Chapter 8 Finances and Economics. Table 8.1 Older Population’s Average Annual Income © 2012 Pearson Education, Inc. All rights reserved

Chapter 8

Finances and Economics

Table 8.1 Older Population’s Average Annual Income

© 2012 Pearson Education, Inc. All rights reserved.

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



• 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



• 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



• 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



• 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



• 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


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?


Documents

Chapter 8 Finances and Economics. Table 8.1 Older Population’s Average Annual Income © 2012 Pearson Education, Inc. All rights reserved