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 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 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 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 % of men and 71% of women survived from 21 to 65 ▫In % 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