The economic well-being of the elderly is ultimately reflected in the relative standard of living they can sustain. The elderly generally consume fewer goods and services than the nonelderly and spend higher proportions of their total budgets on essentials. The one service that the elderly consume more of and spend more on than the nonelderly is health care.9

THE ELDERLY SPEND LESS THAN THE NONELDERLY, EVEN WHEN SPENDING IS ADJUSTED FOR HOUSEHOLD SIZE

Older households consume less than younger households because they have less household income to spend, fewer people in the household to support, and different needs than younger households. Data from the 1984 Consumer Expenditure Survey shows that urban consumer units with a reference person age 65 to 74 and age 75 and over have average incomes before taxes that are respectively only 68 percent and 51 percent as great as the average income of all urban consumer units. Spending by older consumer units is substantially lower than the average spending by all consumer units. Units with a reference person age 65 to 74 spent $15,873 and those with a reference person age 75 and older spent $11,196 in 1984 compared to average spending of $21,788 by all consumer units.

To some extent, elderly households need to buy less overall, and spend on a different mix of purchases because they have fewer members than nonelderly households. In 1984, the average 65- to 74-year-old consumer unit had 1.9 persons and the average 75 and older consumer unit had only 1.5 persons compared to the average

Data on consumption patterns is from the Bureau for Labor Statistics, Consumer Expenditure Survey results from 1984.

of all consumer units 2.6 persons. However, even when adjusted for unit size, older households spent less than younger households.

Because older households are smaller, they devote a larger share of their budget to costs that vary little with household size. For example, housing costs (including utilities) in 1984 were more than 30 percent of the average budget of consumer units with a reference person 65 and older compared to only 27 percent of the budget of all consumer units. Spending on utilities, in particular, was a more significant expense for the elderly than the nonelderly. Utility costs as a percentage of the budget were 10 percent for 65- to 74year-old units and 12 percent for 75 and older units, compared to only 8 percent for all consumer units.

TABLE 2-15.-AVERAGE ANNUAL EXPENDITURES OF URBAN CONSUMER UNITS, 1984

SOURCE: U.S. Bureau for Labor Statistics, Consumer Expenditure Interview Survey, 1984.

HEALTH CARE IS THE ONLY BUDGET CATEGORY ON WHICH THE

ELDERLY SPEND MORE MONEY THAN THE NONELDERLY

The elderly spend more in actual dollars on health care than the nonelderly. Consumer units with a reference person age 65 to 74 paid an average $1,340 and those with a reference person age 75 and older paid $1,487 in out-of-pocket health costs in 1984 compared to an average of $899 paid by all units. Because the total budget of the elderly is smaller, the share spent on health care is substantially higher than the share spent by the nonelderly. Consumer units age 65 to 74 and 75 and older respectively spent 8 percent and 13 percent of their budgets on health care compared to 4 percent by all units.

On other necessities, the elderly tend to spend far less than the nonelderly. Spending by elderly consumer units on food, clothing, and transportation in 1984 was substantially lower in dollar terms than spending by nonelderly units on these same goods and services (see table 2-15).

In conclusion, older Americans as a group have fewer economic resources and sustain a lower living standard than nonelderly adults. The greatest threat to the economic security of the elderly is the high out-of-pocket cost of health care, which consumes an increased share of the reduced budgets of the average elderly household.

Chapter 3

RETIREMENT TRENDS AND LABOR FORCE
PARTICIPATION

With this century's dramatic increase in longevity, people are spending more time in all of life's major activities-in education, in work, and in retirement. Retirement is now an established institution and more and more older people are leaving work for retirement well before age 65. For those older persons who need or want to continue to work, however, unemployment and age discrimination are serious problems. Older workers who are unemployed stay out of work longer than younger workers, suffer a greater earnings loss in subsequent jobs than younger workers, and are more likely to become discouraged, giving up the job search altogether.

The following section describes the current labor force and retirement trends of older workers.

A. LIFETIME DISTRIBUTION OF EDUCATION, WORK, AND RETIREMENT

RETIREMENT IS NO LONGER A LUXURY, IT IS NOW AN INSTITUTION

Increased longevity and changing social and work patterns have contributed to dramatic changes during this century in the distribution of time devoted to major life activities such as education, work, retirement, and leisure. Compared to a century ago, children are spending more time in school, both men and women in their middle years are spending more time in work, and older people are spending more time in retirement.

Retirement is now as much an expected part of a life course as family, school, or work. The portion of life spent in retirement has increased substantially since the beginning of this century (chart 3-1). In 1900, the average male had a life span of 46.3 years and only 1.2 years or 3 percent of that was spent in retirement. By 1980, the average male spent 20 percent of his 69.3 years in retirement, or 13.8 years. Thus, while life expectancy increased by 50 percent, average years in retirement increased 11 times.

(NOTE.-Statistics for this section are from the following-Formal education for 1940 to 1970 from "Median School Years Completed," Bicentennial Edition-Historical Statistics of the United States, page 390; for 1900 from Best, F., Work Sharing: Issues, Policy Options and Prospects, Upjohn Institute for Employment Research, Kalamazoo, MI, 1981; for 1980, Bureau of the Census, Worklife Estimates from Smith, Shirley, New York Life Estimates, Bureau of Labor Statistics Bulletin 2157, November 1982. Life expectancy from Bureau of the Census.)