II

By most standards, retirement incomes are inadequate. The myth that older persons need less income than younger people derives from only the fact that, having low incomes, the elderly necessarily spend less. Some years ago the American Association of University Professors and the Association of American Colleges formed a joint committee to develop standards for academic retirement plans including a standard of adequate retirement income. For a person with 35 working years or more, their original statement called for a retirement income of 50 per cent of average salary over ten years of service preceding retirement. In 1968, the AAUP-AAC statement of adequacy was revised to reflect rising taxes and inflation to read "two-thirds of yearly disposable income realized from his salary after taxes. . . during his last few years of full-time employment”—as "after-tax retirement income . . . in purchasing power . . . with provision for continuing more than half of such retirement income to a surviving spouse." Thus, the goal is fixed on disposable income after income tax and adjustment for inflation with due provision for the surviving spouse.

This standard is not an unreasonable one for other professions and occupations. Yet today 40 per cent of couples over 65 have incomes of less than $3,000*. The simulated projection for 1980 is that 50 per cent of couples over 65 will have incomes of less than $3,000 and that more than half of the single individuals over 65 will be limited to annual incomes of less than $2,000.

III

Dr. Juanita M. Kreps developed before the Senate Committee on Aging, December 5, 1967, the thesis that retirants have not participated in economic growth. Disposable real incomes, adjusted for inflation, have increased about 2 per cent per annum since 1946. During a typical period of retirement, real incomes of retirants have declined to 60 per cent of that of employed workers. If national economic growth were to advance to more than 2 per cent, the gap would widen; at 4 per cent, say, the decline would be to 35 per cent.

But what is national growth and whose growth is it? Growth in national economic productivity results from past capital accumulation and technological advances. Older Americans have contributed in full measure-in labor, brains and savings to this delayed flowering of the economy. It would be a fallacy to assume that current and future gains in economic productivity are solely attributable to the present and future working force. Yet most private pension plans currently being improved adopt that untenable assumption. The widening gap between real incomes of retirants and those of employed workers is economically unjustified. The narrowing of the gap and, indeed, its elimination are properly objectives of public policy.

IV

The retired elderly are among those most severely and unfairly injured by inflation in the entire population. Inflation is no less a Federal tax than the income tax. Unlike the income tax, which bears an approximate relationship to ability to pay, the Federal inflation tax is regressive; it bears most heavily on those least able to pay.

A dollar of savings from work in the 1930's now has a purchasing value of only 35 cents, in the 1940's of about 45 cents, in the 1950's of about 71 cents, and in the early 1960's of scarcely 80 cents. The savings in insurance policies, pension fund investments, annuities and savings bonds have been eroded in the same drastic degree. Much of the speculative gains in land values, business enterprises and equities have been derived from the subtle transfer of billions of value, resulting from the depreciating dollar, from these past savings of older Americans.

More frightening is the runaway acceleration of rising inflation over the past two or three years. The Bureau of Labor Statistics consumer cost index has risen about 12 per cent since early 1966, more than 5 per cent over the past year and at an annual rate of 9 per cent in the latest reported month. Even so, the index does not fully measure the rising living costs of older Americans which have approximated 20 per cent since early 1966. Hospital costs are un 52 per cent, physicians' fees 21 per cent and dentists' fees 15 per cent. The elderly pay about three times more for medical costs than do persons under 65.

*Research and Statistics Note, U.S. Dept. of Health. Education and Welfare. December 10. 1968 p 3.

Home ownership costs (property taxes, repairs, care of property) are up 18 per cent. While Medicare has been most helpful to those actually hospitalized, it has absorbed only 35 per cent of overall medical costs of the elderly.

Most money incomes of retirants are either fixed or declining. Real incomes invariably are declining. Conservative investments suitable for the elderly with short life expectancies have been eroded. Bond market prices have been in a disastrous bear market since 1955 with market price averages down 35 per cent and, therefore, down 54 per cent in purchasing power. Few private pension plans have been adjusted for inflation among older retirees, say, those who retired in the 1950's or early 1960's. Private pensioners have no bargaining power, cannot rely on unions or vote themselves higher salaries to offset eroding incomes. They are the victims, not the beneficiaries, of a low rate of unemployment and a tight labor market.

