ECONOMICS OF AGING: TOWARD A FULL SHARE IN ABUNDANCE FACTS AND FINDINGS THE TASK FORCE REPORT IN BRIEF I. Americans living in retirement are suffering from an income gap in relation to younger people. And as the gap widens, low income continues to be the Number One problem facing most of our 20 million persons 65 years or older, as well as other millions just a few years younger. The "gap" is widening: Median income of families with an aged head was 51 percent of that for younger families in 1961, but only 46 percent in 1967. -Three out of 10 people 65 and older-in contrast to one in nine younger people were living in poverty in 1966, yet many of these aged people did not become poor until they became old. -An additional one-tenth of our aged population was on the poverty borderline. -About five in 10 families with an aged head had less than $4,000 income in 1967; about one in five was below $2,000. Of older people living alone or with nonrelatives in 1967, half had incomes below $1,480, and one-fourth had $1,000 or less. -Even the level of living set by the Bureau of Labor Statistics in its Retired Couple's Budget is well beyond the means of most older people, especially for those who retired years ago. The average social security benefit of a couple retiring in 1950 met half the BLS budget cost then, but today it meets less than one-third. -Unemployment and early retirement among the 60 to 64 population are creating problems that demand much the same attention as that required by the population aged 65 and over. II. More Americans are spending more years in retirement periods of indeterminate length and uncertain needs, causing a mounting strain on resources they had when they began retirement. For an ever-rising proportion of women-most of them widows-the problem is especially severe. -Half of all people now 65 and over are about 73 or older. In the years ahead, the increase will be particularly great at the oldest ages. With the population 65 and older projected to rise 50 percent between 1960-85, the population 85 and older may double. -Increasingly, the rising population of widows is attempting to live independently, even if independence is purchased at the price of poverty. Our "retirement revolution" reflects two trends: at one end an increase in the number of very old aged; at the other, earlier departure from the labor force. 32-346 0-69-pt. 1-11 III. Unless positive action is taken, the economic position of persons now old will deteriorate markedly in the years ahead. -National economic growth, while putting added dollars into pockets of the working group, increases pressures on the retiree. A rise in earnings of 4 percent annually—a not unrealistic assumption in view of recent performance means consumption levels would approximately double in two decades, placing those on fixed income at a seriously deepening disadvantage in the marketplace. -Earnings drop as advanced age further curtails already limited earnings opportunities. (In comparison to the age group 65-72, only half as many men 73 and over and a third as many women worked in 1962, and the earnings of the oldest workers were significantly lower.) Assets are reduced-in some cases, exhausted. Homeownershipthe most important asset of the elderly-becomes especially difficult to maintain with advanced age, mounting taxes and other rising costs. -Medical needs and the costs of meeting these needs rise with declining health. The rise in these costs is only partly met by Medicare, which covered 35 percent of health costs of the aged in 1967. -Inflation erodes already inadequate incomes over longer retirement periods. (An annual rise of only 2 percent will reduce the purchasing power of fixed incomes by 18 percent after one decade and by 33 percent after two decades.) IV. Today's inadequacies in retirement income and the policies and trends that perpetuate them-should be of direct concern not only to our population of aged and aging Americans, but also to those in middle age or younger. Most parents today face a common problem: How can they allocate earnings to meet current obligations to their family and still have something left over for retirement? -The margin for saving-the excess of income over consumption expenditures-has been small for most families during most years of the worklife, especially for workers in the less skilled occupations. -In addition, with an outlook for sustained economic growth, how realistic is it to expect today's workers voluntarily to forego consumption in order to save for the years ahead when this requires that they significantly reduce their present standard of living to provide adequately for an uncertain and "distant" old age? V. Projections and various studies indicate that Social Security, private pensions, and other forms of retirement income are not improving fast enough to reverse or significantly counter present economic trends. -The overwhelming proportion of people retiring today receive total pension income from both public and private pensionswhich is only 20 to 40 percent of their average earnings in the years prior to retirement. -Of families retiring in the next decade and a half, it has been projected that almost 60 percent of those with preretirement earnings between $4,000 to $8,000 will receive pension income of less than half these earnings. -Projections to 1980 indicate that about half the couples and more than three-fourths of the unmarried retirees will receive $3,000 or less in pension income. And these projections use relatively liberal assumptions with respect to increases in private and public benefit levels. -The same projection found that more than two-thirds of retired couples could be expected to receive less than $3,000 in social security benefits in 1980. -Even under earlier projections, now known to be too optimistic, only a third to two-fifths of all aged persons in 1980 were expected to have income from private group pensions. -In addition, private pensions cover less than half the work force and this coverage is concentrated among higher paid workers; those in the greatest need in old age will be least likely to receive these pensions. Early retirement is a developing trend that could seriously impede attempts to improve the income position of future aged populations. (In recent years, more than half of the men retiring have done so before age 65.) -Among the proposed methods of raising the incomes of the aged population are various proposals for improved pensions, constant purchasing bonds, tax relief, increased public services, and improved welfare