aging seminar series: income and wealth of older americans domestic social policy division...
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Aging Seminar Series: Income and Wealth of Older Americans
Domestic Social Policy DivisionCongressional Research Service
November 19, 2008
2
Introduction
Aging Seminar Series Focus on important issues regarding Aging
Policy and their implications for Congress Previous Aging Seminars:
Long-Term Care Financing and Issues for Policy Makers Family Caregiving For Older Americans
Future Aging Seminars will focus on health care, aging of the workforce, housing and supportive services, Social Security and other public policy issues.
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Today’s topic
Income and Wealth of Older Americans
Patrick Purcell, Specialist in Income Security, Domestic Social Policy Division, CRS
4
Overview of presentation
Demographic Trends Total Household Income Sources of Income Employment Poverty among the Elderly Household Wealth Policy Issues Policy Options
5
Sources of data
Population projections: Census Bureau
Income: Current Population Survey (Census Bureau)
Wealth: Survey of Income and Program Participation (Census Bureau)
6
People 65 and Older are 12.4% of the U.S. Population (1 person in 8).
Resident U.S. Population, by Age, 2006(in thousands)
20 to 64180,058 (60.1%)
Under 20 82,079 (27.5%)
65+ 37,260 (12.4%)
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Population Trends
Aging of the “baby boom” (the 78 million people born from 1946 to 1964)
Lower birth rates after 1964 Increasing life expectancy
Result: the elderly population will grow faster than the number of children and the number of non-aged adults.
8
Population growth to 2050
Projected Percentage Change in U.S. Population, by Age, 2006 to 2050
15.9%
33.0%
1.4%
24.4%
9.4%3.0%
132.7%
91.8%
8.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
2010 2030 2050
Year
Per
cent
age
Cha
nge
Under 20 20 to 64 65+
9
By 2030, 1 in 5 Americans will be 65 or older, the same as Florida today.
Projected Distribution of the U.S. Population, by Age, 2010 to 2050
26.9% 26.2% 26.0%
13.0% 19.7% 20.7%
53.4%54.2%60.0%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2030 2050
Year
Perc
ent
of P
opul
atio
n
Under 20 20 to 64 65+
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Sources of income
The main sources of income among elderly households are: Earnings (especially for those under age 70), Social Security, Pensions (including IRAs and 401(k) plans), Asset income (interest, dividends, and rent), Public assistance (SSI, TANF, general assistance), Other income (including transfers from relatives).
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Elderly households have lower median income than the nonelderly.
Median total income of elderly households is about half that of nonelderly households.
Elderly households are less likely to have earnings.
Most elderly households are smaller households with only one or two members.
12
Median income of elderly and nonelderly households 1990 to 2007.
Median Household Income by Age of Householder, 1990 to 2007
$57,621$56,545$55,500$53,800 $53,251
$28,305$27,636$27,060$25,975$26,733
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
1990 1995 2000 2005 2007
Year
Med
ian
Ho
use
ho
ld I
nco
me,
in
20
07
$
Under 65 65+
13
Median Household Income
Median household income among elderly households is lower among: Single householders, Less educated householders, Black and Latino householders, Female householders, and Householders aged 80 and older.
14
Median Household Income
Median Household Income in 2007, Householder or Spouse Age 65+
$43,159
$28,797
$20,995
$38,222
$23,400
$30,975
$21,184
$23,400
$18,230
$57,940
$19,722
$45,036
$33,980
$26,888
$- $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000
65-69
70-79
80+
Men
Women
White
Black
Hispanic
Less than 12 years
High School Grad
Some College
College Graduate
Married
Not Married
Ag
eS
exR
ace
Ed
uca
tio
n
Ma
rita
l
Sta
tus
15
Sources of Income vary with total household income.
Households in the top income quartile receive substantially greater shares of total income from earnings, assets, and pensions than lower-income households.
Households in the bottom two income quartiles households receive most of their income from Social Security.
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The top income quartile gets 47% of income from earnings.
