Order Code RL32697
CRS Report for Congress
Received through the CRS Web
Topics in Aging: Income and Poverty Among
Older Americans in 2005
Updated September 21, 2006
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

---

Topics in Aging: Income and Poverty Among Older
Americans in 2005
Summary
Older Americans are an economically diverse group. In 2005, the median
income of individuals age 65 and older was $15,523, but incomes varied widely
around this average. Twenty-seven percent of Americans 65 or older had incomes
of less than $10,000 in 2005, while 11% 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 examine 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 2006 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 end or low end of the income distribution or is evenly distributed.
Retirement benefits from Social Security and pensions are the most common
sources of income among the aged. In 2005, 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 40% of
elderly recipients, Social Security contributes more than 90% of their income, and for
one-quarter of recipients, it is their only source of income. In 2005, 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 $15,000. Among recipients of private pensions, the median
amount received in 2005 was just $6,840.
Many Americans prepare for retirement by saving and investing some of their
income while they are working. Of the 35.5 million Americans age 65 or older who
were living in households in 2005, 19.7 million (55%) 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 2005, half received less than $1,087.
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 2005, median earnings of individuals aged 55-61
who worked were $35,000, while the median earned income of workers aged 62-64
was $28,000. Among workers 65 and older, the median earned income was $16,380.
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 people over age 80.
This report will be updated annually.

---

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
List of Figures
Figure 1. Sources of income, top income quartile, age 65 and up . . . . . . . . . . . . 5
Figure 2. Sources of income, second income quartile, age 65 and up . . . . . . . . . 5
Figure 3. Sources of income, third income quartile, age 65 and up . . . . . . . . . . . 6
Figure 4. Sources of income, bottom income quartile, age 65 and up . . . . . . . . . 6
Figure 5. Mean income by source and income quartile, 2005 . . . . . . . . . . . . . . . 7
Figure 6. Median total income in 2005, by demographic group . . . . . . . . . . . . . . 7
Figure 7. Percentage of people age 65 and older in poverty . . . . . . . . . . . . . . . . . 8
Figure 8. Amount of Social Security Income in 2005 . . . . . . . . . . . . . . . . . . . . . 10
Figure 9. Income from public and private pensions in 2005 . . . . . . . . . . . . . . . . 12
Figure 10. Percentage of people age 65 and older with income from assets
by total income in 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Figure 11. Employment rates by age and sex, March 2006 . . . . . . . . . . . . . . . . 16
Figure 12. Earned income by age, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
List of Tables
Table 1. Percentage of Older Americans with Income in 2005, Mean and
Median Amounts, by Source . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Table 2. Social Security as a Percentage of Income among Recipients
Age 65 and Older in 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Table 3. Income from Assets Among People 65 and Older, 2005 . . . . . . . . . . . 15

---

Topics in Aging: Income and Poverty
Among Older Americans, 2005
Introduction
This report describes the income and poverty status of the 35.5 million
Americans age 65 and older living in the community in 2005.1 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 2006 Current Population Survey, this report describes 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 end 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 2005, 10.1%
of Americans 65 and older had family incomes below the federal poverty thresholds
of $9,367 for a single person and $11,815 for a couple. The poverty rate for
Americans 65 and older was lower than both the poverty rate for the population 18
to 64 years old (11.1%) and the poverty rate among children under age 18 (17.6%).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 employers — 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.
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, 2005; P60-231, Table 4, p. 14, [http://www.census.gov/prod/2006pubs/p60-231.pdf].

---

CRS-2
The Data. The findings in this report are based on data collected in the March
2006 Current Population Survey (CPS), conducted by the Bureau of the Census. The
March 2006 CPS consisted of interviews with approximately 76,000 households,
comprising a representative 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 Income Was Counted
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, the income of all family members was combined 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 persons of different ages. For example, individuals 80 and older are
more likely to receive income from pensions and Social Security and are less likely
to have earned income than the elderly who are between the ages of 65 and 69. (See
Table 1) Comparing those 80 and older to those aged 65 to 69, the older group
received, on average, $10,000 less in earnings, $5,569 less in public pensions, and
$3,612 less in private pensions. The older group received $458 more in Social
Security than their younger counterparts and $350 more in asset income. Total
income also declined with age. Median total income in 2005 was $17,934 for
persons 65 to 69 years old, $15,338 for those aged 70 to 79, and $14,345 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
3 For information on long-term trends in the income of older Americans that were calculated
for both individuals and households, see CRS Report RL33387, Topics in Aging: Income
of Americans Age 65 and Older, 1969 to 2004, by Patrick Purcell and Debra Whitman.

