The Social Safety Net for the Elderly
Kathleen McGarry
University of California, Los Angeles
and NBER
Prepared for “The Legacy of the War on Poverty: A 50-Year Retrospective” June 12-13, 2012,
Ann Arbor, MI
Situation for the Elderly Differs
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Poverty rates for the elderly were abysmal, far
worse than those for the non-elderly.
In 1959:
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Poverty rate for the elderly was 35.2%
Poverty rate for children was 27.2%
Poverty rate for those ages 18-64 was 17%
Situation for the Elderly Differs
•
Poverty rates for the elderly were abysmal, far
worse than those for the non-elderly.
In 1959:
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Poverty rate for the elderly was 35.2%
Poverty rate for children was 27.2%
Poverty rate for those ages 18-64 was 17%
Poverty rate in 2010:
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Poverty rate for the elderly was 9%
Poverty rate for children was 22%
Poverty rate for those ages 18-64 was 13.7%
Programs Prior to 1964: Social Security
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Established 1935 and gradually expanded during
the 1940s and 1950s.
Progressive benefit formula
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Terrific return on investment for earlier cohorts.
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Higher replacement rates for low income workers
Ida May Fuller paid $24.75 over 3 years, received
$22,888.92 in benefits by her death at age 100.
Annuity aspect protects oldest old
Benefits for spouses and survivors, thus
contributes to well-being of the non-elderly.
Programs Prior to 1964: OAA
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Old Age Assistance programs state run programs
stemming back to 1920s. In 1935, 30 states had
such programs
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Established precedent of assisting the elderly
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Social Security Act of 1935 provided matching
funds to states to expand these programs.
Benefits were low and varied greatly across states
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In 1960 $40 Mississippi to $275 Washington State
($306 and $2,108 in 2010 $)
Variation in restrictions on benefits
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lien laws, residency requirement, relative responsibility
Programs Prior to 1964: OAA (cont’d)
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Despite problems with programs, in 1950 more
individuals receiving OAA than Social Security
(2.8 vs. 2.1 million)
Those receiving OAA still had very low income
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Median family income of OAA recipients in 1973
was $1,851 ($9,091 in 2010 dollars)
The War On Poverty and the Elderly
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Central component is the Older Americans Act
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It was the responsibility of government to: “assist our
older people to secure equal opportunity to the full
and free enjoyment of the following objectives …
adequate income in retirement,” … “suitable
housing,” and “no discriminatory personnel
practices because of age.”
Established Administration on Aging
Demonstrated importance of the elderly
Set the stage for increases in Social Security and for
the establishment of SSI
Social Security and the War On Poverty
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In 1964 75% of elderly received Social Security
Average retired worker benefit $544.98 (2010$)
Run up in benefits:
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1965: 7% increase
1967: 13% increase
Johnson’s signing statement of 1967 amendments:
“This means that 9 million people will have risen
above the poverty line since the beginning of 1964”
Social Security and the War On Poverty
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Increase in benefits continued after Johnson:
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Tax Reform Act of 1969: 15% increase
1971: 10% increase
1972: 20% increase
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Total of nearly 85 percent increase 1964—1972
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1972 Amendments also indexed benefits
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Protected elderly against erosion of benefits
over time.
SSI and the War On Poverty
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Replaced state run OAA programs with uniform
federal guaranteed income program for elderly
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Began paying benefits in 1974 with guarantees of
$140 and $210/mo ($698, $1,048 currently)
Benefit = Guarantee – Countable income
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Administered by Social Security Administration
Part of Nixon’s Family Assistance Plan
Countable income=income – (first $60 earned+ ½
remainder, first $20 unearned)
Asset test initially $1500/$2250, now $2000/3000
SSI and the War On Poverty (continued)
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Income disregards unchanged since 1972
Asset limits increased once but if increased with the
CPI would be $7,000 / $10,500 today
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States can supplement federal guarantees
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2011 all but 6 states had some supplemental program
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Maximum is $1,039 / $1,539 in Alaska
California is $830 / $,1407
Michigan is $688 / $1,039
Massachusetts is $803 / $1213
Maximums are typically below the poverty line
SSI and the War On Poverty (continued)
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Those eligible are truly poor but participation in
SSI is low, approximately 50-55%
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Measured in 1974, 1984, 1993
Why? Lack of knowledge, stigma, not feeling needy
Numerous outreach efforts have been unsuccessful
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Bounties, door to door canvasing, intensive advertising,
direct contact from Social Security
Alternative of minimum Social Security benefit
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Cannot be targeted at needy
Outcomes: Social Security
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Social Security played an important role in
reducing poverty among the elderly
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Engelhardt and Gruber estimate it is responsible for
the entire decline
Indexation of benefits important for continued
success and for the difference in the recent
experience of elderly and non-elderly
Outcomes: SSI
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SSI also played an important role for low income
elderly
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26 states had OAA benefits below federal guarantee
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e.g. Mississippi at $75 (federal guarantee $140)
Median income of OAA recipients rose by 1/3 with
transition to SSI
And 2.8 million individuals became newly eligible.
