies suggest that they take longer to find a new job. Consequently, older workers
are more likely than younger workers to exhaust their UC benefits, which typically
are limited to 26 weeks.20
Workers’ Compensation. Workers’ compensation provides income
replacement and medical benefits to workers who become disabled by work-related
injuries and diseases or, in cases of death, their dependents. Workers’ compensation
benefits are set by state legislatures and the benefit formulas differ from state to state.
The benefit generally provides partial wage-replacement for temporary and partial
disability, as well as long-term disability.21 In 2004, 417,00 individuals age 55 and
older received income through workers’ compensation. While few individuals
receive worker’s compensation benefits after age 65, for those who do, it represents
a substantial source of income. For the 106,000 people age 65 or over and who
received worker’s compensation in 2004, the median annual benefit was $5,376.22
Income from Veterans’ Compensation and Veterans’ Pensions.
Disabled veterans, their dependents, and survivors are eligible for an array of benefits
including income support, medical services, educational benefits and housing
assistance. In 2004, roughly 1.1 million Americans age 65 and over received
supplementary income from two disability-based programs: the veterans’
compensation and veterans’ pensions program.
The veteran’s compensation program provides payments for veterans with
disabilities incurred or aggravated while in the Armed Forces. The compensation
program provides payments to disabled veterans in amounts designed to compensate
the veteran for loss of earnings capacity. Higher benefits are paid for more severe
disabilities than for less severe disabilities. Veterans’ pensions are provided through
a separate program to wartime veterans and their survivors who have disabilities
which are not related to or caused by military duties of the veteran but which render
them unable to work.23 Veterans’ pensions are means-tested: payments are
decreased by amounts received from other sources such as Social Security, pensions,
and income from a spouse. Pensions are not paid to veterans with substantial assets,
and veterans’ pension benefits are usually small amounts. Taken together, the
median veterans’ compensation or pension benefit was $5,639 in 2004, or about $470
20 See CRS Report RL32111, Unemployment Compensation /Unemployment Insurance:
Trends and Contributing Factors in UC Benefit Exhaustion, by Julie Whittaker.
21 For a more thorough discussion of workers’ compensation programs, see the House
Committee on Ways and Means, committee print, WMCP: 108-6, 2004, 2004 Green Book,
Chap. 15, [http://waysandmeans.house.gov/media/pdf/greenbook2003/WorkersComp.pdf].
22 Figures include payments from employer-sponsored workers’ compensation insurance.
23 Veteran’s pensions are means-tested benefits for low-income veterans, and should not be
confused with military retirement benefits — also called “retired pay” — paid to retired
officers and enlisted personnel who have completed at least 20 years of service. For this
analysis, military retirement benefits are included as part of public pensions.
CRS-19
per month. A quarter of recipients received compensation or pension benefits of
$11,800 or more.
Income from Public Assistance
An estimated 1.2 million Americans age 65 or older received public assistance
income in 2004. Most received Supplemental Security Income (SSI), a federal
program for low-income individuals who are aged, blind, or disabled. Some who
were the caretaker relatives of dependent children received income through
Temporary Assistance for Needy Families (TANF), which is jointly administered by
the federal and state governments and pays benefits to low-income families with
children. A small number of elderly received state general assistance payments for
those in poverty. The median public assistance payment from all sources to
recipients age 65 or older in 2004 was $3,600, or $300 per month.
The largest source of cash assistance for the elderly is Supplemental Security
Income (SSI). SSI is a means-tested program administered by the Social Security
Administration which provides monthly cash payments to eligible aged, blind, and
disabled persons. Aged individuals and couples are eligible for SSI if their incomes
fall below the federal maximum monthly SSI benefit. In 2004, the monthly standards
were $564 for an individual and $846 for a couple. An individual does not have to
be totally without income to be eligible for SSI benefits, but the income standards are
significantly lower than the poverty threshold for both individuals and couples.24
Eligibility for SSI is restricted to qualified persons who have resources of less than
$2,000 for an individual or $3,000 for a couple. The resource limit for a couple
applies even if only one member of a couple is eligible. Together, these income and
asset limits restrict the number of people 65 and older who are eligible for SSI to less
than half of the number who have incomes below the federal poverty threshold.
A state may choose to provide an optional supplement to Federal SSI payments.
These supplements can help individuals meet needs which are not fully met by the
federal payment. Each state determines whether it will make such a payment, to
whom, and in what amount. Currently, all but six states make some form of SSI
supplemental payments.25
Conclusion
Americans age 65 and older receive income from a variety of sources. While
Social Security benefits, pensions, and income from assets are the most common
income sources, earnings also are important, especially for those under age 70.
There are large disparities in the amount and type of income that older
Americans receive. Income from assets in the form of interest and dividends, for
24 In 2004, the poverty threshold for a single person age 65 or older was $755 per month.
For a couple in which one or both people were over 65, the monthly poverty threshold was
$952.
25 Arkansas, Georgia, Kansas, Mississippi, Tennessee, and West Virginia pay no
supplement.
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example, make up a significant percentage of the aggregate income of the elderly
population. However, most elderly individuals receive only modest amounts of
interest and dividend income and a relatively small number of people receive very
large amounts of income from these sources. Social Security, on the other hand, is
both the largest source of aggregate income among the elderly and the biggest single
source of income for a majority of Americans age 65 and older. Compared to the
great disparity in interest and dividend income, there is relatively little difference
between the average monthly Social Security benefit and the highest monthly benefit.
This is because the Social Security benefit formula limits the maximum amount paid
to a retired high-wage earner to about 150% of the amount paid to an average-wage
worker.
Public assistance and other public programs play an important role in supporting
many older Americans who otherwise would be living in poverty. The importance
of each source of income varies across the income distribution. Public programs
provide over 90% of all income for the poorest 25% of the population. This contrasts
with the wealthiest 25% of the elderly population who receive only one-fifth of their
income from public programs.
The reduction in poverty among older Americans is one of the most significant
public policy successes of the past half-century. Poverty among those age 65 and
older has fallen from one-in-three older persons in 1960 to one-in-ten today. While
the overall rate of poverty is relatively low, it remains high for women, minorities,
the less-educated, single persons, and those over age 80.
As Congress considers reforms to Social Security and the laws governing
pensions and retirement savings plans, it may be helpful to consider how changes to
one income source would affect each of the others, and thus the total income of older
Americans. Future challenges will include maintaining the fiscal solvency of Social
Security and Medicare and developing strategies in the public and private sectors to
finance the increased need for long-term care services as the number of older
Americans rises in the years ahead.
Document Outline