The Social Safety Net for the Elderly
Kathleen McGarryUniversity of California, Los Angeles
and NBER
Prepared for the preconference “The Legacy of the War on Poverty: A 50-Year Retrospective” November 18, 2011, Ann Arbor, MI
Situation for the Elderly Differs
• Poverty rates for the elderly started well above non-elderly. In 1966:
▫ Rate for elderly was 28.5 % ▫ Rate for children was 17.6 % ▫ Rate for ages 18-64 was 10.5 %
• But since that time have fallen well below. In 2010:
▫ Rate for elderly was 9%▫ Rate for children was 22% ▫ Rate for ages 18-64 was 13.7%
Still remain substantial problems
• Differences by race:▫ White elderly poverty rate is 7.7%▫ Black elderly poverty rate is 21.9%
(Rate for blacks was 62.5% in 1965)▫ Hispanic elderly poverty rate is 18%
Still remain substantial problems
• Poverty rate for unmarried elderly women (and men) is substantially higher than couples
▫ Women living alone 63.3% in 1959, 19.1% now
▫ Men living alone 59% in 1959, 12.95% now
▫ Individuals in families now 5.6% Pension Reform: REACT, ERISA Medical spending for diseased spouse Longevity
Public Programs for the Elderly
• Medicare▫ Social Security Act of 1965
• Social Security▫ Social Security Act of 1935▫ Social Security Amendments of 1972 lead
to substantial increases in benefits Across the board increases (20%) COLA increases automated Changes in earning test Age 62 benefits
▫ 1983 Amendments Financing
Average Soc Sec Benefit over time
Supplement Security Income
• Federally funded means tested transfer program• Replaced state run programs of OAA, AB, APTD• Legislation passed in 1972, effective in 1974 • ** Guaranteed minimum monthly income
▫ In 2010 guarantees: $674 individual, $1011 couple▫ NOTE: Guarantees are below the poverty line
Single $871.5, Couple $1098 ▫ Asset test: $2000 individual, $3000 couple
Limits have not changed since inception Excludes home, furnishings, other minimal assets
Supplemental Security Income
• States can supplement federal levels▫ 44 States provide some optional supplementation
• Many have guarantees above the poverty line▫ Below poverty line for singles in nearly all states
and for couples in about 30 states▫ Half of elderly recipients have incomes below
poverty line• But has done much to reduce poverty gap
▫ Poverty gap falls by 71% with inclusion of SSI▫ SSI constitutes 90% of income for 35% of elderly
recipients and more than half of income for 46%
Supplemental Security Income
• Other income for SSI aged recipients: ▫ 56 % have Social Security income▫ Average benefit of $482▫ 1.4 % have earnings ▫ 16.6 % have other unearned income
• SSI roles are dominated by unmarried women with low education levels
▫ Largest portion now is DI• Non-participation remains a problem
▫ ~55% since beginning of the survey▫ Reduces potential to alleviate poverty
Other Programs benefiting elderly
• In-kind benefits▫ Food stamps / SNAP▫ Home energy assistance▫ Housing assistance
Non-monetary Gains are missed• Although there have been tremendous
improvements in poverty / income in focusing on these monetary measures we miss many of the improvements
• Life expectancy at age 65 has increased▫ In 1960 life expectancy at 65 was 14.3
years▫ In 2007 life expectancy at was 18.6
years
Life expectancy at age 65
Non-monetary Gains are Missed• Life expectancy at age 65 has increased
▫ In 1960 life expectancy at 65 was 14.3 years
▫ In 2007 life expectancy at was 18.6 years
• Probability of surviving to 65 increased▫ In 1960 60% of men and 71% of women
survived from 21 to 65▫ In 1990 72% of men and 84% of women
survived to age 65.
Fraction surviving age 21 to age 65
Non-monetary Gains are Missed
• Independent living has increased▫ Fraction of elderly widows living alone
increased: 18% in 1940 36% in 1960 62% in 1990
Non-monetary Gains are missed• Independent living has increased
▫ Fraction of elderly widows living alone increased from:
18% in 1940 36% in 1960 62% in 1990
• Earlier retirement▫ Average number of years in retirement is
18 (Trend towards early retirement has
reversed)▫ Should we expect same length of work
life to support substantially longer retirement?
Labor Force Participation Ages 55+
Issues for future work
I. Measurement of poverty / well-being•Alternative definitions are particularly relevant for the elderly
▫ Health care costs are much greater for the elderly
▫ But they also have a significant benefit from Medicare / Medicaid
Medicare spent $9800 per enrollee Medicaid spent $4650 per enrollee
Per capital health spending by age
Issues for future work
I. Measurement of poverty / well-being•Alternative definitions are particularly relevant •Treatment of wealth
▫ Expect individuals to consume wealth at older ages so income may be a poor measure
▫ Life cycle model predicts that elderly have greater wealth, difference has grown over time
•Greater home ownership rates ▫ Need implicit value of owner occupied home
Median net worth by age
Home ownership 2010 by age
Issues for future work
II. Changing economic environment•Rise in define contribution pensions
▫ Burden of managing finances falls on individuals
▫ Increases risk borne by elderly▫ Room for mistakes / fraud▫ Undeveloped annuity market
•Coming changes in Social Security / Medicare•Long term care risk
▫ Fewer children to provide care▫ Cost of nursing homes▫ Little insurance protection
Issues for future work
III. Role of Family•Changes in public support mean changes for family and visa versa •Family as insurer
▫ Does family provide annuities with switch to DC?
▫ Does family provide LTC insurance? ▫ Elderly now providing assistance to
children (boomerang children) Does this assistance affect their savings for
retirement and later well-being?
Issues for future work
III. Role of Family•Changes in family structure
▫ Fewer children as fertility declines▫ More women working
Have own pensions Unable to provide care for parent
▫ Step families / step children / partners Larger family network but potentially
weaker ties
Issues for future work
IV. Potential Ways to Improve Further•Raise SSI minimums to poverty line
▫ Remains means tested▫ Improve participation / outreach
•Raise minimum Social Security benefit▫ Not means tested
•Availability of better “insurance” products▫ Annuities for DC plans▫ Availability of LTC insurance