The Social Safety Net for the Elderly
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Prepared for the preconference “The Legacy of the War on Poverty: A 50-Year Retrospective” PowerPoint PPT Presentation


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

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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

  • 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


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