Aging Seminar Series:

Transcription

1 Aging Seminar Series: Income and Wealth of Older Americans Domestic Social Policy Division Congressional Research Service November 19, 2008 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. 2

2 Today s topic Income and Wealth of Older Americans Patrick Purcell, Specialist in Income Security, Domestic Social Policy Division, CRS 3 Overview of presentation Demographic Trends Total Household Income Sources of Income Employment Poverty among the Elderly Household Wealth Policy Issues Policy Options 4

3 Sources of data Population projections: Census Bureau Income: Current Population Survey (Census Bureau) Wealth: Survey of Income and Program Participation (Census Bureau) 5 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) ,260 (12.4%) Under 20 82,079 (27.5%) 20 to ,058 (60.1%) 6

4 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. 7 Population growth to 2050 Projected Percentage Change in U.S. Population, by Age, 2006 to % 132.7% 120.0% Percentage Change 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% 1.4% 91.8% 33.0% 24.4% 15.9% 3.0% 8.0% 9.4% Year Under to

5 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 % 90% 80% 13.0% 19.7% 20.7% Percent of Population 70% 60% 50% 40% 30% 20% 10% 0% 60.0% 54.2% 53.4% 26.9% 26.2% 26.0% Year Under to 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). 10

6 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. 11 Median income of elderly and nonelderly households 1990 to Median Household Income by Age of Householder, 1990 to 2007 $70,000 Median Household Income, in 2007 $ $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $53,800 $53,251 $26,733 $25,975 $57,621 $27,060 $55,500 $27,636 $56,545 $28,305 $ Year Under

7 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. 13 Median Household Income Median Household Income in 2007, Householder or Spouse Age 65+ Marital Status Not Married Married $19,722 $45,036 College Graduate $57,940 Age Sex Race Education Some College High School Grad Less than 12 years Hispanic Black White Women Men $33,980 $26,888 $18,230 $23,400 $21,184 $30,975 $23,400 $38,222 $20,995 $28, $43,159 $- $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 14

8 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 lowerincome households. Households in the bottom two income quartiles households receive most of their income from Social Security. 15 The top income quartile gets 47% of income from earnings. Asset Income 20% 2007 Household Income of more than $56,973 Public Assistance 0% Other Income 2% Social Security 16% Pensions 15% Earnings 47% 16

9 The second quartile receives 25% of income from earnings. Asset Income 8% 2007 Household Income of $29,730 to $56,973 Public Asst. 0% Other Income 3% Social Security 43% Pensions 21% Earnings 25% 17 Elderly in the third quartile get 2/3 of total income from Social Security Household Income of $16,244 to $29,730 Asset Income 6% Public Asst. 1% Other Income 2% Pensions 15% Earnings 9% Social Security 67% 18

10 Elderly in the 4 th quartile get $5 out of $6 of income from Social Security Household Income of less than $16,244 Asset Income 3% Pensions 5% Public Asst. 4% Other Income 1% Earnings 3% Social Security 84% 19 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 % of recipient households received more than half of their income from Social Security in % of recipient households received 90% or more of their income from Social Security in Median household Social Security income in 2007 was $15,012 among elderly recipient households. 20

11 70% of elderly households receive less than $20,000 from Social Security. Householder or Spouse Age % Percentage of housholds age % 25% 20% 15% 10% 5% 4% 16% 29% 21% 30% 0% Less than $5,000 $5,000 to $9,999 $10,000 to $14,999 $15,000 to $19,999 Household Income from Social Security in 2007 $20, Pension Income Fewer than half of elderly households had income from pensions in % 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,

12 Most households with pensions received less than $20,000 in Householder or Spouse Age 65+ Percentage of pension recipient households age % 35% 30% 25% 20% 15% 10% 5% 0% 11% 35% Less than $5,000 16% 22% $5,000 to $9,999 15% 15% 16% 13% 9% 9% $10,000 to $14,999 $15,000 to $19,999 $20,000 to $29,999 29% 10% $30,000 or more Household income from pensions in 2007 Public Pensions Private Pensions 23 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,

13 Receipt of Income from Assets rises with total household income. Householder or Spouse Age % 90% Percentage of households 80% 70% 60% 50% 40% 30% 20% 10% 0% 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 Without Income from Assets With Income from Assets 25 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