---

CRS-3
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 highest and lowest quartiles of the income distribution. In 2005, 87% of the
income received by elderly individuals in the lowest income quartile (those with less
than $9,600 in total income) came from Social Security. For this group, less than 4%
of their income came from savings and only 3% was received from pensions. Older
Americans with higher incomes had more diversified sources of income. In 2005,
20% of income received by individuals in the highest quartile of the income
distribution (those with $28,130 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, in the aggregate, more than three-fourths
of their income from these three sources. Figure 2 and Figure 3 show that Social
Security comprised 57% and 82%, respectively, of income received by older
Americans in the second and third income quartiles in 2005.
The average amount received in 2005 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 $5,720 from Social Security,
$62 from earnings, $171 from pensions, and $220 from assets. Older Americans in
the highest income quartile received on average $12,091 from Social Security,
$22,873 from earnings, $14,182 from pensions, and $10,881 from assets. There are
significant financial advantages from continuing to work past age 65. On average,
members of the highest income brackets received more than $1 out of $3 of their
income from working.
Income received by the elderly varies significantly by age, sex, race, education
and marital status. Figure 6 shows that in 2005, individuals between the ages of 65
and 69 had a median income of $17,938 while those who were 80 or older had a
median income of $14,366. Men 65 and older had a median income of $21,588,
compared with $12,494 for women. The median income of older African Americans,
$11,738, was 71% of the median income of older white Americans — $16,538. The
median income of older Americans increases substantially with their educational
level. Those without high-school diplomas had a median income of $10,910 in 2005
while college graduates had incomes nearly three times as high. Married individuals
had median incomes $1,100 higher than single individuals.

---

CRS-4
Table 1. Percentage of Older Americans with Income in 2005,
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)
66,485
30,981
35,505
10,231
15,967
9,307
Percentage with no income
4.6
6.3
3.1
3.2
3.1
2.8
Earnings
Percentage with earnings
40.9
67.5
17.8
32.0
16.2
5.0
Mean
$44,005
$46,913
$34,385
$39,194
$30,058
$24,600
Median
$30,000
$34,000
$16,380
$20,000
$13,920
$10,000
Social Security
Percentage with Social Security
54.8
17.0
87.8
81.8
89.8
91.1
Mean
$10,957
$10,495
$11,035
$11,134
$10,907
$11,153
Median
$10,766
$9,938
$10,862
$10,680
$10,800
$11,138
Public pensions
Percentage with public pensions
9.5
6.9
11.8
10.2
12.1
12.8
Mean
$21,715
$26,065
$19,502
$22,165
$19,175
$17,700
Median
$17,640
$22,800
$15,000
$18,769
$15,410
$13,200
Private pensions or annuities
Percentage with private pensions
16.9
9.1
23.7
20.6
24.8
25.1
Mean
$11,940
$16,169
$10,513
$12,011
$10,854
$8,578
Median $7,692
$11,700
$6,840
$9,000
$7,200
$5,388
Income from assets
Percentage with income from assets
56.1
57.0
55.4
55.7
56.3
53.5
Mean
$5,632
$5,224
$5,999
$6,247
$5,892
$5,908
Median
$850
$670
$1,087
$900
$1,127
$1,250
Veterans’ benefits
Percentage with veterans’ benefits
2.7
2.3
3.0
1.9
3.0
4.2
Mean
$11,785
$13,162
$10,849
$11,077
$11,369
$10,103
Median
$7,200
$9,000
$7,200
$6,468
$7,200
$6,600
Public assistancea
Percentage with public assistance
3.4
3.5
3.4
3.6
3.3
3.5
Mean
$5,620
$6,616
$4,745
$5,132
$4,706
$4,380
Median
$5,400
$6,699
$4,200
$4,800
$4,080
$3,600
Other incomeb
Percentage with other income
4.5
6.2
3.1
3.9
2.5
3.0
Mean
$8,081
$8,186
$7,894
$8,632
$6,588
$8,738
Median
$3,900
$4,277
$3,600
$3,458
$3,600
$3,600
Total Income
Percentage with any income
95.4
93.7
96.9
96.8
96.9
97.2
Mean $33,680
$43,478
$25,419
$31,594
$24,409
$20,384
Median
$20,138
$30,003
$15,523
$17,934
$15,338
$14,345
Source: The Congressional Research Service (CRS) analysis of the March 2006 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.