2007 Household Income of more than $56,973
Pensions15%
Earnings47%
Social Security16%
Public Assistance0%
Other Income2%
Asset Income20%
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The second quartile receives 25% of income from earnings.
2007 Household Income of $29,730 to $56,973
Earnings25%
Asset Income8%
Public Asst.0%
Other Income3%
Social Security43%
Pensions21%
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Elderly in the third quartile get 2/3 of total income from Social Security.
2007 Household Income of $16,244 to $29,730
Earnings9%
Pensions15%
Asset Income6%
Other Income2%
Public Asst.1%
Social Security67%
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Elderly in the 4th quartile get $5 out of $6 of income from Social Security.
2007 Household Income of less than $16,244
Asset Income3%
Pensions5%
Public Asst.4%
Other Income1%
Earnings3%
Social Security84%
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Social Security Income
Social Security is the most important single source of income among elderly households. 89% of elderly households received Social
Security income in 2007. 59% of recipient households received more than
half of their income from Social Security in 2007. 29% of recipient households received 90% or
more of their income from Social Security in 2007. Median household Social Security income in 2007
was $15,012 among elderly recipient households.
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70% of elderly households receive less than $20,000 from Social Security.
Householder or Spouse Age 65+
16%
29%
21%
30%
4%
0%
5%
10%
15%
20%
25%
30%
35%
Less than $5,000 $5,000 to $9,999 $10,000 to$14,999
$15,000 to$19,999
$20,000+
Household Income from Social Security in 2007
Percen
tag
e o
f h
ou
sho
lds
ag
e 6
5+
22
Pension Income
Fewer than half of elderly households had income from pensions in 2007. 30% of elderly households had private-sector pensions. 15% of elderly households had public-sector pensions.
Median household income from private-sector pensions was $8,052.
Median household income from public-sector pensions was $17,400.
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Most households with pensions received less than $20,000 in 2007.
Householder or Spouse Age 65+
11%
15% 16%
29%
16%
13%
35%
15%
10%9%9%
22%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Less than$5,000
$5,000 to$9,999
$10,000 to$14,999
$15,000 to$19,999
$20,000 to$29,999
$30,000 ormore
Household income from pensions in 2007
Percen
tag
e o
f p
en
sio
n r
ecip
ien
t h
ou
seh
old
s
ag
e 6
5+
Public Pensions Private Pensions
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Income from Assets
Most elderly households receive some income from assets (interest, dividends, rent)
In 2007, 57% of elderly households received some income from assets.
Most households that receive income from assets receive relatively small amounts.
Median asset income of elderly households receiving such income in 2007 was $2,254.
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Receipt of Income from Assets rises with total household income.
Householder or Spouse Age 65+
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Less than$10,000
$10,000 to$19,999
$20,000 to$29,999
$30,000 to$49,999
$50,000 or more
Household income in 2007 from all sources
Percen
tag
e o
f h
ou
seh
old
s
Without Income from Assets With Income from Assets
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Employment after Age 55
Employment is highest between the ages of 25 and 54.
In 2007, 9 out of 10 of men aged 25 to 54 were employed, as were 3 out of 4 women aged 25 to 54.
Among those aged 55 to 61 in March 2008, 73% of men and 63% of women were employed.
Among people aged 65 to 69, 33% of men and 26% of women were employed in March 2008.
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Employment Rates
Employment Rates by Age, March 2008
73%
14%
33%
52%
8%
26%
41%
63%
0%
10%
20%
30%
40%
50%
60%
70%
80%
55-61 62-64 65-69 70+
Age
Per
cen
tag
e em
plo
yed
Men Women
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The percentage of households with earnings falls sharply after age 65.
56% of households headed by persons aged 65 to 69, had earnings in 2007, as did
34% of households headed by persons aged 70 to 79, and
15% of households headed by persons aged 80 and older.
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Workers’ total earnings decline with age due to lower wages, fewer hours.
