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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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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

situation for the elderly differs
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
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 problems1
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
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
supplement security income
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
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 income1
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
Other Programs benefiting elderly
  • In-kind benefits
    • Food stamps / SNAP
    • Home energy assistance
    • Housing assistance
non monetary gains are missed
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
non monetary gains are missed1
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.
non monetary gains are missed2
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 missed3
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?
issues for future work
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
issues for future work1
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
issues for future work2
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 work3
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 work4
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 work5
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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