---

CRS-5
Figure 1. Sources of income, top income quartile, age 65 and up
Total income of more than $28,130
Public
Other 3%
Assistance
0%
Social Security
20%
Asset Income
18%
Pensions
23%
Earnings
36%
Figure 2. Sources of income, second income quartile, age 65 and up
Total income of $15,523 to $28,130
Public
Assistance, 0%
Other 2%
Asset Income,
9%
Pensions, 22%
Earnings, 9%
Social Security,
57%
Source: Both figures from CRS analysis of the March 2006 Current Population Survey.

---

CRS-6
Figure 3. Sources of income, third income quartile, age 65 and up
Total income of $9,600 to $15,523
Public
Other 1%
Assistance, 2%
Asset Income,
6%
Pensions, 7%
Earnings, 3%
Social Security,
82%
Figure 4. Sources of income, bottom income quartile, age 65 and up
Total income less than $9,600
Public
Assistance, 5%
Other 1%
Asset Incom e,
3%
Pensions, 3%
Earnings, 1%
Social Security,
87%
Source: Both figures from CRS analysis of the March 2006 Current Population Survey.

---

CRS-7
Figure 5. Mean income by source and income quartile, 2005
$25,000
$22,873
t $20,000
oun
m
$14,182
$15,000
l A
$12,091
$10,881
nnua $10,000
A
n
$5,720
a
e
$5,000
M
$1,708
$62
$171
$220
$335
$52
$46
$0
ns
e
ce
nings
an
come
ecurity
ar
ist
E
ensio
P
et Incom
ial S
ss
her In
oc
A
Ot
S
ublic Ass
P
Source of Income
Lowest Quartile
Highest Quartile
Figure 6. Median total income in 2005, by demographic group
$-
$10,000
$20,000
$30,000
$40,000
All age 65 +
$15,523
65-69
$17,938
e
$15,338
70-79
Ag
80+
$14,366
Men
$21,588
x
Se
$12,494
Women
White
$16,538
Black
$11,738
Race
Hispanic
$10,506
$10,910
Less than 12 years
n
io
High School Grad
$14,966
cat
u
$17,938
Some College
d
E
College Graduate
$29,370
l
s
Married
$16,178
rita
tu
a
Not Married
$15,087
Ma
St
Source: Both figures from CRS analysis of the March 2006 Current Population Survey.

---

CRS-8
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 2005, more than 3.6 million older Americans had family incomes
below the federal poverty threshold.4, 5
Figure 7. Percentage of people age 65 and older in poverty
0%
5%
10%
15%
20%
25%
All a ge 6 5 +
1 0 %
6 5 to 6 9
9 %
e
7 0 to 7 9
1 0 %
Ag
8 0 a nd up
1 2 %
M e n
7 %
x
Se
W om e n
1 2 %
W hite
8 %
e
Bla c k
2 3 %
Rac
His pa nic
2 0 %
Le s s tha n 1 2 ye a rs
2 0 %
n
tio
High S c hool Gra d
8 %
a
Som e Colle ge
7 %
duc
E
Colle ge Gra dua te
4 %
l
s
M a rrie d
4 %
rita
tu
Not M a rrie d
1 7 %
Ma
Sta
Source: CRS analysis of the March 2006 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
2005 for a single person age 65 or older was $9,367. The poverty threshold for a couple in
which at least one member was 65 or older was $11,815. See Poverty Thresholds 2005,
available at [http://www.census.gov/hhes/www/poverty/threshld/thresh05.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.

