Spotlight Exclusives

Many Elderly Americans Die with Little to No Savings

Sudipto Banerjee, Employee Benefit Research Institute Sudipto Banerjee, Employee Benefit Research Institute, posted on

No one wants to outlive their money, but some people do. While Social Security and Medicare are a vital safety net, many retirees face hardships if they do not have other assets to help support themselves.

Ensuring the well-being and financial security of Americans throughout their adult lives requires understanding how large this group is and why they run out of money. Fortunately, new research sheds light on the demographics of elderly Americans who lack savings and why they run out of money, providing key insights for policymakers.

Working with colleagues at the Employee Benefit Research Institute (EBRI), I analyzed the end-of-life finances of older Americans using data from the Health and Retirement Study. We found that a large percentage of individuals who died between 2010 and 2012 had little or no non-annuity assets, and those who died relatively younger were especially likely to be broke.

Specifically, we found that among those who died at age 85 or above, one in five had no non-housing assets and more than one in ten had no assets at all. Singles were in much worse shape than couples. Nearly, one-quarter of them had no non-housing assets and one in six had no assets left. Among those who died early, between ages 50 and 64, the picture gets bleaker. Nearly two in five singles in that age group had no assets left. And in fact, households with an individual who died early often carried significant debt, around $20,000 even excluding mortgages. These findings make clear that the problem of retirees exhausting their assets is not an uncommon one.

We also noted that households which lost family members at relatively younger ages had lower income and lower assets. Higher income and higher asset households lived longer. This positive relationship between socioeconomic status and mortality is well-documented, and there may be a few potential reasons. Those who remain healthy throughout their working life might earn more than those who suffer life-long health issues and eventually die early. On the other hand, those with higher income and greater assets have better access to health care that helps them live longer.

Not surprisingly, the data also show that Social Security is crucial for retirees. For recently deceased singles, the program provided at least two-thirds of their income. Couples with at least one member above 75 and a deceased member received more than 60 percent of their household income from Social Security.

In an earlier analysis, we studied the poverty trends among older Americans during the last decade. Although old-age poverty has declined significantly in America during the last century, a large number of seniors, especially those at advanced ages (85 and above), still lived below the poverty threshold. Using data from the Health and Retirement Study, we found that in 2009, 14.6 percent of those above 85 lived in poverty.

In fact, poverty rates have been inching upwards for the 65 and above group since 2005. But to understand the incidence of old-age poverty better, it is important to distinguish between those who fell into poverty at old ages and those who remained poor as they aged. Using repeated observations from the same households, we found that among those aged 85 and above in 2009, 6 percent were new entrants into poverty. This was up from 4.6 percent in 2005. The oldest Americans may now be at greater risk of falling into poverty.

Our research provides detailed insights into specific populations at a high risk for running out of money, but the question of what causes asset exhaustion is equally important. There could be several potential reasons. Some households might have entered retirement with significant assets but depleted them quickly due to unanticipated events such as death of spouse or diagnosis of a chronic illness. Others might have outlived their assets by simply living longer than expected. But there is also the possibility that many of these people arrived at retirement with little assets and had little left by the end-of-life.

According to National Bureau of Economic Research researchers Jim Poterba, Steve Venti, and David Wise, most of the people who had little non-annuity assets at the end-of-life also had comparable assets at the onset of retirement. So, for most of them it was a savings problem and not an expenditure problem. The researchers acknowledged that many people had significant asset declines due to loss of a spouse or a medical event, but the driving force was low levels of accumulated savings.

We know that large numbers of recently departed seniors had little or no assets left by the end of their lives, and this was primarily because they had not saved enough. The challenge for families and policymakers is to find ways of ensuring that Americans enter into retirement with enough savings to support them through their later years.

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Sudipto Banerjee is a research associate at the nonpartisan Employee Benefit Research Institute (EBRI).

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