Cecily O'Connor
RedwoodAge.com
Poverty rates among retirees lacking pensions are six times greater than for other American elders, according to a new study.
The report by the National Institute on Retirement Security also found that pensions can reduce the greater costs of poverty and public assistance that many women and minority populations otherwise would face. The risk of poverty in retirement is far higher for women and minority groups than it is for household headed by white males.
“This analysis reveals that pensions have a unique, independent and positive impact on older Americans economic well-being," said Beth Almeida, study co-author and executive director of the institute. "This ‘pension factor’ is particularly powerful for improving the economic security of vulnerable older households - women and members of racial/ethic minority groups.”
An in-depth look at the so-called pension factor found that these traditional retirement savings plans have helped substantial numbers of older Americans avoid hardships associated with inadequate food, shelter and health care.
42 Million Pensions
Traditional defined benefit (DB) pension plans - which pay a guaranteed monthly
income based on age, salary history and years of service with an employer - have
more than 42 million US participants, according to the Employee
Benefit Research Institute. While recent turmoil in financial markets
has substantially reduced the funding of many DB plans, the predictable monthly
benefits still remain a source of security to many retired households, according
to the study.
Generally speaking, DB plans are more common among public sector workers, while those in the private sector are more likely to be covered by a defined contribution plan such as a 401(k). Still, ensuring older Americans have access to pensions in retirement can help relieve some of the "enormous pressures" on federal, state and local budgets, Almeida said.
"We calculated a savings of some $7.3 billion in public assistance expenditures in 2006, attributable to pensions," she said. "That’s about 8.5 percent of aggregate public assistance dollars received by all American households in 2006 for the same benefit programs. These are sizable dollars.”
Millions Affected
In 2006, pensions resulted in 1.72 million fewer "poor" households and
2.97 million fewer "near-poor" households. Food, shelter and
healthcare hardships were also reduced by tens of thousands.
The pension factor in escaping poverty is most evident among minorities. For example, the double-digit percentage disparity in poverty rates among white and non-white households without pension income (11.5 percent for whites vs. 29.4 percent for blacks and 24.6 percent for other race) was reduced to a disparity of less than 4 percentage points among households with DB pension income (1.9 percent for whites vs. 5.2 percent for blacks and 4.7 percent for other race).
Almeida worked alongside lead author Dr. Frank Porell, professor of Gerontology at the McCormack Graduate School of Policy Studies at the University of Massachusetts-Boston, to complete the study. Their analysis was based on the US Census Bureau’s Survey of Income Program Participation (SIPP) panels from 1996, 2001 and 2004 with respondents aged 60 and older.
“With our analysis, we now have hard numbers on the people and budget impacts of pensions," Porell said. "The bottom line: pensions help older Americans escape poverty – especially women and minorities, who we know are most vulnerable."