14 Employment Rates Employment Rates by Age, March % 73% 70% 63% Percentage employed 60% 50% 40% 30% 20% 10% 52% 41% 33% 26% 14% 8% 0% Age Men Wome n 27 The percentage of households with earnings falls sharply after age % 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. 28

15 Workers total earnings decline with age due to lower wages, fewer hours. Annual Earnings in 2007 by Age of Worker 100% 90% 80% Percentage of Earners 70% 60% 50% 40% 30% 20% 10% 0% Age Age Age 65+ Age Group Less than $10,000 $10,000 to $29,999 $30,000 to $49,999 $50,000 or more 29 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%). 30

16 Elderly poverty rates remain high among some groups. Percentage of Individuals Age 65+ in Poverty, 2007 Marital Status All Age 65+ Age Sex Race Education Not Married Married College Graduate Some College High School Grad Less than 12 years Hispanic Black White Women Men 80 and up 70 to to 69 All 4.2% 4.3% 7.0% 9.0% 7.4% 12.0% 6.6% 11.5% 9.3% 8.5% 9.7% 16.2% 18.0% 17.1% 23.3% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 31 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. 32

17 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 33 Total Household Wealth is higher for the elderly than the nonelderly. $500,000 Total Household Wealth by Age, All Households, 2005 Total Household Wealth $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 $386,388 $270,668 $164,447 $78,966 $51,045 $7,582 25th percentile 50th percentile 75th percentile Percentile of Household Wealth Under

18 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. 35 Total Wealth of the Elderly Total Wealth of Households, Householder 65+, 2005 $600,000 Total House Household Wealth $500,000 $400,000 $300,000 $200,000 $100,000 $55,915 $56,388 $40,800 $181,653 $177,308 $139,625 $467,082 $403,968 $300,000 $0 25th percentile 50th percentile 75th percentile Percentile of Household Wealth 65 to to

19 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. 37 Total wealth of home owners Total Wealth of Households with Home Equity, 2005 Total Household Wealth $500,000 $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 $459,310 $400,582 $230,000 $180,041 $111,442 $70,320 25th percentile 50th percentile 75th percentile Percentile of Household Wealth Under

20 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, Home equity is higher among elderly than nonelderly households. Home Equity of Households Owning or Buying a Home, 2005 $300,000 $250,000 $260,000 Total Home Equity $200,000 $150,000 $100,000 $75,000 $92,000 $140,000 $200,000 $50,000 $36,000 $0 25th percentile 50th percentile 75th percentile Percentile of Home Equity Under

21 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, Financial Wealth of Households Total Financial Wealth $160,000 $140,000 $120,000 $100,000 $80,000 $60,000 Total Financial Wealth of Households, by Age, 2005 (Households with Any Financial Wealth) $120,506 $147,460 $40,000 $20,000 $0 $4,523 $6,188 $25,200 $32,590 25th percentile 50th percentile 75th percentile Percentile of Financial Wealth Under

22 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. 43 Financial Wealth of the Elderly Financial Wealth of Households Age 65+, 2005 $250,000 Household Financial Wealth $200,000 $150,000 $100,000 $50,000 $0 $203,446 $158,493 $96,375 $45,733 $36,300 $7,000 $6,208 $5,288 $21,530 25th percentile 50th percentile 75th percentile Percentile of Financial Wealth 65 to to

23 Retirement Account Balances 55% of nonelderly households and 37% of elderly households had a retirement account (IRA, Keogh, or 401(k)account) in 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, Retirement Account Balances Retirement Account Balances, Households with One or More Accounts, 2005 $160,000 $140,000 $145,000 Total Retirement Wealth $120,000 $100,000 $80,000 $60,000 $40,000 $35,000 $50,000 $100,000 $20,000 $10,000 $17,000 $0 25th percentile 50th percentile 75th percentile Precentile of Retirement Wealth Under

24 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. 47 Retirement Account Balances Retirement Account Balances, Households Age 65+, 2005 Retirement Wealth $200,000 $180,000 $160,000 $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0 $20,000 $18,978 $10,000 $65,000 $49,000 $32,000 $175,000 $137,000 25th percentile 50th percentile 75th percentile Percentile of Retirement Wealth $90, to to

25 Policy Issues Social Security faces a long-term funding shortfall Benefits will exceed revenue beginning in 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. 49 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. 50

26 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. 51 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 52

27 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. 53 What can you do? 54

28 Aging Seminar Series: Income and Wealth of Older Americans Domestic Social Policy Division Congressional Research Service November 19,