Transcript: Barbara Bovbjerg on the recession’s profound impact on older Americans

The latest GAO study showed that older Americans have been hit hard by the Great Recession of 2007 – 2009.

U.S. Senate Committee on Health, Education, Labor, and Pensions
Hearing on the Recession and Older Americans
Oct. 18, 2011

Transcript of Testimony by Barbara Bovbjerg, Managing Director for Education, Workforce, and Income Security Issues at the Government Accountability Office (GAO):

Barbara Bovbjerg, Managing Director for Education, Workforce, and Income Security Issues at the GAO. PHOTO SOURCE: help.senate.gov

“Thank you, Mr. Chairman, Sen. Franken. Thank you so much for inviting us here today to discuss the effects of the recent recession on older adults.

“While the recession officially ended in June 2009, the economy has experienced a weak recovery with unemployment still above 9%. 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 and still assure that they’ll have sufficient savings for retirement.

“My testimony today will present the results of our work for this subcommittee on older American’s well-being. Our report, which is being released today, presents data from various – mostly federal – sources concerning the financial status of older adults. I’m accompanied by Michael Collins, our assistant director for this project.

“Things weren’t especially great for older adults in 2007 before the recession. We’ve previously reported that older Americans were heavily reliant on Social Security benefits, with about a fifth of beneficiaries over 65 receiving more than 80% of their income from this source. This reflects relatively small amounts of retirement savings for many older people. Almost half of American workers have no defined benefit or defined contribution pension to supplement Social Security. Even those who do have a pension will still not have enough to live comfortably in retirement.

“In 2007, before the Great Recession began, the median level of financial assets for households approaching or entering retirement was only around $72,000. This may sound like a lot of money, but it has to last a retiree for decades. Using basic rules of thumb for withdrawals, this amount would provide for about 5% replacement rate for those at median incomes. Even with Social Security, it isn’t enough to support a middle-class standard of living. So older Americans weren’t especially flushed prior to the recession and things have not gotten better.

“Since 2007, annual unemployment rates have doubled from 3% to 7% for workers aged 55 and older. These rates are not as high as for other age groups likely because older workers have seniority and are less likely to lose their jobs than younger colleagues. Still, once an older worker does lose their job, they are less likely than a younger worker of similar skills to find another. Indeed, the median duration of unemployment for older workers rose sharply between 2007 and 2010, more than tripling for workers 65 and older, and increasing from 11 weeks to 31 weeks for workers aged 55 to 64. During this period, even among those employed, the proportion of older part-time workers who indicated they would prefer full-time work nearly doubled.

“The recession also left 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. In these circumstances, those approaching retirement find they may not be able to retire at all until such time that markets recover.

“Those already in retirement and managing their own assets face reduced circumstances without time to adjust by saving more. Indeed, in an AARP survey, 50% of older people who reported having difficulty meeting ends meet delayed getting medical or dental care or ceased taking medication entirely. Those with defined benefit plans are protected from market swings, but increasingly older adults are managing their own savings via 401(k) plans or IRAs and are thus vulnerable to market volatility.

“In the only bright spot, adults 65 and older are somewhat protected during this period, likely thanks to Social Security. Although household income fell for adults aged 55 and 64, those 65 and older experienced an increase in household income. Similarly, while poverty rates increased for those aged 55 to 64, they decreased for those 65 and older, although this changes when medical costs are factored in. It seems that Social Security is an important protection, as it is intended to be, to those eligible for those benefits.

“In conclusion, the Great Recession has had a profound impact on older adults. Many have lost employment and wealth and have little time relative to their younger counterparts to make up the difference before they retire. Some will not retire voluntarily, but may lose their jobs from layoffs or from physical disability. Fortunately, Social Security has largely protected retirees from poverty, but it is intended to be the foundational benefit and not the sole source of income.

“American’s increased vulnerability to the fluctuations and complexities in the financial markets for their retirement security means that they’re increasingly unprotected from retirement and reduced circumstances. Helping protect a rapidly growing population of older people offers a special challenge as we seek economic recovery for all Americans.”

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Question & Answer: 

Sen. Sanders: “You mentioned in your report that workers 65 years of age and older saw their length of unemployment triple. And you mentioned in your report that workers 55 to 64 saw their length of unemployment almost triple. And you also mentioned that one-third of workers 65 or older are in low-wage jobs. In human terms, what does it mean if somebody is 65 or 66 today and loses their job? Or 62 and lose their jobs? In your judgement and I know there are obviously exceptions, but are many of those workers never again going to be working? And what happens to their lifestyle if that income is not coming in to their family?”

Bovbjerg: “We’ve previously reported on the situation for older workers that they are less likely to lose their jobs than younger workers, but once they do, it is very hard for them to get another. They may have skill issues with shifting to another job. They may have health issues. They may also have, frankly, employer issues. Employers will not always look to hire older workers. So it is very difficult for older people once unemployed to go back and get a job. But if they are lucky enough to be at least age 62, they can claim Social Security benefits. Unfortunately, if you claim benefits at age 62, you’re going to get 25% less on a monthly basis than if you wait for the full retirement age at what is now 66. But it is still available to you and we have seen increased claiming as a consequence of the recession.”