---

CRS-9
While the poverty rate for all persons age 65 and older was 10% in 2005, 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 2005 compared with only 7% of men. Because women
live longer, the number of poor older women in 2005 (2.5 million) was more than
twice the number of poor older men (1.1 million). Poverty rates were especially high
among minorities. In 2005, nearly one-quarter of elderly African-Americans and
one-fifth of elderly Hispanics were in poverty. About 81% of all older Americans
identify themselves as white. Thus, while only 8% of older white Americans were
poor, poor whites comprised 63% of all poor elderly in 2005. Older individuals with
low education also had high poverty rates. Twenty percent of those without a high
school education had family incomes below the poverty line in 2005 compared with
only 4% 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% in
2005. In contrast, 17% of unmarried individuals age 65 and older had incomes less
than the official poverty threshold in 2005. The oldest Americans had the highest
poverty rates. Twelve percent of individuals age 80 and older were poor in 2005
compared with 9% of individuals between the ages of 65 and 69. In addition, 45%
of all Americans age 80 and older had family incomes of less than twice the poverty
threshold in 2005. (Not shown in Figure 7.)
The Near-Poor. Many older Americans have family incomes that put them
just above the official poverty threshold. In 2005, while just 10% of people age 65
and older had incomes below the poverty thresholds of $9,367 for an individual and
$11,815 for a couple, 24% of older Americans had family incomes below 150% of
the thresholds ($14,050 for an individual,$17,722 for a couple). Thirty-seven percent
of people 65 and older had incomes less than twice the poverty thresholds ($18,734
for an individual, $23,630 for a couple).
Income from Retirement Benefits
Social Security6
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 2005, 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 40% of elderly recipients, Social Security contributes more than 90%
of their income, and for one-fourth of all recipients, it is their only source of income.
(See Table 2) While Social Security is an important source of income for a majority
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].

---

CRS-10
of the elderly, the benefit amounts paid by Social Security are relatively small
compare with many recipients’ pre-retirement incomes. According to the Social
Security Administration, Social Security retired worker benefits replace
approximately 55% of the earnings of a career-long low-wage earner, 41% 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 2006 are $1,002
for a retired worker and $1,648 for an elderly couple. As Figure 8 shows, 44% of
all beneficiaries received less than $10,000 from Social Security in 2005 and just 4%
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 2005
Percent of Income from
Recipients
Percentage of
Social Security
(thousands)
Recipients
Less than 20%
2,603
8.4%
20% to 39%
4,510
14.5
40% to 49%
2,430
7.8
50% to 69%
4,848
15.6
70% to 89%
4,381
14.0
90 to 99%
4,560
14.6
100% of income
7,846
25.2
Source: CRS analysis of the March 2006 Current Population Survey.
Note: In 2005, 31.2 million people age 65 or older received income from Social Security and 4.3 million people
had no Social Security income.
Figure 8. Amount of Social Security Income in 2005
37%
40%

35%
35%
ver
me
O
co
30%
d
n
I
25%
an
65
rity
20%
le
cu
15%
p
e
15%
o
e
S
al
9%
10%
f P
ci
4%
o
5%
t o
n
S
e
0%
ith
rc
e
W
Less than $5,000 to $10,000 to $15,000 to $20,000+
P
$5,000
$9,999
$14,999
$19,999
Income Received from Social Security
Source: CRS analysis of the March 2006 Current Population Survey.

---

CRS-11
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 2005, 47% 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 10
years to 5 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. Many employees roll these distributions into another employer-
sponsored retirement plan or into an individual retirement account, but some spend
all or part of the distribution, thus reducing their future retirement income.9
In 2005, 12.3 million people age 65 and older — 34.5% of that age group —
received income from a private or public pension.10 Of this number, 4.2 million had
income from a public-sector pension — that is, 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 one-sixth of all jobs in the United States. In 2005, for example, only
16% of wage and salary workers between the ages of 21 and 64 — roughly one in six
— were employed at all levels of government. Nevertheless, more than 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
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. The Pension Protection Act of 2006 (P.L. 109-280)
will reduce the maximum vesting period in most plans to three years.
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 12.6 million. About 300,000 people had both types of pension.

