1. The Social Safety Net for the Elderly Kathleen McGarry University of California, Los Angeles and NBER
Prepared for “The Legacy of the War on Poverty: A 50-Year Retrospective” June 12-13, 2012, Ann Arbor, MI

2. Situation for the Elderly Differs
Poverty rates for the elderly were abysmal, far worse than those for the non-elderly.
In 1959:
Poverty rate for the elderly was 35.2%
Poverty rate for children was 27.2%
Poverty rate for those ages was 17%

3. Situation for the Elderly Differs
Poverty rates for the elderly were abysmal, far worse than those for the non-elderly.
In 1959:
Poverty rate for the elderly was 35.2%
Poverty rate for children was 27.2%
Poverty rate for those ages was 17%
Poverty rate in 2010:
Poverty rate for the elderly was 9%
Poverty rate for children was 22%
Poverty rate for those ages was 13.7%

5. Programs Prior to 1964: Social Security
Established 1935 and gradually expanded during the 1940s and 1950s.
Progressive benefit formula
Higher replacement rates for low income workers
Terrific return on investment for earlier cohorts.
Ida May Fuller paid $24.75 over 3 years, received $22, in benefits by her death at age 100.
Annuity aspect protects oldest old
Benefits for spouses and survivors, thus contributes to well-being of the non-elderly.

6. Programs Prior to 1964: OAA
Old Age Assistance programs state run programs stemming back to 1920s. In 1935, 30 states had such programs
Established precedent of assisting the elderly
Social Security Act of 1935 provided matching funds to states to expand these programs.
Benefits were low and varied greatly across states
In 1960 $40 Mississippi to $275 Washington State ($306 and $2,108 in 2010 $)
Variation in restrictions on benefits
lien laws, residency requirement, relative responsibility

7. Programs Prior to 1964: OAA (cont’d)
Despite problems with programs, in 1950 more individuals receiving OAA than Social Security (2.8 vs. 2.1 million)
Those receiving OAA still had very low income
Median family income of OAA recipients in was $1,851 ($9,091 in 2010 dollars)

8. The War On Poverty and the Elderly
Central component is the Older Americans Act
It was the responsibility of government to: “assist our older people to secure equal opportunity to the full and free enjoyment of the following objectives …
adequate income in retirement,” … “suitable housing,” and “no discriminatory personnel practices because of age.”
Established Administration on Aging
Demonstrated importance of the elderly
Set the stage for increases in Social Security and for the establishment of SSI

9. Social Security and the War On Poverty
In % of elderly received Social Security
Average retired worker benefit $ (2010$)
Run up in benefits:
1965: 7% increase
1967: 13% increase
Johnson’s signing statement of 1967 amendments:
“This means that 9 million people will have risen above the poverty line since the beginning of 1964”

10. Social Security and the War On Poverty
Increase in benefits continued after Johnson:
Tax Reform Act of 1969: 15% increase
1971: 10% increase
1972: 20% increase
Total of nearly 85 percent increase 1964—1972
1972 Amendments also indexed benefits
Protected elderly against erosion of benefits over time.

12. SSI and the War On Poverty
Replaced state run OAA programs with uniform federal guaranteed income program for elderly
Administered by Social Security Administration
Part of Nixon’s Family Assistance Plan
Began paying benefits in 1974 with guarantees of $140 and $210/mo ($698, $1,048 currently)
Benefit = Guarantee – Countable income
Countable income=income – (first $60 earned+ ½ remainder, first $20 unearned)
Asset test initially $1500/$2250, now $2000/3000

13. SSI and the War On Poverty (continued)
Income disregards unchanged since 1972
Asset limits increased once but if increased with the CPI would be $7,000 / $10,500 today
States can supplement federal guarantees
2011 all but 6 states had some supplemental program
Maximum is $1,039 / $1,539 in Alaska
California is $830 / $,1407
Michigan is $688 / $1,039
Massachusetts is $803 / $1213
Maximums are typically below the poverty line