Inasmuch as NRTA-AARP recognizes that past fiscal and monetary policies have been the source of recent inflation and the rapidly depreciating dollar, the Association supported the tax surcharge and support its continuance. The Association strongly supports the objective of a budget balance, reduced Federal expenditures of lesser priority, high interest rates, and the discontinuance of the investment tax credit, hopeful that these classical inflation control measures may eventually restore monetary value stability, so essential to the welfare of older Americans. As there are no signs of a slow-down and little likelihood of any restoration of buying power of the dollar lost in past decades, the program for amelioration of inequities suffered by the elderly must rest on the assumption that national policy may tolerate continued inflation in the future, albeit hopefully at a reduced rate. With a Federal debt of $362 billion largely monetized into a conglomerate monetary system of deposits, paper and base metals, many years, possibly decades, may be required to restore the American financial house to some semblance of order. The bitter medicine of disinflation is healthful for the entire nation in the long run, to the aging of every generation, including the very young. To be repudiated are such dishonest doctrines as that inflation is the only way to retire the vast public debt, or such fallacious doctrines as that inflation is essential to an economic level of employment. Continuation of the present rate of inflation can end only in social chaos and disaster.

V

Because the Federal tax of inflation has borne so heavily on the retired, as a matter of equity and sound social policy, the level at which Federal income taxation begins should be raised and more deductible adjustments, not fewer, should be given to taxpayer over 65.

The withdrawal of full deductibility of medical expense since 1966 has been discriminatory and, in effect, a tax increase estimated at $210 million a year solely on the elderly. Outside of Medicare, the elderly must pay for eye care, dental care, drugs and a rising share of hospital and physicians' charges. Health and health care costs, rather than death, are the principal fears of most elderly.

The proposal of the Treasury to tax Social Security benefits and to eliminate double exemption deductions and the retirement income credit would be unfair and disruptive of financial planning for retirement. While the method of effecting these changes would further confuse an already complicated income tax, the NRTA-AARP endorses that phase of the proposal which would reduce taxes in the lowest income brackets. The Association, however, opposes the Treasury's plan for placing the cost of relieving lower income taxpayers largely on the moderate and upper-income retirees. The Association submits that logically the loss of revenue should be assessed against the entire economic community, by which method the moderate and upper-income retired taxpayers would pay their full, fair share. The Treasury proposal in its present devious form is inequitable, discriminating and thoroughly unsound in financial, economic and social principle.

VI

What should sound social policy of the Federal government be toward the aged? Among other measures, the foregoing observations, in summary, lead to several conclusions:

1. Provision should be made for Social Security benefits, starting from a meaningful base such as $120 a month, to be promptly and automatically increased at least to parity with the consumer price index, as pledged in the platforms of both the Republican and Democratic parties in 1968.

2. Provision should be made for additional upward adjustments on Social Security benefits in recognition of periodic increases in real national productivity. If necesary, this part of Social Security benefits would be assessed against general revenue sources.

3. After study of other nations which have issued bonds of guaranteed purchasing power, consideration should be given to the issuance of U.S. retirement bonds whose money value would be correlated with the BLS consumers price index.

4. Congress and the Administration should exert every effort to restore honesty to the dollar; these powers reside solely in these branches of government in their exercise of fiscal and monetary policies.

5. The Federal tax code should retain the present double exemption provision for taxpayers over 65; it should retain the non-inclusion of Social Security benefits as a matter of keeping faith with the retired; the retirement income tax credit should be updated; the full deductibility of medical expense should be restored; and finally, some type of deduction should be provided to offset the inflation tax based on losses of real value of past savings, similar to deductions now accorded to capital losses.

6. Through the administration of the Internal Revenue Service and its controls on private pension systems, future plans in order to continue to qualify for tax deduction should be required to provide for upward adjustments in pensions being paid to older retired employees on a scale corresponding to improvements for pension plan participants in the active work force.

The CHAIRMAN. Mr. Shelley?

STATEMENT OF MR. SHELLEY

Mr. SHELLEY. I offer my congratulations to this committee which requested the report and to the task force which prepared it. The report sets forth the concept of a more just and equitable participation by older people in the affluent American life. If put into practice, this concept would eliminate much of the uncertainty and fear with which most people approach old age. It might, indeed, make possible the realization of the rich potential of the last one-third of life, so frequently referred to by the optimistic euphemism, "the golden years"a designation all too often unjustified by the harsh realities of age. This economic concept of sharing in the Nation's abundance throughout the whole of life is buttressed by detailed factual information and economic analysis in the task force report.

I should like to comment on a few of the significant points covered by the report, and I ask your permission, Mr. Chairman, to file this statement on behalf of the National Council on the Aging.

1. The First Point Deals With the Elderly Poor

The report documents an economic condition among aged persons in this country which, if fully and properly understood, would be considered intolerable by legislators and voters alike. There seems to be a general impression that, with Social Security and Medicare, old people's financial problems are minimal. This impression may help to explain the difficulty in getting earmarked funds for the elderly poor in economic opportunity legislation even though, as this report shows, more than a third of all persons over 65 are poor or on the borderline of poverty.

