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How well-off are the elderly? The answer is crucial to public debate about Social Security, Medicare and other programs to help older Americans.

WASHINGTON — How well-off are the elderly? The answer is crucial to public debate about Social Security, Medicare and other programs to help older Americans. If most live on the edge, then cuts are hard to justify. On the other hand, if many elderly are financially comfortable, then their government benefits and taxes should be open to change — just like other Americans'. For years, we've been told that low incomes make most elderly vulnerable. The reality is that this describes only a minority of the very poor and very old, often single women.

It's routinely said that the elderly's median household income — the income of the household exactly in the middle — is lower than that of the non-elderly population. That's true. In 2012, it was $33,848 compared with $57,353 for the under-65 population. We're then supposed to imagine that the median income accurately reflects the lot of most elderly. That's not true.

For starters, the median almost certainly understates the actual income of many older Americans. Writing recently in The Wall Street Journal, Andrew Biggs and Sylvester Schieber argued that withdrawals from individual retirement accounts (IRAs) and 401(k) plans are systematically undercounted by the government's Current Population Survey (CPS), which estimates median incomes. In 2008, for example, the CPS captured only $5.6 billion in IRA income, when retirees paid taxes on $111 billion of IRA income as reported to the Internal Revenue Service.

"People are reporting a lot more money on their tax returns than in these surveys," says Biggs, a former deputy commissioner of the Social Security Administration now at the American Enterprise Institute, a conservative think tank.

"The IRS data is better, because no one pays taxes on income that they don't have." Schieber, who detailed the CPS' underreporting, is a consultant and once headed the Social Security Advisory Board.

The two tables below give a more realistic view of the elderly's economic well-being. The first comes from data in a Congressional Budget Office study. It shows the average pretax incomes of the poorest to the richest fifth of older Americans. Because the CBO study uses IRS data, it includes most income underreported by the CPS. It also counts the value of Medicare as income; the CPS does not.

Between 60 percent and 70 percent of older Americans are comfortable — or should be. This includes everyone in the three richest groups and perhaps some in the second poorest group. Although their health costs have gone up, many other expenses (for children, work, mortgages) have presumably gone down. (Note: In the richest fifth, a few very wealthy people substantially increased average incomes. Still, even people in the bottom half of this richest group had average incomes of $117,500.) But the 30 percent to 40 percent of the elderly at the bottom live more precariously: not necessarily impoverished but not flush.

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The second table confirms this picture. It comes from NORC at the University of Chicago, which does public opinion surveys for scholarly research. One question asks respondents to rate their financial situation as "satisfied," "more or less satisfied" or "not satisfied." Since the 1970s, older Americans have consistently rated themselves more favorably than have younger Americans. The gap is wide, as the table shows. Compared to other age groups, many more elderly count themselves "satisfied" and many fewer "not satisfied."

Part of the elderly's satisfaction probably reflects their confidence in Social Security and Medicare. But if they feel better about their finances than the non-elderly, why increase their benefits — as some have proposed — or exempt them from benefit cuts and tax increases? To repeat: There are poor elderly, many of them single women. Some may need extra help, but giving the elderly as a class special treatment heaps the costs of deficit reduction on workers and children.