Fact-Check: 41% of Retirees “Can’t Cover Basic Needs,”Says The Elder Index

By Andrew Biggs of AEI.

"CBS News, CNBC, The Boston Globe, Reuters and others have repeated the National Elder Economic Security Index’s claim that 41% of all retirees nationwide are “economically insecure.” According to the Elder Index, a project of several Massachusetts-based gerontology groups,  53% of single retirees nationwide and 27% of retired couples cannot “cover basic needs … including shelter, medical care, food, and transportation.” 

But are 4-in-10 retirees really unable to afford even a basic standard of living? It’s time for a fact-check.

The Elder Index’s logic is pretty reasonable. It first determines how much a retiree household should expect to spend on Housing, Food, Transportation, Healthcare, and Miscellaneous spending. Then, it uses Census Bureau survey data to calculate how many households have a total income sufficient to meet these thresholds. If not, the Elder Index classifies it as economically insecure.

The problem is with how the Elder Index sets these spending thresholds. For food costs, the Elder Index uses the USDA’s “thrifty” food plan, which is designed to provide adequate nutrition at minimum cost. It’s hard to argue with that.

But for housing, the Elder Index looks at the median costs paid by renters or homeowners in an area. For transportation, the Elder Index calculates costs based on the average number of miles driven by retirees. For healthcare, the Elder Index looks at the average cost of Medicare premiums, a Medigap supplementary policy and out-of-pocket health costs. The Miscellaneous spending category is set at 20% of the total, so it effectively follows the other categories.

 

Here’s the problem: by definition, half of the population spends below the median and more than half spends below the average. Half pay less than the median housing cost, but that doesn’t mean their housing is inadequate. More than half pay less than the average cost for transportation, but perhaps they have a less expensive car or drive fewer miles. And much more than half pay less than the average healthcare costs, because the average is skewed by a small number of patients with very high costs. Moreover, about one-fifth of retirees receive health coverage from Medicaid, which covers their Medicare premiums, co-pays, prescription drugs and other costs. They don’t need to cover the same out-of-pocket costs as middle or higher-income retirees.

In other words, the Elder Index sets its spending thresholds in such a way that almost pre-determines that a lot of retirees will be deemed economically insecure. Unless we live in a Lake Wobegon world where every retiree’s income is above average, someone has to fall below the spending thresholds set by the Elder Index. But simply having a below-average income doesn’t make a retiree economically insecure.

The Elder Index has an additional problem: the Census Bureau survey data it uses significantly understates retirees’ true incomes, which can be measured using IRS data. Many retirees responding to household surveys mistakenly fail to report the incomes they receive from pensions, 401(k)s and IRA accounts, so much so that the median retiree income reported in IRS data may be up to 30% above what those same households report in government surveys. Even at low income levels, household survey data understate true retiree incomes by at least 10 percent.

So the Elder Index both overstates retirees’ costs of living and understates the incomes retirees have to pay these costs.

But is there a better way?

One option is to look at poverty rates. According to 2017 Census Bureau research, 6.7% of Americans aged 65 and over in 2012 had incomes below the poverty threshold, down from 9.7% in 1990. The Supplemental Poverty Measure calculates poverty differently and finds that 13.5% of retirees were in poverty in 2019, though the data don’t extend far enough back to determine trends. But either way, neither imply that 40% of retirees are economically insecure.

A second approach simply asks retirees to assess their own retirement income security. Nearly 8-in-10 retirees tell Gallup that they have enough money, not merely to survive, but “to live comfortably.” Likewise, only 5% of retirees tell the Federal Reserve’s Survey of Household Economics and Decisionmaking that they are “finding it hard to get by,” with another 16% saying they are “just getting by.” Fully 79% of retirees say they are “doing okay” or “living comfortably.” Unless retirees are deluding themselves, it’s hard to square these figures with the Elder Index’s conclusion that over 4-in-10 are economically insecure.

The Elder Economic Security Index has too many technical flaws to tell us much of value about how retirees today are faring. And it’s inconsistent with retirees themselves tell us. So it’s Factcheck: False on the Index’s claims.

But here’s the bigger question: Why do studies, invariably concluding that Americans have vastly undersaved for retirement, find such uncritical coverage in the news media? Most of the media coverage of these studies is single-source, meaning that the article simply repeats the study’s claims but doesn’t contact any other sources for comment. That’s a no-no for journalists, and these “retirement crisis” studies illustrate why: it’s really easy for a reporter who’s not a subject-matter expert to overlook the shortcomings of a study and simply repeat its frightening conclusions, even if on second glance those conclusions are unreasonable. That’s why reporters need to contact multiple sources and editors need to demand that they do. The news media suffers from tight budgets and understaffing today, but their job is too important for it to be done badly."