14. SSI and the War On Poverty (continued)
Those eligible are truly poor but participation in SSI is low, approximately 50-55%
Measured in 1974, 1984, 1993
Why? Lack of knowledge, stigma, not feeling needy
Numerous outreach efforts have been unsuccessful
Bounties, door to door canvasing, intensive advertising, direct contact from Social Security
Alternative of minimum Social Security benefit
Cannot be targeted at needy

15. Outcomes: Social Security
Social Security played an important role in reducing poverty among the elderly
Engelhardt and Gruber estimate it is responsible for the entire decline
Indexation of benefits important for continued success and for the difference in the recent experience of elderly and non-elderly

18. Outcomes: SSI SSI also played an important role for low income elderly
26 states had OAA benefits below federal guarantee
e.g. Mississippi at $75 (federal guarantee $140)
Median income of OAA recipients rose by 1/3 with transition to SSI
And 2.8 million individuals became newly eligible.
Estimate of 20% reduction in poverty (2.5 percentage points)
Estimate of 30%+ reduction in poverty gap

19. Still remain substantial problems
Differences by race and ethnicity:
Rate for elderly blacks fell from 62.5% in to 21.9% now
But rate for elderly whites now is 7.7%
Poverty rate for elderly Hispanics is 18%

21. Still remain substantial problems
Differences by race and ethnicity:
Rate for elderly blacks fell from 62.5% in to 21.9% now
But rate for elderly whites now is 7.7%
Poverty rate for elderly Hispanics is 18%
Poverty rate for elderly women living alone:
Fell from 63.3% in 1959 to 19.1% now
Large racial / ethnic differences. In 1999:
Black women living alone 44%
Hispanic women living alone 58%

22. Changes in composition of income

24. Redistribution Progressive benefit schedule Regressive tax structure
Other regressive components
Transfers from short lived to long lived
Transfers from singles and dual earner couples to one earner couples

25. Unmeasured Resources / Expenses
Resources omitted from poverty calculations
In-kind transfers:
Medicare / Medicaid,
Food stamps, LIHEAP, Housing assistance
Value of Owner occupied homes
Assets have increased over time
Leisure time
Home production
Costs
Medical expenses
Limitations regarding home production

26. Home ownership 2010 by age

27. Median net worth by age

28. Other Gains / Changes Living Arrangements Greater independence
In 1940, 18% of elderly widows lived alone
In 1960, 36% lived alone (40% with children)
In 1990, 62% lived alone (20% with children)
Changes obscures improvements in poverty

30. Other Gains / Changes Living Arrangements
Greater independence
In 1940, 18% of elderly widows lived alone
In 1960, 36% lived alone (40% with children)
In 1990, 62% lived alone (20% with children)
Changes obscures improvements in poverty
Trend towards early retirement
Feasible with Social Security increases
In 1960 lfpr men 65+ was 33.1 %
In 1990 lfpr men 65+ was 16.3 %
(Has risen since)

31. Labor Force Participation Men 65+

32. Other Gains / Changes Living Arrangements
Greater independence
Changes obscures improvements in poverty
Trend towards early retirement
Feasible with Social Security increases
In 1960 lfpr men 65+ was 33.1 %
In 1990 lfpr men 65+ was 16.3 %
(Has risen since)
Life expectancy
In 1960 life expectancy at 65 was 14.3 yrs
In life expectancy at was 18.6 yrs

33. Life expectancy at age 65

34. Future
Shift to defined contribution (DC) pensions and away from defined benefit plans
Elderly will need to manage their resources
Exposure to risk in financial markets, fraud
Changes in Social Security and Medicare
Likely declines in real value of benefits
Possibility of needing long term care
Not covered by Medicare
Average $80,000+ per year
Fewer children

35. Future
Policies to encourage savings through private pension plans and survivor benefits
Default options (Choi, Laibson, Madrian)
REACT, ERISA (survivor benefits)
Newer tax advantages savings plans
Health improvements allow for longer work life and trend towards early retirement is reversing
CLASS Act and tax advantage LTC plans