Market Data
TheDilemma of Working in Retirement: How Benefits Systems Penalize Older Americans
For many older Americans, retirement is no longer a one-time event but a fluid transition that often involves reentering the workforce to supplement their income or stay socially engaged. However, this decision comes with a Catch-22: working more can lead to the reduction or loss of crucial benefits like Medicaid, SNAP (Supplemental Nutrition Assistance Program), and housing assistance. These programs, which are means-tested and based on the poverty line, create a complex web of income limits and thresholds that older Americans must navigate carefully. For people like Claudia Rufino, a 72-year-old woman living in Salt Lake City, the fear of exceeding these limits is ever-present. Rufino relies on Medicaid and housing assistance to make ends meet, and she must carefully limit her earnings to avoid losing these critical supports. "I want to be contributing to society," she says, "but I get punished if I work too much."
The Complexity of Navigating Benefit Thresholds
The challenges Rufino faces are not unique. Millions of older Americans grapple with the same dilemma as they try to boost their income without jeopardizing their benefits. Programs like Medicaid, SNAP, and rental assistance have strict income limits, and even a small increase in earnings can push someone over the threshold, leading to a sudden loss of support—a phenomenon often referred to as "benefit cliffs." Judith Murray, a 64-year-old woman from central Illinois, understands this frustration all too well. Murray relies on her $1,311 monthly Social Security check and a $1,174 SNAP allotment to support her seven-person household, which includes her children, grandchildren, and fiancé. Despite her best efforts, she struggles to stretch her limited income to cover the basics, and she worries that taking a job to earn extra money could reduce her SNAP benefits and leave her family without enough food.
The Outdated Poverty Line and the Rising Reliance on Government Aid
The root of this problem lies in the poverty line, which has remained largely unchanged since the 1960s. In 2023, the federal poverty line for a single person is just $15,650 a year, a figure that fails to account for regional cost-of-living differences or the rising expenses associated with healthcare, housing, and other essentials. Despite these limitations, the poverty line remains the primary benchmark for determining eligibility for many safety net programs. Over the past several decades, the share of Americans receiving government aid has grown significantly. In 2022, programs like Medicaid, SNAP, and Social Security accounted for 18% of total personal income in the U.S., totaling $3.8 trillion. This shift reflects the aging of the population and the escalating costs of healthcare, but it also highlights the inadequacies of a system that fails to address the needs of low-income Americans effectively.
The Tension Between Work and Benefits: Unintended Consequences
For Rufino and Murray, the tension between work and benefits is a constant source of stress. Rufino earns a small stipend working with foster children, but she recently turned down a higher-paying job because it would have pushed her income over Utah’s Medicaid threshold, resulting in higher out-of-pocket costs for healthcare and prescription drugs. Similarly, Murray fears that taking a job to help her family could reduce her SNAP benefits, leaving her unable to afford groceries. These stories illustrate the unintended consequences of a system that penalizes low-income older Americans for trying to improve their financial situation. Tim Shaw, director of the Benefits Transformation Initiative at the Aspen Institute, notes that navigating these thresholds is particularly challenging for older adults who are reentering the workforce. "Often eligibility for different programs like SNAP, Medicaid, SSI, housing—they’re not the same," he explains. "If a household qualifies for multiple benefits, they’re trying to track the income limits of several programs at the same time, which can get really confusing and cause people to not take that new job or not take that raise."
The Trade-offs of "Unretirement": When Working Pays Off
While some older Americans feel trapped by the constraints of means-tested programs, others find that returning to work is in their best financial interest. Social Security retirement benefits, for example, are not subject to the same income limits as Medicaid and SNAP. This means that older adults who are able to work can earn additional income without worrying about losing their Social Security checks. Karen Smith, a senior fellow at the Urban Institute, argues that staying in the workforce or "unretiring" can help older Americans stretch their savings longer and boost their monthly earnings. For some, this increased income may even reduce their need for safety net programs altogether. "I would say most people absolutely would benefit from going back to work," Smith says. However, not everyone is in a position to take advantage of this opportunity. Murray, for instance, worries that her age and years out of the workforce will make it difficult for her to find a job, even if she decides to try.
Conclusion: The Need for a More Flexible Benefits System
The stories of Rufino, Murray, and others like them highlight the urgent need for a more flexible and responsive benefits system—one that supports older Americans as they navigate the complexities of retirement and work. While some may find that returning to work is the best way to improve their financial situation, others are constrained by the rigid income limits of means-tested programs. These limits often create a disincentive to work, trapping older adults in a cycle of poverty and financial insecurity. To address this issue, policymakers must consider reforms that raise income thresholds, eliminate asset limits, and create smoother transitions between benefits programs. By doing so, they can help ensure that older Americans are able to work without fear of losing the support they rely on to survive. As Murray puts it, "This is by no means an easy road," but with the right policies in place, it could become a little less daunting.
