Economic Well-Being at Older Ages

Income- and Consumption-Based Poverty Measures in the HRS

by Michael D. Hurd, Susann Rohwedder

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According to economic theory, well-being or utility depends on consumption. However, at the household level, total consumption is rarely measured because its collection requires a great deal of survey time. As a result income has been widely used to assess economic well-being and poverty rates. Yet, because households can use wealth to consume more than income, an income-based measure of well-being could yield misleading results for many households, especially at older ages. The authors use data from the Health and Retirement Study to find income-based poverty rates which they compare with poverty rates as measured in the Current Population Survey. They use HRS consumption data to calculate a consumption-based poverty rate and study the relationship between income-based and consumption-based poverty measures. They find that the poverty rate based on consumption is lower than the income-based poverty rate. Particularly noteworthy is the much lower rate among the oldest single persons such as widows. The explanation for the difference is the ability to consume out of wealth.

The research reported herein was pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement Research Consortium (RRC) and was performed under the auspices of RAND Labor and Population.

This report is part of the RAND Corporation working paper series. RAND working papers are intended to share researchers' latest findings and to solicit informal peer review. They have been approved for circulation by RAND but may not have been formally edited or peer reviewed.

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