The National Council on the Aging is now preparing documentation on poverty in old age in America based on project FIND, and any detailed discussion of that subject should await that report. A significant finding in the NCOA experience is the invisibility of the elderly poor. As was the case with hungry children, people cannot believe that elderly poor people exist in our country. Occasionally, when this situation is revealed, there are spontaneous outpourings of food, fuel, clothing, and volunteer help. In Washington, D.C., when the dire needs of a "FIND" couple were portrayed on a newscast, the station was flooded with offers of money and provisions for these individuals.

But our society has grown too complex to rely on individual generosity-good will must be registered at the polls! The time has surely come to establish a nationwide living standard, below which no elderly person in this country should be expected to live. And the standard should apply nationwide without allowing the accident of residence to remain the determining factor in minimum income. Incidentally, since the Bureau of Labor Statistics budget has been so widely accepted as "adequate," we should like to remind the committee of some comments on its inadequacy, when translated into goods and services, in NCOA testimony on consumer needs presented before this committee 3

years ago.

2. The Continuing Trend Toward Inadequate Income

It is generally assumed that a good share of the income problems of the aged is caused by special limitations suffered by those persons who are presently retired-for example, low wages received during their working life or the ineligibility of many for social security. Therefore, it comes as something of a shock to read the task force statement :

If present trends continue, today's workers will face the same problem of income in retirement.

It should be noted that one alleged characteristic of the present generation of elderly poor is their low expectation from life and their docile acceptance of poverty. This situation is changing, as the attendance at this hearing so clearly indicates. The older poor will not be satisfied with poverty indefinitely. Today's militant youth will be mirrored in the increasing militancy of our older Americans.

The implication for public policy is the necessity to start now to consider alternative plans of action which apply not only to the present but to the future as well.

3. The Continuing Importance of Work as a Factor in Income Maintenance

The task force points out that employment is "still the largest single source of income for the aged group." This is true as a group, but it is not true for the four out of five older persons who are not in the labor force. Further, the labor force participation among those over 65 is declining. Granted that many older people are not able to work or do not wish to, there is considerable empirical evidence that more older people want to work than are able to find jobs.

In view of such evidence, we must question the wisdom of accepting the current trend toward decreasing employment of middle-aged and

older workers as irreversible. It seems logical that every encouragement should be given to the Department of Labor to emphasize counseling, training, and placement of older workers, and that, in national efforts to implement the Employment Act of 1945, the desires and needs of older workers be given due recognition.

4. The Consequences of Enforced and Early Retirement

It has been obvious to careful observers of the problems of middleaged and older workers that retirement, especially early retirement, is often a euphemistic term for unemployment. The National Council on the Aging believes that the factors which induce individuals to choose early retirement and the unfortunate economic results in terms of living standards and personal satisfactions, should be the subject of urgent study. By identifying the specific causes which lead individuals to accept such a disadvantaged income position for the rest of their lives, we can hopefully devise new and effective ways of correcting an increasingly intolerable situation.

Beginning with a conference held at Arden House in 1952, NCOA has been concerned with the question of compulsory retirement based on chronological age alone. At a seminar on "Technology, Manpower, and Retirement Policy," held in Washington, D.C., in 1965, a distinguished group of scholars and practitioners analyzed the implications of technological development for compulsory and early retirement. Dr. John T. Dunlop of Harvard University said at the opening session:

The case for early retirement plans is sometimes placed primarily on the grounds of creating jobs for younger workers. In this form, early retirement is both a questionable retirement policy and a dubious employment-creating policy.

In a recent issue of the "Saturday Review," Goodman Ace, who writes a weekly column of humorous comment, refers to the fact that "it becomes obvious that as the number of 65-year-old retirements accelerates, our country's landscape from coast to coast will very soon be dotted with used man lots." Though there is an apparent trend toward compulsory retirement on the basis of age, we believe that the trend need not be accepted as irreversible. There are certain signs of a popular opposition to the concept, but a sense of helplessness about combating it.

Unless the trauma of enforced retirement experienced by an unknown number of persons can be cushioned by the assurance of an income reasonably comparable to earnings income, the compulsory retirement philosophy is likely to become less acceptable to future generations and indeed may become less and less acceptable to this generation. Now is the time to look for feasible alternatives to the "used man lot."

5. Alternatives in Social Security Provisions

The task force report makes it clear that we must look to social security as the primary mechanism to improve the income position of all older Americans and to provide the leadership toward a full or even a reasonable share in abundance. Obviously, there are many ways of extending benefits, and alternatives must be chosen. These alternatives, we have, should be analyzed and clarified for better public under and choice.