---

CRS-12
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 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 2005, for example, 84% of all government employees worked
at jobs that offered retirement benefits, compared with 53% 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 January 2006, 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 3.6
years.12
Figure 9. Income from public and private pensions in 2005

45%
40%
40%
ver
O

e 35%
30%
com
n 25%
23%
65 and
18%
19%
19%
e
20%
14%
17%
on I
15%
opl
15%
12%
e
8%
10%
8%
7%
P
Pensi
of
5%
th
wi
0%
rcent
Less
$5,000 to $10,000
$15,000
$20,000
$30,000
Pe
than
$9,999
to
to
to
or more
$5,000
$14,999
$19,999
$29,999
Income Received from Pensions
Public Pensions
Private Pensions
Source: CRS analysis of the March 2006 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 4.2 million people age 65
12 U.S. Department of Labor, Bureau of Labor Statistics, news release USDL 06-1563,
Employee Tenure in 2006, Sept. 8, 2006, at [ftp://ftp.bls.gov/pub/news.release/tenure.txt].

---

CRS-13
and older who reported income from a government pension in 2005, the median
annual amount was $15,000. Fourteen percent of government pension recipients
reported that their pension income was less than $5,000 in 2005, while 19% 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 2005, the
median annual amount was $6,840. Forty percent of private pension recipients
reported that their pension income was less than $5,000 in 2005 and 7% 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 35.5 million Americans age 65 or older who
were living in households in 2005, 19.7 million (55%) 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 $1,087. 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 2005
was less than $20,000, 45% had asset income. In contrast, of those whose total
income was more than $20,000, 76% had asset income.
13 In 2004, 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 $36,100. The median for families
headed by someone age 75 or older that owned any financial assets was $38,800. The
median net worth of all families headed by a person between the ages of 65 and 74 was
$190,100. The median net worth of all families headed by someone age 75 or older was
$163,100. Net worth is the value of all assets (including a home) minus all liabilities. See
Brian K. Bucks, Arthur B. Kennickell, and Kevin B. Moore, “Recent Changes in U.S.
Family Finances: Evidence from the 2001 and 2004 Survey of Consumer Finances,”
available at [http://www.federalreserve.gov/pubs/bulletin/2006/financesurvey.pdf].

---

CRS-14
Figure 10. Percentage of people age 65 and older with income from
assets by total income in 2005
le
100%
op
e
80%
P
60%
of
ge
40%
ta
n
e
20%
rc
e
0%
P
Less
$5,000 $10,000 $20,000 $30,000 $50,000
than
to
to
to
to
or more
$5,000
$9,999 $19,999 $29,999 $49,999
Total Income of Individual
Without Income from Assets
With Income from Assets
Source: CRS analysis of the March 2006 Current Population Survey.
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 $182. For individuals with total annual
incomes between $10,000 and $19,999 — accounting for more than one- third of all
persons age 65 and older — the median amount of asset income in 2005 was $751.
(See Table 3.) Those with the highest total incomes were more likely to have
income from assets, and they also received higher amounts. More than 86% of those
with total incomes of $50,000 or more received asset income in 2005. Their median
income from assets was $9,003.

---

CRS-15
Table 3. Income from Assets Among People 65 and Older, 2005
Number of
Percent
Total Income, 2004
People
with Asset
Mean Asset
Median
(thousands)
Income
Income
Asset Income
Less than $5,000
1,720
45.1%
$140
$182
$5,000 to $9,999
7,457
36.3
755
310
$10,000 to $19,999
12,041
51.2
1,896
751
$20,000 to $29,000
5,309
68.8
3,491
1,300
$30,000 to $49,999
4,235
75.1
6,191
2,500
$50,000 or more
3,656
86.7
22,594
9,003
All persons with
any income14
34,418
57.1
$6,000
$1,087
Source: CRS analysis of the March 2006 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 2006, 79% of men and 69% of women age 55 were working either full-time
or part-time. Of those age 60, 66% of men and 54% of women were employed.
Among 65-year olds, 41% of men and 26% of women were employed in March
2006. While the share of older Americans who work declines rapidly after age 65,
Figure 11 shows that 27% of men and 14% of women who were 70 years old in
March 2006 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 35.504 million individuals age 65 and older in 2005, 34.418 million (96.9%) reported
income from one or more sources and 19.659 million (55.4%) 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 older rather than age 65 and
older.
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
(continued...)

