10 best and worst states for senior economic security

Compass and money on graphs

More than one half of all elder households in the U.S. have incomes that don't cover basic living expenses. That's the conclusion of a recent report from the nonprofit organization Wider Opportunities for Women (WOW) titled "Doing Without: Economic Insecurity and Older Americans."

In order to determine just how much income a senior requires to adequately meet his or her needs, WOW and the Gerontology Institute at the University of Massachusetts Boston developed the Elder Index, which measures the cost of basic living expenses of elder households (those with heads of household who are age 65 or older). These basic living expenses include housing, food, transportation, health care, and miscellaneous expenses, such as clothing and household supplies. It defines economic security as the income level at which seniors have sufficient incomes -- from Social Security, pensions, retirement savings, and other sources -- to cover basic living expenses without public or private assistance.

To assess how well the elderly are doing, WOW prepared a state-by-state comparison of the median income in 2010 for single renters over age 65 to the Elder Index for that person. (For those of you who forgot your college stats class, half of all elders will have incomes above the median level and half will have incomes below the median.)

No state had a median level of income for elders that exceeded the basic living needs. But here are the five best states, as measured by the dollar shortfall of the median annual elder income compared to the annual level of basic living expenses:

Annual shortfall
1. Alaska: $1,068
2. Montana: $1,364
3. Utah: $1,824
4. Michigan: $1,860
5. Arizona: $2,040

Here are the five worst states, along with their corresponding dollar shortfall:

Annual shortfall
1. Massachusetts: $10,248
2. Washington DC: $9,988
3. New York: $9,244
4. Hawaii: $8,904
5. Connecticut: $8,020

In general, the highest shortfalls were in the Northeast and Southeast, and the lowest were in states with a low cost of living. Keep in mind that these shortfalls are measured from the median income levels, and that half of all seniors have incomes below the median. The WOW report reveals the pervasiveness of economic insecurity among seniors in the U.S., caused primarily by a lack of retirement savings, reduced pension benefits, and expensive medical insurance.

These results probably aren't a surprise if you've been following retirement planning issues. But these results should cause policymakers to pause when considering reductions in Social Security and Medicare benefits in an effort to balance the federal deficit. If they do need to trim these programs to cut the deficit, they should consider benefit reductions for seniors with incomes well above median levels, thus preserving benefits for seniors with incomes below median levels.

In addition, these results confirm that seniors will need to be resourceful and resilient to make ends meet in their retirement years, by taking such actions as adopting creative housing solutions, dramatically reducing their living expenses, and piecing together working gigs to bring in needed income.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.