payments. No single proposal, however, can be expected to have a significant impact unless tied to broad policy decisions. VI. Facing what must be recognized as a worsening retirement income crisis, the Nation must take positive, comprehensive actions going far beyond those taken within recent years. The Nation faces these basic policy issues: -What is an adequate level of income for retired persons? -What part in attaining this level should be played by governmental programs, by voluntary group action, and by individual effort? -Is the economic problem of aging a temporary problem that requires a different solution or a different "mix" of solutions for today's aged than for those reaching old age in the future? CONCLUSIONS The task force has not attempted to enumerate and evaluate the many policy alternatives that have been recommended to deal with the economic problems of the aged. There are, however, a number of important conclusions which we feel are supported by the statistics summarized here and discussed more fully in the Report: • Low income in old age is not a transitional problem that, given present trends, will solve itself. Unless action is taken now, most aged will not have sufficient income to provide in retirement "A healthful, self-respecting manner of living which allows normal participation in community life." The Social Security system has failed to keep up with the rising income needs of the aged. To a large extent social security benefit increases in the past have resulted, not from legislation with the purposeful intent of tapping a greater part of the rising national product for old people, but rather as a secondary result of attempts to deal with the severe and potentially explosive hardship problems facing many older people. In consequence, these past efforts have been aimed primarily at maintaining the economic status of the aged at some minimal standard or subsistence level in the face of rising prices. • Sufficient evidence now exists to spotlight certain special economic problems of the aged which compound the general problem of low income. Among the areas identified for immediate congressional attention are: (a) Income maintenance of widows-a particularly disadvantaged group. (b) Health needs and rising medical costs. (c) Problems associated with homeownership and taxation. (e) Implications of early retirement trends. Simultaneously, congressional attention should be directed to (1) the various techniques for measuring and projecting the income needs of the aged population and to their use in decision making and (2) the appropriateness of methods now used or proposed for use in the adjustment of retirement benefits to changing conditions. • A reasonable definition of adequacy demands that the aged population, both now and in the future, be assured a share in the growth of the economy. If old age is to be more than a period when people decline and die, some way must be found whereby the aged, who have helped in the past to provide the basis for rising living standards, are guaranteed a share in some of the "harvested fruits". What this requires is a substantial transfer of income from the working to the retired population in order to improve the relative economic status of the aged. • Such assurance can best be provided, or can only be provided, through governmental programs, particularly the social insurance system of OASDHI, which carry commitments for future older Americans the workers of today as well as for this generation of the aged. The financial soundness of the Social Security system depends, essentially, on the Government's taxing powers which, in a vigorously growing economy, permit great flexibility to meet changing retirement needs. And retirement needs are changing as expectations rise and as American families increasingly begin to evaluate the adequacy of their retirement income in relation to their standard of living prior to retirement. • Private group pensions and personal savings-tailored as they are to individual needs, preferences, and financing ability-will continue to be essential supplements to basic social security benefits in the future. The Government should explore and lend support to various methods of promoting and encouraging such supplementary sources of retirement income. Χ ECONOMICS OF AGING: TOWARD A FULL SHARE IN ABUNDANCE CHART SECTION This section presents through charts some of the facts and findings that shaped the Task Force Report. Here, in brief, is the story told by the charts. Low income continues to be the number one problem of older people, and the problem becomes greater as they grow older. -The social security benefit payable to a couple who retired in December 1950-despite periodic adjustment-would now purchase a much smaller fraction of the BLS "moderate" budget than at the time of retirement (Chart A). -Six in 10 widows and other aged women living alone are below the SSA poverty line. Their numbers have increased, reflecting a desire to live independently even at the price of poverty (Chart B). -The gap between the median income of younger and older people has widened in recent years (Chart C). -For the December 1954 retiree, adjustments in social security benefits never quite caught up with price rises until the increase effective early in 1968-and then only momentarily (Chart D). Even with the important protection of Medicare, many older people have mounting medical bills that must be paid out of pocket. -Medicare met 35 percent of all health care expenditures for the aged in its first year, fiscal year 1967 (Chart E). -Health care expenditures in that year averaged $486 per aged person, about 2% times the average for younger persons (Chart F). -Of this $486, public programs including Medicare financed $286, leaving $200 for private financing. In the year before Medicare, the total per aged person was $423, of which $294 was financed privately (Chart G). If present trends are permitted to continue, today's workers will face the same problem of inadequate income in retirement. -Given the present pension structure, a majority of the aged in 1980 will have income from public and private pensions that is below any reasonable level of adequacy (Chart H). For most workers retiring in the two decades 1960-80, pension income will be less than half of past earnings (Chart I). -Early retirement seriously reduces the proportion of earnings replaced by pension income (Chart J). -For most workers during most of the working lifetime, the excess of income over expenditures leaves little margin for saving (Chart K). |