1. Chapter 15 Economics of Aging (c) 2005 The McGraw-Hill Companies, Inc. All rights reserved.

2. Generational Differences in Income and Wealth

3. Today’s Older Generation Elderly benefit from rising tide of prosperity since post-WWII era Median family income increased by 42% Family stability means economic prosperity Higher levels of education Stable Jobs and increase of median net worth

4. Aging of Baby Boomers Married later than parents Loss in earning power among men Incomes of women are crucial to family security Will enter retirement with more savings, pension coverage and inheriting wealth

5. Figure 15-3

6. Status of Social Security Social Security is most successful program of the American Welfare State Recently declining in confidence Fears and concerns about negative changes occurring in system.

7. Future of Social Security Presently there is enough credit to make payments of SS benefits BY 2025 revenue coming into the trust fund will fall dramatically By 2037 the trust fund will be depleted

8. Social Changes and Social Security Aging of the baby boom generation Population growth slowed significantly after 1960 People are living longer in old age By 2025 ratio of workers paying into system will decline

9. FIGURE 15-4

10. Restoring the Trust Fund Raising the retirement age Normal retirement age was set at 65 in 1935 In 1962 workers could retire early at 62 with 20% reduction Privatization

11. Table 15-1

12. Figure 15-5

13. Reducing Benefits Lengthening the years of work needed for full benefits Decreasing what high earners receive Increase revenues Means Testing Affluence test

14. Private sources of income in old age Employer pensions Defined Contributions Personal Savings

15. Employer Pensions Defined benefit plans Vesting rules Problems: Access Vesting rules Not indexed to inflation Pension funds are insufficient to cover those eligible to receive them. Bad planning and poor investment

16. Table 15-2

17. Defined Contributions Contractual arrangement Most common is 401k Problems Workers may withdraw funds Participation is voluntary Workers sometimes are encouraged or required to place all contributions into company stock

18. Personal Savings Example: IRA’s Problems No one can predict the future Labor market uncertainty Health status Divorce Age of retirement Future rate of inflation