What’s the biggest source of income for Americans in the last years of their lives? Whether you live to 65, 75, or 85-plus, no matter if you’re married or single, the answer is the same: Social Security. And in the you’re-on-your-own, 401(k) era, this hard fact is only becoming more so.
More Americans are elderly—over 65—today than at any time in the nation’s history, and more of these older people are living to a really advanced age than ever before. It’s safe to say we collect more data on them than ever before, as well. That means we’ve never had as good a chance to study the financial health of the elderly.
Using data from University of Michigan’s Health and Retirement Study (HRS), sponsored by the National Institute on Aging, the Employee Benefit Research Institute has just released a fascinating analysis of individuals who responded to the HRS survey in 2010 and died before the next, 2012 survey. Admittedly a bit morbid, the study provides a snapshot of older Americans’ fiscal status at more or less the time they died. This gives us a chance to compare the economic endgame for different cohorts of elderly: those who died in early retirement (65 to 74), middle-period retirement (75-84), and late old age (85-plus). For further comparison, EBRI even threw in the cohort of Americans who died in late working age, 50 to 64.
Some of the findings are interesting but perhaps not surprising. Invariably, couples are far better off than single-person households, whether by income, total assets, non-housing assets, indebtedness, or level of dependence on Social Security. On that last point, the study results are dramatic: Two-thirds of income for couples between 75 and 85 comes from Social Security, and a sky-high 74.4% for single-person households. For 85-plus households, the figures are nearly as formidable: 61.5% and 67.1%, respectively.
That makes Social Security not a safety net in old age, as it’s sometimes termed, but quite literally, a lifeline. Underscoring the point, EBRI looked at the non-housing assets, in 2010, of households with members who died in 2010-12. The results were stark: For the oldest couples, more than one in four (26.3%) had less than $10,000 socked away; for those aged 65 to 74, the figure was more than one in three (36.9%). Things looked even bleaker for singles: Fully half of those 85 and over had less than $10,000 still put away, while a scary three-quarters of the 50-to-64 crowd fell into that category.
What’s especially disturbing about these numbers is that they actually get a bit better for the oldest households. In the classic scenario, we’re supposed to accumulate assets during our working years and gradually pay them down during retirement. What we see here is quite different. People who lived to be 85 and older were somewhat more financially healthy, but those unfortunate enough to die before they turned 65—while they were still preparing for retirement, in other words—were less so. For the oldest seniors, assets accumulated were more substantial and debt was less prevalent (14.9% of 85-and-over couples had debt, versus 41.8% of those 50 to 64.)
That last point isn’t surprising—people in their final years before retirement are expected to be working to reduce debt overhangs accumulated during their family-raising years. But it’s disturbing that more than one in three of couples aged 65 to 74 (36.9%) still have debt. They’re not starting out their golden years promisingly.
EBRI research associate Sudipto Banerjee, who wrote the report, ventures no guesses why younger retirees appear so much less likely to be financially secure than older ones, and a number of factors obviously are involved. Individuals who die in their late working years or early days of retirement may have health problems that eat up their nest eggs. They may work at low-paying, physically taxing jobs that shorten their lives and never permit them to accumulate substantial old-age savings.
I would suggest another factor: the disintegration of the US retirement system. The EBRI study sample is intriguing because, age-wise, it straddles the last major beneficiaries of the old system centered on defined-benefit pension plans that paid out guaranteed benefits throughout retirement, and the you’re-on-your-own era typified by 401(k)s and other defined contribution plans that make no such promises.
A substantial percentage of the 85-year-olds EBRI studied are likely to have spent most of their working lives at a stable job that vested them with a guaranteed pension. That enabled them to hold onto some portion of their savings until very late in life. By contrast, the working years of those who died before age 64—meaning they were born after 1955—coincided with corporate America’s shift to 401(k)s. Throughout their careers, they faced a series of grim tradeoffs between saving for retirement, for housing, for continuing education and training, for their health care, for their children’s health and education, and for a variety of other necessities. They wound up with fewer assets—more than one third, 37.2%, died with no non-housing assets at all—and higher debt levels. This despite the fact that their household income was much higher than the oldest retirees’, according to EBRI’s findings.
Because of their lack of assets, “young-old” households are almost as dependent on Social Security as the “old-old.” Social Security supplied more than half of household income for couples aged 65 to 74, compared with 61.5% of those 85-plus. Single-person households under age 74 were actually more Social Security dependent, at 71.9% versus 67.1% for singles in the 85-plus group.
So let me revise my earlier statement: Social Security is not just a lifeline—it’s becoming a lifeline sooner for people in old age. Originally designed as a base income for America’s working people, thanks to the devastation of lifetime employment and traditional, employer-based pensions, Social Security is becoming the whole ballgame: without it, seniors face a financial cliff not in extreme old age, but in many cases, soon after they cease working.