SOC 364Chapter 13: The Economics of Aging
Notes
Chapter Outline
Economic needs
Income
Poverty
Sources of Income
Effects of Inflation
Conclusion
Defining the Elderly
Age 65+
Generally no children at home
Retired
Own their own homes
Expenses are lower in comparison to their middle years
Higher expenses in medical care compared to middle years
Today’s Retirees
Experience economic deprivation
Used to deprivation by growing up in a hardened historical and cultural environment
War
The Depression
Generally more politically conservative
Must maintain an adequate standard of living on a relatively unchanging income
Statistics on Elderly Americans
44.3% are living alone (excluding institutionalized)
41.3% living with a spouse
4.4% living with children
0.8% living with spouse & children
<5% are living in nursing homes
1.2% other living arrangement
Income
1980s -1990s saw an improvement in retirement incomes
Congress included a cost-of living increase in social security payments to compromise for the inflation
A trend towards families having retirement incomes from both parents
Companies are beginning to invest part of their employees’ salaries in private pension programs = private retirement pensions + social security
Poverty
Poverty Index- Established guidelines below which a person is assumed to lack funds to meet basic survival needs
Older people are less likely to be poor
But once poor, they are likely to remain poor for a longer period of time in comparison with the younger
Time and Length older persons qualify and receive public assistance programs is considerably longer than the younger
It is hard to come out of poverty for the elderly
Hard to get hired, since they’re competing with younger individuals
Sources of Income
Elderly receive bothSocial Security and Medicare benefits
The higher the income, the less social security is the major source of income
The elderly income is not homogenous
Most are kept above the poverty line by their own means
Critical Question:
Should the family or the government take care of the elderly?
One study found that only 10% of the elderly receive benefits from their family
Social Security- A Burden?
Concern that social security will cause a burden on young taxpayers
Fewer working people supporting more people who are receiving social security benefit
Unlikely of a revolution against:Practically every taxpayer has an older family member receiving social security
Each taxpayer hopes to be able to draw a social security check upon retirement
A dwindling number of workers pay into the pool of Social Security funds that support retirees: In 1950, 16 workers paid Social Security taxes for each beneficiary. Today, only 3.3 workers support each beneficiary and by 2034 just 2 will carry the burden.
Excess of Funds Going into Social Security
Current taxpayers are paying more into the social security program than is being paid out surplus of funds is growing
This surplus of funds are put into a OASDI (Old Age Survival Disability Insurance) trust fund
May not be used for any other purpose than payment of benefits
The OASDI must invest funds by law in special-issue government securities. The government may spend this “borrowed money” in any way it wants.
Supplemental Security Income (SSI)
1972: Congress legislated the SSI program to be administered by the Social Security Administration
Program provides a national minimum level of income for the aged, blind, and disabled.
In 1982: SSI guaranteed
$284.30 monthly income to individuals ($3,411.60 yearly)
$426.40 monthly income for an elderly couple ($5,116.80 yearly)
Problems With Private Pension Programs
Workers have to stay with company throughout career in order to receive such benefits
The company has to remain in business after the worker retires
Private pensions tend to be fixed permanently, with no compensation for inflationary factors
They generally offer no coverage for the spouse after the death of the other
Assets of the Elderly
May include: stocks and bonds, farmland, and houses
Home ownership- Most common asset, “locked in”, non liquid asset, No quick turnover into cash, Stocks and bonds can much more quickly be turned into instant cash for day-to-day use than can homes
Owning a home, requires less income since there is no mortgage or rent payments each month
Two other factors must be taken into account in considering the incomes of the elderly:
In-kind Income: Consisting of services or goods that older persons may purchase at a reduced price Ex: Subsidized Government housing, paying a price below market value
Tax Breaks: Permitting persons over 65 to double their personal tax exemption tends to help the higher-income elderly
Effects of Inflation
As inflation increases it is hard on the elderly since their incomes are normally fixed
The retired are forced to either sell assets or reduce standard of living when prices increase
Medical costs have vastly increased, causing a burden on the retired
Becoming more common Retirement programs having a cost-of-living escalator built into them to deflect the cost of inflation
Solutions to the Problem of Falling Real Income
Internal
People control their destinies through their decision on how to allocate their money and purchases
External
The individual is dependent on alternatives determined by an outside agent government
Inflation allows for the worth of the retirees homes to increase, while insurance policies, bonds, and savings accounts, tend to decrease in relative value