Estimate of 20% reduction in poverty (2.5 percentage
points)
Estimate of 30%+ reduction in poverty gap
Still remain substantial problems
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Differences by race and ethnicity:
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Rate for elderly blacks fell from 62.5% in 1965
to 21.9% now
But rate for elderly whites now is 7.7%
Poverty rate for elderly Hispanics is 18%
Still remain substantial problems
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Differences by race and ethnicity:
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Rate for elderly blacks fell from 62.5% in 1965
to 21.9% now
But rate for elderly whites now is 7.7%
Poverty rate for elderly Hispanics is 18%
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Poverty rate for elderly women living alone:
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Fell from 63.3% in 1959 to 19.1% now
Large racial / ethnic differences. In 1999:
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Black women living alone 44%
Hispanic women living alone 58%
Changes in composition of income
Redistribution
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Progressive benefit schedule
Regressive tax structure
Other regressive components
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Transfers from short lived to long lived
Transfers from singles and dual earner couples
to one earner couples
Unmeasured Resources / Expenses
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Resources omitted from poverty calculations
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In-kind transfers:
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Medicare / Medicaid,
Food stamps, LIHEAP, Housing assistance
Value of Owner occupied homes
Assets have increased over time
Leisure time
Home production
Costs
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Medical expenses
Limitations regarding home production
Home ownership 2010 by age
Median net worth by age
Other Gains / Changes
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Living Arrangements
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Greater independence
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In 1940, 18% of elderly widows lived alone
In 1960, 36% lived alone (40% with children)
In 1990, 62% lived alone (20% with children)
Changes obscures improvements in poverty
Other Gains / Changes
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Living Arrangements
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Greater independence
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In 1940, 18% of elderly widows lived alone
In 1960, 36% lived alone (40% with children)
In 1990, 62% lived alone (20% with children)
Changes obscures improvements in poverty
Trend towards early retirement
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Feasible with Social Security increases
In 1960 lfpr men 65+ was 33.1 %
In 1990 lfpr men 65+ was 16.3 %
(Has risen since)
Labor Force Participation Men 65+
50
45
40
35
30
25
20
15
10
1950
1960
1970
1980
1990
2000
2010
Other Gains / Changes
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Living Arrangements
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Greater independence
Changes obscures improvements in poverty
Trend towards early retirement
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Feasible with Social Security increases
In 1960 lfpr men 65+ was 33.1 %
In 1990 lfpr men 65+ was 16.3 %
(Has risen since)
Life expectancy
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In 1960 life expectancy at 65 was 14.3 yrs
In 2007 life expectancy at was 18.6 yrs
Life expectancy at age 65
Future
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Shift to defined contribution (DC) pensions and
away from defined benefit plans
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Elderly will need to manage their resources
Exposure to risk in financial markets, fraud
Changes in Social Security and Medicare
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Likely declines in real value of benefits
Possibility of needing long term care
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Not covered by Medicare
Average $80,000+ per year
Fewer children
Future
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Policies to encourage savings through private
pension plans and survivor benefits
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Default options (Choi, Laibson, Madrian)
REACT, ERISA (survivor benefits)
Newer tax advantages savings plans
Health improvements allow for longer work life
and trend towards early retirement is reversing
CLASS Act and tax advantage LTC plans