Annual Earnings in 2007 by Age of Worker
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Age 55-61 Age 62-64 Age 65+
Age Group
Per
cen
tag
e o
f E
arn
ers
Less than $10,000 $10,000 to $29,999 $30,000 to $49,999 $50,000 or more
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Poverty Among the Elderly
The percentage of elderly in poverty fell from 35% in 1959 to 15% in 1975, due mainly to increases in Social Security coverage and benefit amounts.
The elderly poverty rate has been about 10% since the mid-1990s.
The elderly poverty rate in 2007 (9.7%) was lower than the poverty rate among children under 18 (18.0%) and adults aged 18 to 64 (10.9%).
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Elderly poverty rates remain high among some groups.
Percentage of Individuals Age 65+ in Poverty, 2007
8.5%
11.5%
6.6%
12.0%
7.4%
23.3%
18.0%
7.0%
16.2%
9.0%
9.7%
9.3%
17.1%
4.3%
4.2%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0%
All
65 to 69
70 to 79
80 and up
Men
Women
White
Black
Hispanic
Less than 12 years
High School Grad
Some College
College Graduate
Married
Not Married
All
Ag
e
65
+A
ge
Sex
Ra
ceE
du
cati
on
Ma
rita
l
Sta
tus
32
Total Household Wealth
In contrast to median household income, which is lower for elderly households than for nonelderly households, median household wealth is higher for elderly households than among nonelderly households.
This is partly due to higher rates of home ownership among elderly households, and also because they have had longer to save.
33
What is “total wealth”?
Home equity Equity in other real estate Business equity Bank accounts and money market funds Stocks, bonds, and mutual fund shares IRAs, Keogh accounts, retirement accounts Net equity in vehicles Equity in other assets
34
Total Household Wealth is higher for the elderly than the nonelderly.
Total Household Wealth by Age, All Households, 2005
$51,045
$270,668
$7,582
$78,966
$386,388
$164,447
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
25th percentile 50th percentile 75th percentile
Percentile of Household Wealth
Tot
al H
ouse
hold
Wea
lth
Under 65 65+
35
Total Wealth of the Elderly
Among households headed by persons aged 65 and older, total household wealth is lowest among households headed by persons aged 80 and older.
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Total Wealth of the Elderly
Total Wealth of Households, Householder 65+, 2005
$467,082
$181,653
$55,915
$403,968
$177,308
$56,388
$300,000
$139,625
$40,800
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
25th percentile 50th percentile 75th percentile
Percentile of Household Wealth
Tot
al H
ouse
Hou
seho
ld W
ealth
65 to 69 70 to 79 80+
37
Total wealth is higher among home owners.
In 2005, 64% of nonelderly households and 78% of elderly households owned or were purchasing their homes.
Among both elderly and nonelderly households, total household wealth is greater for home owners than for those who do not own their homes.
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Total wealth of home owners
Total Wealth of Households with Home Equity, 2005
$70,320
$180,041
$400,582
$459,310
$111,442
$230,000
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
25th percentile 50th percentile 75th percentile
Percentile of Household Wealth
Tot
al H
ouse
hold
Wea
lth
Under 65 65+
39
Home equity in 2005
Median home equity of home owners under age 65 was $92,000.
Median home equity of home owners 65 and older was $140,000
40
Home equity is higher among elderly than nonelderly households.
Home Equity of Households Owning or Buying a Home, 2005
$92,000
$200,000
$36,000
$260,000
$140,000
$75,000
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
25th percentile 50th percentile 75th percentile
Percentile of Home Equity
Tot
al H
ome
Equ
ity
Under 65 65+
41
Financial Wealth: Total wealth minus home equity
94% of nonelderly households and 93% of elderly households have wealth other than home equity (here called “financial wealth”).
In 2005, the median financial wealth of nonelderly households with any kind of financial wealth was $25,200.
The median financial wealth of elderly households with any kind of financial wealth was $32,590.
