Chapter 8 Finances and Economics

Table 8.1 Older Population’s Average Annual Income © 2012 Pearson Education, Inc. All rights reserved.

Figure 8.1 Social Security Keeps Older People Out of Poverty, 2007 © 2012 Pearson Education, Inc. All rights reserved.

Historical Development of the US Pension System Change to industrial society Risks for workers Less traditional support Govt. pensions: –Safeguards –Political loyalty © 2012 Pearson Education, Inc. All rights reserved.

Historical Development of the US Pension System Great Depression of 1930s, United States –Older people and those near retirement at risk Poorhouses Church and local charities 28 state welfare programs No state had old age insurance program © 2012 Pearson Education, Inc. All rights reserved.

Historical Development of the US Pension System Results of Depression –Worker discontent; Populist and socialist movements; General strikes –Fears of riot and anarchy Social Security act passed in part, as response to unrest during the depression –A response to social and economic distress © 2012 Pearson Education, Inc. All rights reserved.

Historical Development of the US Pension System Development of the Social Security Program –Social insurance to protect business/workers –Moved older workers out of the labor force –Created jobs for younger workers Social Security: first nationwide assistance program for older adults in the US © 2012 Pearson Education, Inc. All rights reserved.

The US Retirement Income System Today Three Tiered Pyramid –Government pension programs; Private pension programs; Private savings The Three-Legged Stool of Retirement Income Public pensions and other government transfers; Work and assets; Private Pensions © 2012 Pearson Education, Inc. All rights reserved.

Figure 8.2 Tiered U.S. Retirement Income System © 2012 Pearson Education, Inc. All rights reserved.

Level 1: Social Security Money collected from workers payroll taxes and employers contribution A “Pay-as-You-Go” plan Never intended to be a large reserve fund Accounts for sharp decrease in poverty among older population since 1950s Individual Retirement Accounts © 2012 Pearson Education, Inc. All rights reserved.

Figure 8.3 OASDI Beneficiaries by Age, 2009 © 2012 Pearson Education, Inc. All rights reserved.

Level 1: Social Security – Who Gets It Spousal Benefits –Non-eligible spouse gets 50% of eligible spouse benefit –Gives couple 150% of husband’s SS benefit Widow Benefits SS Eligibility makes worker and spouse fully eligible for Medicare © 2012 Pearson Education, Inc. All rights reserved.

Figure 8.4 Income Sources of People Age 65 and Over, 2008 © 2012 Pearson Education, Inc. All rights reserved.

Level 1: Supplemental Security Income (SSI) Paid out of general tax revenues Eligibility is low income, elderly, blind, disabled Some get social security and SSI, but SSI benefits reduced Largest public cash assistance program in USA for people in need © 2012 Pearson Education, Inc. All rights reserved.

Level 2: Employment Pensions Benefits through specific employers Mostly available to middle and upper income workers Some employers don’t follow through on pension promises Individual Pension Plans © 2012 Pearson Education, Inc. All rights reserved.

Figure 8.5 Defined Benefit to Defined Contribution Pension Plans © 2012 Pearson Education, Inc. All rights reserved.

Figure 8.6 U.S. Poverty Rates, by Age, 1966–2003 © 2012 Pearson Education, Inc. All rights reserved.

Figure 8.7 Poverty Status, by, Race, and Hispanic Origin, Age 65+, 2009 © 2012 Pearson Education, Inc. All rights reserved.

Level 3: Personal Assets and Other Income 3rd largest source of income for older people Home ownership contributes about ½ total net worth of older households Younger elders report more earnings income than older elders Ages have highest net worth in USA © 2012 Pearson Education, Inc. All rights reserved.

Level 3: Personal Assets and Other Income The Impact of the Retirement Income System on Older People’s Incomes Why improved? –Retirees had paid into Social Security & Pension plans for many years –Cost of Living increase + Social Security –Govt. added 20% increase to Social Security © 2012 Pearson Education, Inc. All rights reserved.

Level 3: Personal Assets and Other Income Why does retirement lead to decline in income? –Living on less money Retirement benefits pay only a portion of worker earnings –Living expenses eat away at savings Not poverty, but drop in living standard © 2012 Pearson Education, Inc. All rights reserved.

Income Inequality in Later Life Age Differences and Income Gender and Income Marital Status and Income Minority Status and Income Further Effects of Poverty Why inequality? © 2012 Pearson Education, Inc. All rights reserved.

Figure 8.8 Poverty Rates Among Selected Vulnerable Groups © 2012 Pearson Education, Inc. All rights reserved.

Pension Reform Social Security Reform Family Care Spousal Pensions Widows’ Benefits Income Limits Supplemental Security Income Reform Improved Benefits © 2012 Pearson Education, Inc. All rights reserved.

Pension Reform Improve State Supplements Higher Enrollment Rates Private Pension Reform Vesting Portability and Indexing Better Private Plan Insurance © 2012 Pearson Education, Inc. All rights reserved.

Figure 8.9 Median Income of Households © 2012 Pearson Education, Inc. All rights reserved.

Finances & Economics: The Future Will the social security program go broke? Will today’s workers have a pension to count on? What impact will a smaller workforce have on retirement programs? Does the system need major overhaul, or reasonable adjustments? © 2012 Pearson Education, Inc. All rights reserved.