Aging Well: Health, Wealth and Retirement
EXECUTIVE SUMMARY
A June 14th COSSA seminar, Aging Well: Health, Wealth and Retirement, brought research and data about our changing demographics to Capitol Hill. The event, attended by nearly 50 congressional and federal agency officials and others was held in the Rayburn House Office Building.
After a brief welcome by COSSA Executive Director Howard J. Silver, F. Thomas Juster, Professor in the Department of Economics at the University of Michigan, gave an overview of two major longitudinal studies of our aging population. Examining issues such as -- health, family structure, and retirement, the National Institute on Aging supports the Health and Retirement Survey (HRS) and the Asset and Health Dynamics Survey (AHEAD). They provide “an empirical database for a retirement aged cohort and older cohorts,” Juster said. The HRS sample included approximately 7,700 households; AHEAD slightly more than 6,000. HRS examines a group that starts about one generation prior to AHEAD. HRS will soon incorporate the first-wave of baby boomers.
Both studies include information on respondents’ job characteristics, economic status, physical and cognitive health, family transfers, and plans and expectations. In citing a few findings, Juster said there is a good sense of job security among those still in the work force. Yet most believed if they lost their job it was unlikely that they would obtain a new one. The pension data show that the greater pension benefits one has, the earlier you are likely to retire. Intergenerational transfers, Juster said, go from parents to children regardless of economic status. The data also indicate that the likelihood of transfers in this direction increase if you believe that your children are worse off than you were at that age.
Beth Soldo, Professor and Chair of the Demography Department at Georgetown University, discussed family structure and family transfers. Transfers, Soldo said, can be both formal and governmental from one generation to another, such as Social Security and Medicare, they can be informal across generations within a family, or they can be over a life cycle, such as saving for retirement over a number of years. The studies examined the intersection between public transfers and private efforts. According to the data, most elderly are sustained by and in the community. As time goes on, those in greater need receive more of their support from the public sector. Today’s elderly, the parents of the baby-boom, receive a relatively high level of family support. Soldo said that this will change when the baby-boomers become dependent upon the smaller generation that followed them.
Discussing “transfers in the currency of time,” Soldo said that the bulk of the care for frail elderly is provided by friends and family. Those without children are admitted to institutional settings far earlier than those with children. The HRS and AHEAD data reveal that Hispanics and African-Americans are far more generous with the relief they give their parents than whites, and the survey data suggest this could be attributed to those with higher incomes paying for provision of these services. Expanding on a point Juster had made, Soldo said that even with some level of disability and limited income, the elderly are twice as likely to be giving some aid to their children or to community or charitable groups as they are to be receiving financial transfers from theirchildren. Soldo discussed how competition exists within families from situations such as both spouses having parents in need of assistance, often at the same time as their children have college tuitions to pay. Families are “in every sense of the word caught in the middle,” she observed. Interestingly, she said, the data show that families find the resources needed by taking it out of their own consumption, rather than reducing the assistance they provide. The assistance provided is financed, in part, by reducing their own investments for their future.
Raynard Kington, who has both a Ph.D. in economics as well as a M.D, discussed data on the relationship between health and wealth. According to Kington, who is Senior Natural Scientist at RAND and Assistant Professor of Geriatric Medicine at UCLA, one of the most challenging aspects of studying this relationship is that it is complex and two-way. Some, he said believe that improved economic status provides access to health services and information, while others see the causation differently, with healthier people able to work more frequently and accruing fewer medical expenses. The advantage of the HRS and AHEAD data, he said, is “we will be able to understand the temporal sequence of changes.” Another benefit of the studies is that they measure wealth not income, a key distinction among the retired, Kington added.
Kington discussed survey results that look at several different measures of health. There are dramatic differences in household wealth between those who reported their health as excellent versus poor. This holds true both for couples and for those who report their health as improving. According to Kington, the studies show that this correlation exists over time. “Even after you control for income and a range of other factors related to health status, wealth seemed to have an independent relationship and sometimes, particularly in the older group, seemed to be more important than income.” The HRS and AHEAD data examined health as it relates to hours worked, including decisions to leave the workforce. The evidence, he said, “is consistent with the belief that in older populations, health has an effect on economic status. That relationship dominates the relationship of economic status to health.” Kington added that survey data also show that wealth made one less likely to engage in negative health habits, such as smoking and not exercising.
Olivia Mitchell, professor at the Wharton School, University of Pennsylvania, discussed trends in age of retirement and savings for retirement. Mitchell is the chair of a technical panel advising the Social Security Administration on these issues. She said that survey data show that the rate of private saving for retirement is quite low, and forecasts show that most people cannot sustain a several decade period of not working. Mitchell said that the modal age of applying for Social Security benefits is 62.5. The solvency of Social Security is threatened by projections of benefits far exceeding payroll taxes taken in, she said. One of the proposed solutions to this issue that Mitchell’s panel considered was raising the retirement age. According to Mitchell, fewer than 10 percent of those taking benefits early are in poor health, and on the whole those taking early benefits are similar to those postponing them for several years. One difference, however, is that the median wealth for early takers is $168,000 versus $152,000 for postponers.
A critical issue the technical panel examined was privatizing the Social Security system. One idea Mitchell cited was a “two-pillar system,” with one pillar having a guaranteed minimum retirement benefit, and the other pillar an individual contribution plan. Her panel is using a rangeof social science research, including HRS and AHEAD, to study this issue. She said that many baby-boomers are pessimistic about Social Security and believe that an individual account system would reduce the political risk. A number of economists, according to Mitchell, believe that if people were given the responsibility of investing their own money, they would become more financially literate. Mitchell said that the HRS is seeking to better understand people’s knowledge of financial facts, how their financial literacy relates to their financial decisions, and whether such an individual account would provide an adequate retirement income.
A lively discussion period followed, including comments on issues such as pension data, impact on the labor force of a later retirement age, and the size and scope of the role of grandparents in raising children.