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Financial Wealth of Households
Total Financial Wealth of Households, by Age, 2005(Households with Any Financial Wealth)
$120,506
$25,200
$4,523
$147,460
$32,590
$6,188
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
25th percentile 50th percentile 75th percentilePercentile of Financial Wealth
Tot
al F
inan
cial
Wea
lth
Under 65 65+
43
Financial Wealth of the Elderly
Among the 93% of elderly households with financial wealth, the median amount of their financial wealth in 2005 was:
$45,733 for households headed by persons aged 65 to 69,
$36,300 for households headed by persons aged 70 to 79, and
$21,530 for households headed by persons aged 80 and older.
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Financial Wealth of the Elderly
Financial Wealth of Households Age 65+, 2005
$45,733
$7,000
$203,446
$158,493
$36,300
$6,208 $21,530$5,288
$96,375
$0
$50,000
$100,000
$150,000
$200,000
$250,000
25th percentile 50th percentile 75th percentile
Percentile of Financial Wealth
Hou
seho
ld F
inan
cial
Wea
lth
65 to 69 70 to 79 80+
45
Retirement Account Balances
55% of nonelderly households and 37% of elderly households had a retirement account (IRA, Keogh, or 401(k)account) in 2005.
In 2005, the median retirement account balance of nonelderly households with a retirement account was $35,000.
The median retirement account balance of elderly households with a retirement account was $50,000.
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Retirement Account Balances
Retirement Account Balances, Households with One or More Accounts, 2005
$100,000
$35,000
$10,000
$145,000
$50,000
$17,000
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
25th percentile 50th percentile 75th percentile
Precentile of Retirement Wealth
Tot
al R
etir
emen
t W
ealt
h
Under 65 65+
47
Retirement Account Balances
Among the 37% of elderly households that had an IRA, 401(k), or other retirement account, the median balance in 2005 was:
$65,000 among households headed by persons aged 65 to 69,
$49,000 among households headed by persons aged 70 to 79, and
$32,000 in households headed by persons aged 80 and older.
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Retirement Account Balances
Retirement Account Balances, Households Age 65+, 2005
$20,000
$175,000
$65,000
$137,000
$49,000
$18,978$10,000
$90,674
$32,000
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
25th percentile 50th percentile 75th percentile
Percentile of Retirement Wealth
Ret
irem
ent
Wea
lth
65 to 69 70 to 79 80+
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Policy Issues
Social Security faces a long-term funding shortfall Benefits will exceed revenue beginning in 2041.
Pensions: Only about half of all workers under 65 are in an employer-sponsored retirement plan, unchanged since the 1970s.
The proportion of workers with defined benefit pensions continues to fall (now only 20%). Fewer future retirees will have an annuity as the
default form of retirement income.
50
Policy Issues
Issues related to defined contribution plans, such as 401(k) plans. Only about 75% of eligible employees enroll. Participants often contribute too little and fail to
diversify their investments. Few 401(k) plans offer annuities and few
employees opt for an annuity when it is available. Fewer protections for surviving spouse than in DB
plans which offer joint and survivor annuities. Investment risk and market volatility.
51
Policy Issues
Medicare and out-of-pocket health expenses: Medicare pays for much of the health care used
by older persons, but other costs must be met by other insurance or out-of-pocket.
Long-term Care Expenses Medicare pays for few LTC services Medicaid is available only to low-income elderly. Private long-term care insurance is expensive.
52
Policy Options
Social Security and Medicare reforms may include both tax increases and benefit reductions.
The future of defined benefit plans in the private sector is likely to continue to be determined by the competitive pressures that businesses face.
Options for long-term care include expanding incentives to buy private long-term care insurance or a social insurance/payroll tax approach
53
Policy options
Modifying defined contribution plans: Automatic IRAs and low-cost DC plans for small
employers to encourage sponsorship Automatic enrollment and automatic contribution
escalation. Life-cycle funds provide automatic diversification. Investment education and investment advice. Fee disclosure. Encourage availability of annuities. Clarify fiduciary duties of plan sponsors.
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What can you do?
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Aging Seminar Series: Income and Wealth of Older Americans
Domestic Social Policy Division
Congressional Research Service
November 19, 2008