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Prepared for the preconference “The Legacy of the War on Poverty: A 50-Year Retrospective”

The Social Safety Net for the Elderly Kathleen McGarry University 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.

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Prepared for the preconference “The Legacy of the War on Poverty: A 50-Year Retrospective”

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  1. The Social Safety Net for the ElderlyKathleen 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

  2. 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%

  3. 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%

  4. 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

  5. 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

  6. Average Soc Sec Benefit over time

  7. 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

  8. 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%

  9. 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

  10. Other Programs benefiting elderly • In-kind benefits • Food stamps / SNAP • Home energy assistance • Housing assistance

  11. 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

  12. Life expectancy at age 65

  13. 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.

  14. Fraction surviving age 21 to age 65

  15. 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

  16. 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?

  17. Labor Force Participation Ages 55+

  18. 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

  19. Per capital health spending by age

  20. 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

  21. Median net worth by age

  22. Home ownership 2010 by age

  23. 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

  24. 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?

  25. 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

  26. 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

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