---

CRS-16
2005, the median earnings of workers aged 55-61 were $35,000, while median
earnings of workers aged 62-64 were $28,000. For those over age 65 who continued
working, median earnings were $16,380 in 2005. Figure 12 shows the decline in
workers’ annual earnings as they age. At the top of the earnings scale, 33% of
workers aged 55-61 earned $50,000 or more in 2005, while only 19% of those age
65 or older had earned income totaling more than $50,000 in that year. In contrast,
while only 10% of Americans aged 55-61 who worked in 2005 had total earnings of
less than $10,000, 32% of workers age 65 or older had earnings of $10,000 or less.
Figure 11. Employment rates by age and sex, March 2006
1 0 0 %
9 0 %
7 9 %
8 0 %
yed
6 9 %
lo
7 0 %
6 6 %
p
m
6 0 %
5 4 %
E
e
5 0 %
4 1 %
g
ta
4 0 %
2 6 % 2 7 %
3 0 %
rcen
e
2 0 %
1 7 %
1 4 %
P
1 0 %
1 0 %
0 %
5 5
6 0
6 5
7 0
7 5
A g e
M e n
W o m e n
Source: CRS analysis of the March 2006 Current Population Survey.
17 (...continued)
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,
K.W. Schaie and C. Schooler, eds. (New York: Springer Publishing, Inc., 1997).
18 While 72% of people aged 55-61 and 53% of those aged 62-64 worked either full-time or
part-time in 2005, the employment rate was 32% among those aged 65 to 69 and 12% among
people age 70 and older. Some 85% of workers aged 55-61 were employed full time in
2005, only 59% of workers aged 65-69 and 44% of workers age 70 and older 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, 2005
100%
90%
p
80%
rou
G
70%
e
g
60%
A
50%
ge of
40%
ta
30%
en
rc
e
20%
P
10%
0%
Age 55-61
Age 62-64
Age 65+
Age Group
Less than $10,000
$10,000 to $29,999
$30,000 to $49,999
$50,000 or more
Source: CRS analysis of the March 2006 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 2005, just over one million individuals age 55 and
older — about 1.5% 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 $2,800.

---

CRS-18
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 older. In 2005, the median income from UC benefits for
recipients age 65 and older was $1,800, and three-quarters of all individuals age 65
and older who received unemployment compensation received less than $3,600.
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 2005, 498,00 individuals age 55 and older received income through
workers’ compensation. While few individuals receive workers’ compensation
benefits after age 65, for those who do, it represents a substantial source of income.
For the 148,000 people age 65 and older who received workers’ compensation in
2005, the median annual benefit was $7,992.22
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 2005, 1.1 million Americans age 65 and older received
supplementary income from two disability-based programs: the veterans’
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.
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.

---

CRS-19
compensation and veterans’ pensions program. Taken together, the median veterans’
compensation or pension benefit was $7,200 in 2005, or $600 per month. Three-
quarters of recipients received compensation or pension benefits of $13,920 or less.
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.
Income from Public Assistance
An estimated 1.2 million Americans age 65 or older received public assistance
income in 2005. 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 2005 was $4,200, or $350 per month.
The largest source of cash assistance for the elderly is 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 2005, the monthly standards were $579 for an
individual and $869 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
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.
24 In 2005, the poverty threshold for a single person age 65 or older was $780 per month.
For a couple in which one or both people were over 65, the monthly poverty threshold was
$985.

---

CRS-20
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
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 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 more than 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
25 Arkansas, Georgia, Kansas, Mississippi, Tennessee, and West Virginia pay no
supplement.

---

CRS-21
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

---