Income Security

This testimony discusses the effects of the recent recession on older adults. While the recession officially ended in June 2009, our economy has experienced a weak recovery, with unemployment still above 9 percent. Older adults--particularly those close to or in retirement--may not have the same opportunities as younger adults to recover from the recession's effects. For example, older adults--generally those 55 and older--may have insufficient time to rebuild their depleted retirement savings due to sharp declines in financial markets and home equity, and increased medical costs. Further, while older workers are less likely to be unemployed than workers in younger age groups, when older workers lose a job they are less likely to find other employment. These changes have intensified older adults' concerns about having sufficient savings now and adequate income throughout retirement. Social Security forms the foundation of income for nearly all retiree households, providing 36 percent of aggregate income for households with a member aged 65 and older; however, it provides a much greater portion of income for low and middle income households. Pensions and assets together provide 31 percent of aggregate income. However, many older adults lack any pension; 44 percent of full-time workers in their 50s have neither a defined benefit nor a defined contribution pension from their current employer; and the number of active defined benefit plan participants has declined since 1990. In 2007, before the recession began, the median level of financial assets for households approaching or entering retirement was around $72,000. Using a 4 percent withdrawal rate in retirement, this amount would replace about five percent of these families' $55,000 median annual household income. Although most retirees would also receive Social Security benefits, for many retirees even these will not be sufficient to maintain their standard of living. Older Americans' income varies widely. In 2008, annual income for households with a member age 65 and older ranged from $7,466 for those in the lowest of five income groups to $109,543 for the highest of five income groups. Those in the lowest and middle groups received most of their income from Social Security retirement benefits, while those in the highest group on average received most of their income from earnings, asset income, and pensions. Today's testimony is based on a GAO report that we are releasing at this hearing, titled "Income Security: Older Adults and the 2007-2009 Recession." This report examined: (1) What changes have occurred in the employment status of older adults, generally those 55 and older, with the recession? (2) How have the incomes and wealth of older adults in or near retirement changed with the recession? (3) What changes have occurred in the costs of medical care, the purchasing power of Social Security benefits, and mortality rates for older adults in recent years?

Since 2007, unemployment rates doubled and remained higher than before the recession for workers aged 55 and older. While these rates were not as high as for other age groups, of more concern is that once older workers lose their jobs they are less likely to find other employment. In fact, the median duration of unemployment for older workers rose sharply from 2007 to 2010, more than tripling for workers 65 and older and increasing to 31 weeks from 11 weeks for workers aged 55 to 64. In addition, the proportion of older part-time workers who indicated they would prefer full-time work nearly doubled during this time. Household income fell by 6 percent for adults 55-64, but increased by 5 percent for adults 65 and older. Median household net worth fell during the recession for older adults. Poverty rates increased for adults aged 55-64, but declined for those 65 and older, while low incomes were more prevalent in older age groups than in younger ones. Furthermore, the recession leaves older adults with difficult choices regarding retirement savings. Neither stocks nor real estate have recovered from their low points during the recession, and continued low interest rates mean that savings provide little, if any, interest income after inflation. According to a survey by the AARP Policy Institute, many older Americans experienced financial hardship during the recession. For example, nearly a quarter of survey respondents aged 50 and older indicated that they or someone in their family had exhausted or used up all of their savings during 2007-2010, while more than 12 percent stated that they or someone in their family had lost their health insurance. Among those who reported having difficulty making ends meet during 2007-2010, nearly 50 percent reported that they delayed getting medical or dental care, or delayed or ceased taking medication. In addition, more than one-third reported that they had stopped or cut back on saving for retirement. Medical costs continued to rise faster than other costs, and older adults continued to spend more on medical care than those in younger age groups. The purchasing power of Social Security benefits was maintained with cost-of-living adjustments and, for those receiving benefits in 2009, increased with a one-time $250 Recovery Act payment in 2009. Mortality rates for older adults continued a long-term decline during 2007-2009.