Perspectives

The True Cost of Retirement

By Flora Davis

At first glance, you might think New Jersey was doing pretty well in 2010. According to federal guidelines, only 7 percent of its residents age 65 and older were living in poverty. But a study primarily funded by the Silver Century Foundation paints a much more disturbing picture—in the same year, nearly 43 percent of the state’s elders who lived independently in the community couldn’t afford life’s basic necessities: housing, health care, food, transportation and other essentials such as clothing.

How can these numbers be so far apart?

The federal poverty guidelines are based entirely on food costs, using a formula unchanged since the 1960s when experts estimated that families spent a third of their budgets on groceries. The experts multiplied the price of a frugal diet by three to establish a poverty threshold.

Though that threshold updates annually, it’s still based solely on the cost of food—specifically, the current cost of the same minimal meal plan considered barely adequate more than 40 years ago—and it doesn’t take into account other essential living expenses. Today Americans spend less than one-tenth of their income on what they eat; most older people find that housing and health care claim much bigger chunks of their money.

There’s another important problem, as well: the poverty threshold is the same whether you live in rural Alabama or Manhattan, though the cost of living can vary enormously from place to place.

Despite these flaws, the federal poverty guidelines determine whether individuals and families are eligible for a number of benefits, including food stamps and some state health insurance programs. Over the years, many experts have suggested more plausible ways to measure poverty but there’s been no consensus on how to do it.

A More Realistic View

In a recent effort to establish more realistic standards for what life’s basic necessities cost older people, a Washington, DC, nonprofit group created the Elder Economic Security Standard Index (also known as the Elder Index).

Wider Opportunities for Women (WOW) worked with the Gerontology Institute of the University of Massachusetts to determine the least amount of income older Americans need to live independently—to age in place—county by county, nationwide.

The Elder Index has several goals. Primarily, it’s an attempt to improve public policies by providing real information about what elders need and to guide agencies that serve seniors. It’s also useful to individuals who want to help their parents make financial decisions, or those who wonder whether they can afford to retire, or who hope to identify a community with a lower cost of living.

When Social Security Is All You Have More than a quarter of New Jersey’s elders have no income except their Social Security. Antonia BiGangi is one of them; her monthly benefit of $1,080 is all the income she has to live on. Before her husband died, the two of them managed quite well. They had Social Security plus his pension. His health insurance covered both and cost them nothing. Ed BiGangi had started his work life quite young, and his job with New York City’s Department of Sanitation permitted him to retire after 20 years. He was 46 when he stopped working. At the time, he was given a choice: he could take his full pension and it would end when he died, or he could accept a smaller amount so that if he died first, his wife would continue to receive some benefits. Antonia, a bookkeeper, loved her own job and intended to go right on working. The decision seemed like a no-brainer. “It was amicable between the two of us not to put me down as his beneficiary in the pension,” she said. “We didn’t think of 35 years down the line.” After Angela herself retired in her 60s, they sold their house and bought a New Jersey condo. But Ed died in 2011. Antonia was devastated. They’d been together since they were 16. “When they say love at first sight, the love of your life, that’s who he was: Mr. Wonderful,” she recalled. With his death, she lost not only the income from his pension but his health insurance—and she had lung cancer. Her monthly check from Social Security wasn’t nearly enough. According to the Elder Index, as a single person who owned a home with no mortgage, she needed almost $22,000 a year to pay for essentials. That was far more than the $12,960 she was entitled to from Social Security in 2012. Finally, a friend told Antonia about Community Services Incorporated. Caseworkers there helped her identify government subsidies available to her and apply for them. Subsidies have now reduced what she pays for Medicare and for her medications. She’s waiting to hear about a fuel subsidy and planning to apply for food stamps. Antonia didn’t qualify for Medicaid because she has some assets, but she’s burning through her modest savings despite the subsidies, which means eventually she’ll be accepted for Medicaid. As she struggles financially, Antonia works at keeping her spirits up. “My faith is strong,” she said, “and I tell this to my children every day: if we’re going to be all doom and gloom, then we’ll sink. Whatever comes our way, it’s how we handle it that counts.”

The Elder Index calculates bare-bones expenses for:
•    Food – home-cooked meals only, based on the USDA’s Low Cost food plan
•    Housing – either a homeowner’s mortgage payments or rent (for a one-bedroom apartment), plus condo fees, property taxes, insurance, heat and utilities
•    Health care – premiums, deductibles and copays for Medicare, a supplementary medigap plan and a prescription drug plan, along with out-of-pocket expenses for eyeglasses, hearing aids and other health needs not covered by Medicare
•    Transportation – the cost of owning a car
•    Miscellaneous – all other personal and household necessities, everything from shoes to phone service. This category does not include luxuries like cable TV, restaurant meals or gifts for the grandkids—nor does it include home repairs.

Housing consumes the biggest portion of the budget for most older people in good health. Homeowners with a mortgage generally spend the most for shelter; renters come next, then homeowners without a mortgage. Researchers calculate these three options separately. They’ve also studied the costs of long term care and the financial impact of poor health.

