aging seminar series: income and wealth of older americans domestic social policy division...

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.

3

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%)

7

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+

10

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).

11

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.

16

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%

17

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%

18

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%

19

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%

20

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.

21

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.

23

Most households with pensions received less than $20,000 in 2007.


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

24

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.

25

Receipt of Income from Assets rises with total household income.


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

26

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.

27

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.

29

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

30

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.

36

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



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.

38

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



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


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.

42

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.

44

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


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.

46


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


Precentile of Retirement Wealth

Tot

al R

etir

emen

t W

ealt

h

Under 65 65+

47


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.

48


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


Percentile of Retirement Wealth

Ret

irem

ent

Wea

lth

65 to 69 70 to 79 80+

49

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.

54

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

aging seminar series: income and wealth of older americans domestic social policy division...

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