Sanders: “So very specifically, what you’re saying is that many more seniors are now taking Social Security at 62 at 25% fewer benefits, less benefits than waiting until 66.”

Bovbjerg: “That’s correct.”

Sanders: “All right. Could you elaborate on the GAO’s finding about the important role that Social Security and Medicare and Older American Act program have on protecting financial stability of our nation’s seniors? Could you talk about poverty rate not declining when people reach Social Security? And also what happens if Social Security programs were cut? What happens if the eligibility for Medicare goes from 65 to 67? What would be your guess on the implications of that?”

Bovbjerg: “Let me talk first about Social Security, because Social Security is there to assure a baseline income for older people and has done its job. It has reduced poverty rates for older people fairly steadily since its inception. Clearly if people don’t have Social Security to go to, you would see a different pattern in poverty levels at age 65 and older. But something you have to worry about in Social Security, and you alluded to this earlier with cost of living increases, is that older women in Social Security have higher poverty rates than the average that we reported for everyone over 65. So a concern in anything that might happen with the COLA is what would happen with those older women who in their 80s may find themselves in poverty.

“Now, I cannot comment on the increase in age for Medicare. That is completely outside of my area of expertise. But I can say that the things that you hear from older people and the information we have on medical costs suggest that those make quite a difference to what they perceive they’re able to spend on other things to their disposable income.”

Sen. Al Franken (D-MN): “Ms. Bovbjerg, as I mentioned in my opening statement, the Older Americans Act is coming up for reauthorization, and it really provides a number of services to allow seniors to remain independent. In a way that actually saves federal government money because these folks end up being able to stay in their homes instead of getting much more expensive nursing home care. Some of the services that are provided are, you know, home delivered meals or meals in congregate settings, job training, which we’ll hear from in the next panel, transportation, respite care for caregivers. Based on the findings of the GAO’s study, would you say that the needs for these types of programs will increase or decrease in the coming years as our aging population reaches an all-time high?”

Bovbjerg: “Well, the need will increase simply because of the demographics if nothing else. The baby boomers are entering their retirement years, and as they get older, there will be an increased demand for these services.

“We did do some work for the Senate’s Special Committee on Aging on this topic on the Older Americans Act and discovered that the states and the communities that are providing these services are just overwhelmed. And it will only get worse. The concern that we had is there really isn’t much sharing of ways to address services, there isn’t really a lot of targeting of services. So while many people may be receiving services, probably the people who need it the most are not always getting those services. We think there’s a federal role there to help these communities, but just based on the demographics there will be a greatly increase in demand.”

Franken: “Given the effect of the recession on older Americans and given that you’re seeing higher unemployment as you are across all sectors and especially with seniors once jobs are lost – expansion of the time that it takes to get another job. So with longer unemployment and lower wages as we were saying and decreased savings, there’s an increased reliance on Social Security, is there not? I think it’s important – really especially important at this time – to maintain Social Security benefits not only at their level but to use the COLA to increase it. Would you agree with that?”

Bovbjerg: “Senator, for at least 10 years the GAO has been very, very concerned about Social Security because of the future financial instability of the program but the importance of it to the American people. And it’s clearly something that’s a decision for Congress, and we cannot make any recommendations. But it is something that needs to be thought through very, very carefully precisely because of your point – people are so reliant and becoming more so on Social Security.”

Franken: “The title of today’s hearing is “Where do we go from here?” Given your research, what would be your advice for older Americans who have been particularly hard hit by the recession? What are the strategies that they can be employed now to rebuild their retirement savings?”

Bovbjerg: “I wish I knew. If you’re already retired and you’re reliant on a 401(k) or an IRA, you’re reliant on the financial markets. You are probably really reducing your spending on other things. You’re probably making a significant change to the standard of living.”

Franken: “And there are choices made sometime that aren’t good choices between heat and between medicine and between food. And I mean that’s something that we should just recognize is happening, right?”

Bovbjerg: “People are making choices. That AARP survey suggested that the first thing to go is medical care and medicine even though those over 65 would be eligible for Medicare.”

Franken: “In a number of the senior meetings that I’ve held, it’s very, very common for people’s only income to be Social Security. For one reason or another, their savings have been depleted, and they require certain medicine. They have to make choices. One of the things – and I’ll get into it in the next panel – is that the Affordable Care Act is closing the donut hole, which I think is a very important thing that we continue to do. And I think a repeal of the Affordable Care Act just in that alone would be disastrous. Thank you for your good work.”

Bovbjerg: “Thank you, Senator.”

Sanders: “Ms. Bovbjerg, the average income of a senior living in the bottom 20% quintile is $7,500. How does somebody – in your judgment – survive in the year 2011 with health care needs, prescription drug needs, how do you survive on $7,500, do you think?”

Bovbjerg: “I think that they are probably tremendously reliant on the programs in the Older Americans Act, for example, for meals, for transportation. They’re very reliant on Medicare. They’re probably getting food assistance through the SNAP [Supplemental Nutrition Assistance Program] program. They would be tremendously reliant on supports like this.”

Sanders: “Would it be fair to say that if those programs were cut, it would be devastating for people who are just right now living on the edge?”

Bovbjerg: “It would be very difficult for them to adjust. I think that is really our point in our work as we looked at things that are happening with younger adults but with older adults they have really limited ability to adjust.”

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