To figure out how many older Americans can afford the bare-bones essentials, the Elder Index calculates income, including pensions, Social Security and savings. It assumes individuals have Medicare and are completely retired with no support from relatives or government programs such as Medicaid. For both expenses and income, all calculations are based on data readily available from the government or from studies of the market.

Elder Index researchers have estimated the cost of necessities for older people in every county in all 50 states. You can find this information online and it’s sobering. Fifty-two percent of all elders who are aging in place can’t afford life’s essentials—they have incomes below the Elder Index. Overall, older Americans who lived alone in 2011 needed about $19,000 to $29,000 a year to cover their basic expenses, depending on whether they owned a home outright, rented or had a mortgage. Married couples needed $29,500 to $39,000.

These findings highlight the problems with the federal guidelines that set the poverty line in 2011 at $10,890 for those who lived alone and $14,710 for couples. In the opinion of WOW’s leaders, these are not measures of poverty but of “abject deprivation.” 

Seizing the Initiative

The Elder Index is just numbers unless someone acts on it. WOW is supporting coalitions in 17 states, including New Jersey, to do studies of their own, to use the Elder Index to educate policy makers and the public and to guide outreach to elders who need help.

The New Jersey Foundation for Aging (NJFA) leads the way in New Jersey. In 2009 it analyzed the cost of living for elders in each of the state’s 21 counties, working with WOW.

That was a good beginning, but NJFA executive director Grace Egan wanted to know how many older people had incomes below the Elder Index, who they were and where they lived—information that could provide a tool for planners and policy makers. In 2012, a grant from the Silver Century Foundation (SCF) enabled NJFA to undertake a second study

The new research, which analyzed the incomes and expenses of older citizens living independently in the community, revealed that almost 43 percent have incomes below the Elder Index. This is important to know, Egan said.

“Frequently, you hear that seniors are on easy street or that they don’t have health care costs, but in fact they do,” she said. “Medicare is not free.”

As with any other health insurance plan, Egan explained, there are premiums, copays and limits on coverage. Many older people wind up with high medical bills.

Women Are the Most Vulnerable Elders

The 2012 study took results a step further, breaking down its statistics by gender. Kay Klotzburger, president of SCF, explained that the foundation is particularly interested in the predicament of older women because they’re more vulnerable than men financially—and they live longer.

“An overwhelming number of them are in poverty,” Klotzburger said. “There’s no group in this society I’m more concerned about.” 

Nationally, 60 percent of all older women have incomes below the Elder Index, compared to 41 percent of older men. The men’s incomes are almost 75 percent higher. In a Huffington Post interview, Donna Addkison, then president and CEO of WOW, called the problem “staggering.”

"Older women are very quietly making decisions at home to split their pills in an attempt to stretch their medication,” she said. “They're choosing between having heat in the winter and having nutritious food on the table."

The situation is most precarious for women of color. Nationally, 61 percent of Asian American women and roughly three-quarters of those who are black or Hispanic have incomes below the Elder Index, compared to about half of white women. 

The factors that make older women vulnerable financially add up to a perfect storm. Women work mostly in lower-wage industries or if they don’t, they’re often paid less than men for comparable jobs. They’re less likely to have pensions, less likely to earn enough to be able to save for retirement and more likely to take time off for caregiving. Because Social Security is based on earnings, their benefits once they retire are correspondingly low.

For both women and men, NJFA’s 2012 research showed things are getting worse. In the three years between the two Elder Index studies, basic living costs increased by 8 percent for New Jersey’s single renters and by more than 11 percent for homeowners with mortgages, even as their incomes and the value of their assets dropped.

“This is through no fault of their own,” Egan said. “Even if they were good savers and planned well for their retirement, those are steep increases.”

Putting the Numbers to Work

For social service agencies, the Elder Index offers insights into the kind of help older people need. For instance, New Jersey’s 2009 study revealed that surprisingly few elders received food stamps under the Supplemental Nutrition Assistance Program (SNAP).

“They didn’t think they were eligible,” said Melissa Chalker, NJFA’s program manager.

SNAP’s enrollment increased once local organizations began to provide information about food stamps to older people applying for a state program that helps pay for prescription drugs. Egan pointed out that getting help to pay for one thing, such as food, could free up money for other necessities.

Access to affordable housing would make the biggest difference, especially in New Jersey, where the rent for a one-bedroom apartment typically eats up 47 percent of an older person’s income. Yet affordable senior housing is hard to find because often when someone proposes building it, neighbors object. Egan hopes that a look at the Elder Index will convince some younger adults that they may need to downsize into a reasonably priced apartment someday and therefore should support affordable projects now.

The great hope for the Elder Index is that state and federal policy makers will use it to analyze the impact of public policies on older citizens and to adjust them accordingly or come up with realistic new initiatives.

Beyond that, the concept of the Elder Index is a departure from the way Americans usually think about poverty and economic security.

“It’s a positive approach,” said SCF’s Klotzburger. “It reveals how much income older adults need to survive without help from their children or from government programs—how much they must have to remain independent and feel financially secure. Instead of measuring abject poverty, the Elder Index is a measure of self-sufficiency and human dignity.”
 

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