See a table on page 225 of the just-released annual report of the Council of Economic Advisers. The table — based on an academic study — estimates the net worth of the 65- to 69-year-old population. Net worth is the value of all a household’s financial assets minus its debts.
To avoid confusion, I’ve simplified the table by including only total net worth and the portion represented by estimated Social Security benefits. All the rest comes from a variety of sources: normal savings and checking accounts; retirement accounts; defined-benefit pensions; and equity in homes (among those 65 to 69, the homeownership rate is about 80 percent). These calculations exclude the value of Medicare and Medicaid. If they were added, each total would increase by about $180,000.
The table’s left-hand column (labeled “Percentile”) divides the elderly population into equal parts. The poor at the 10th percentile have a net worth of $197,000; the rich at the 90th percentile have a net worth of $2.1 million. On average, Americans live about 19 years after reaching 65. Although Social Security lasts until death, other forms of wealth can be depleted.
Distribution of Wealth for Households Aged 65-69 in 2008
Percentile / Total Net Worth / Social Security
10 / $197,000 / NA
20 / $297,300 / $154,300
30 / $413,600 / $214,500
40 / $564,000 / $267,900
50 / $731,100 / $315,300
60 / $898,400 / $379,000
70 / $1,146,400 / $463,300
80 / $1,483,400 / $542,900
90 / $2,103,000 / $643,100
Economists James Poterba of the Massachusetts Institute of Technology, Steven Venti of Dartmouth College and David Wise of Harvard University wrote the underlying study. It confirms what common sense suggests: Just as the working population consists of the poor, the comfortable and the wealthy, so does the 65-and-over population.
People’s personal circumstances vary enormously. Someone with a defined-benefit pension may have little personal savings; someone with substantial savings and a retirement account may lack a pension. Some wealth is not easily converted into cash: home equity, for example. To tap it, people have to sell their homes or (more likely) borrow against it. In their study, Poterba, Venti and Wise find most elderly households treat their home equity as “precautionary savings” used “only when they experience a shock such as the death of a spouse or a period of substantial medical outlays.”
Even wealthy retirees face uncertainty: They don’t know how long they’ll live and how quickly to spend their savings. Still, two conclusions leap from the table. First, a substantial part of the elderly population — between 30 percent and 40 percent — is well-off by any definition. Second, reliance on Social Security declines noticeably as income and wealth increase.
What this suggests is that some cuts in Social Security benefits or increases in Medicare fees, even for those already on the programs, would not impose undue hardship. In any deficit deal, the elderly should be part of the bargain. All the adjustment should not be heaped on the working-age population.