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Chapter 8

Finances and Economics

Table 8.1 Older Population’s Average Annual Income

By Source and Gender, 2009

Figure 8.1 Social Security Keeps Older People Out of Poverty, 2007

Historical Development of the US Pension System

Change to industrial society
Risks for workers
Less traditional support
Govt. pensions:
Safeguards
Political loyalty

Historical Development of the US Pension System

Great Depression of 1930s, United States
Older people and those near retirement at risk
Poorhouses
Church and local charities
28 state welfare programs
No state had old age insurance program

Historical Development of the US Pension System

Results of Depression
Worker discontent; Populist and socialist movements; General strikes
Fears of riot and anarchy
Social Security act passed in part, as response to unrest during the depression
A response to social and economic distress

Historical Development of the US Pension System

Development of the Social Security Program
Social insurance to protect business/workers
Moved older workers out of the labor force
Created jobs for younger workers
Social Security: first nationwide assistance program for older adults in the US

The US Retirement Income System Today

Three Tiered Pyramid
Government pension programs; Private pension programs; Private savings
The Three-Legged Stool of Retirement Income

Public pensions and other government transfers; Work and assets; Private Pensions

Figure 8.2 Tiered U.S. Retirement Income System

Level 1: Social Security

Money collected from workers payroll taxes and employers contribution
A “Pay-as-You-Go” plan
Never intended to be a large reserve fund
Accounts for sharp decrease in poverty among older population since 1950s
Individual Retirement Accounts

Figure 8.3 OASDI Beneficiaries by Age, 2009

Level 1: Social Security – Who Gets It

Spousal Benefits
Non-eligible spouse gets 50% of eligible spouse benefit
Gives couple 150% of husband’s SS benefit
Widow Benefits
SS Eligibility makes worker and spouse fully eligible for Medicare

Figure 8.4 Income Sources of People Age 65 and Over, 2008

Level 1: Supplemental Security Income (SSI)

Paid out of general tax revenues
Eligibility is low income, elderly, blind, disabled
Some get social security and SSI, but SSI benefits reduced
Largest public cash assistance program in USA for people in need

Level 2: Employment Pensions

Benefits through specific employers
Mostly available to middle and upper income workers
Some employers don’t follow through on pension promises
Individual Pension Plans

Figure 8.5 Defined Benefit to Defined Contribution Pension Plans

Figure 8.6 U.S. Poverty Rates, by Age, 1966–2003

Figure 8.7 Poverty Status, by, Race, and Hispanic Origin, Age 65+, 2009

Level 3: Personal Assets and Other Income

3rd largest source of income for older people
Home ownership contributes about ½ total net worth of older households
Younger elders report more earnings income than older elders
Ages 55-64 have highest net worth in USA

Level 3: Personal Assets and Other Income

The Impact of the Retirement Income System on Older People’s Incomes
Why improved?
Retirees had paid into Social Security & Pension plans for many years
Cost of Living increase + Social Security
Govt. added 20% increase to Social Security

Level 3: Personal Assets and Other Income

Why does retirement lead to decline in income?
Living on less money
Retirement benefits pay only a portion of worker earnings
Living expenses eat away at savings
Not poverty, but drop in living standard

Income Inequality in Later Life

Age Differences and Income
Gender and Income
Marital Status and Income
Minority Status and Income
Further Effects of Poverty
Why inequality?

Figure 8.8 Poverty Rates Among Selected Vulnerable Groups

Percent of Population in Poverty, 2008

Pension Reform

Social Security Reform
Family Care
Spousal Pensions
Widows’ Benefits
Income Limits
Supplemental Security Income Reform
Improved Benefits

Pension Reform

Improve State Supplements
Higher Enrollment Rates
Private Pension Reform
Vesting
Portability and Indexing
Better Private Plan Insurance

Figure 8.9 Median Income of Households

Finances & Economics: The Future

Will the social security program go broke?
Will today’s workers have a pension to count on?
What impact will a smaller workforce have on retirement programs?
Does the system need major overhaul, or reasonable adjustments?