When it comes to preparing for one’s golden years, retirees are often left on the hook for figuring out how to afford basic necessities in retirement. One tool, however, can help retirees understand their future budgets.
The Elder Index is an index produced by the Gerontology Institute at the University of Massachusetts that measures the cost-of-living for older adults (with or without a partner) who do not live in intergenerational households. It includes the costs of housing, health care, transportation, food, and other miscellaneous essentials such as clothes and other household items.
The cost of housing is calculated by the median costs paid by homeowners or renters in a particular area. The cost of health care is measured by the average cost of Medicare premiums, a Medigap supplementary policy, and out-of-pocket health costs. Transportation is calculated by the average number of miles driven by older adults, and food costs are measured by the U.S. Department of Agriculture’s “thrifty” food plan, which was created to measure nutrition at minimum cost.
Another useful aspect of the index is it allows people to search for the average cost-of-living based on location, household, housing, and health status. It also compares one’s search criteria with the national average for older adults to afford basic necessities.
For example, a couple in good health who are renting in the state of Montana will have an elder index of $34,860 per year, which is the basic income per year to afford the cost-of-living. Using the same search criteria for the state of California, however, will reveal an elder index of $40,380 per year. With the national average elder index at $36,204, it’s clear that the cost-of-living will be higher or lower depending on what area of the country someone retires in.
Data from the index show that regardless of location, however, older adults face stark challenges with financial security. Roughly half of older adults living alone, and nearly a quarter of older adults living in two-elder households, reported not having enough financial resources to pay for their basic needs.
The data also show that on average, the share of older adults living alone with incomes below the federal poverty line is 18.2 percent and another 32.1 percent live above the poverty line but still do not have enough income to live with security.
As the cost-of-living takes a bigger and bigger bite out of incomes, we must continue to strengthen retirement security. By protecting public pensions, we are ensuring those civil servants can retire with dignity.