Download PowerPoint Presentation - THE ECONOMICS OF AGING:

THE ECONOMICS OF AGING:
For Individuals
&
For Society
Impact of Financial Resources on
Individuals
• Can my values and preferences be realized?
• Can I maintain control over my life?
–
–
–
–
Which leisure activities to pursue
Travel?
How to maintain my diet?
How much preventive health care should I
seek?
– Etc, etc, etc
Retirees’ Income Sources: The
Three-legged Stool
• Social Security
• Private pensions
• Personal Savings/Assets
SOCIAL SECURITY
• Initiated in 1935--FDR
• Social Insurance Program:”in which the
population pools resources and collectively
shares the risks of growing economically
dependent through old age or disability”.
(Morgan & Kunkel, p. 313)
Who benefits most?
• Those who had higher earnings and larger
contributions while working
• Those who live the longest post-retirement
Social Security: The Program
•
•
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Benefits to ~45 million people, 62% retirees
Ave. retired worker benefit: $782/mo
22% of the total Fed budget
90% of all workers are in jobs that are
covered
• “…highly effective in reducing poverty
among the elderly”. (p. 315)
Social Security: The Debates
• The underlying social insurance premise-also adequacy and equity of benefits
• Using age as a basis for entitlement
• The funding mechanism(2)
• Constant “tinkering”
What about privatization?
• Advocates prefer the risk of the market to
the low returns of govt. bonds
• Critics: No protection for individ. Who
invest their money poorly or are conned.
Boomers: The Pig in the Python-What to do?
• Increase employees’ payroll deductions &
employers’ contributions
• Reduce benefits to retirees
• Obtain $ from other sources
• Raise the retirement age or encourage OA’s
to keep working
• Some combination of 1-4
PRIVATE PENSIONS
• Sponsored & partially paid for by
employers
• ~ $5 trillion invested in US
• Employee must be vested
• Rare in service occupations
• Available to ~ 50% of the population
• Concept emerged in late 1800’s
• Employee Retirement Income Security Act
of 1974--Controls:
– how funds must be collected & credited to the
employee
– how employees become vested
– how pension funds are managed
Defined benefit pension system
• Employer controlled
• Benefits guaranteed--formula based on:
– no. of yrs worked and/or
– salary
– E.G.--- Ohio’s STRS/PERS
Defined Contribution Pension
(IRA / 401K plan)
• Employer & employee both contribute
• Fund held by an independent financial
entity
• $ belong to the employee
• $ subject to stock & bond markets to
determine benefits
• Benefits amounts NOT guaranteed
SAVINGS & ASSETS
• Assets: Resources that can be converted
into money
– home equity
– cash savings
– stocks & bonds
• In-kind income:
– Non-cash benefits that contribute to
economic well-being by reducing necessary
expenditures. E.g.:
• Medicare
• Subsidized housing
• Food stamps
The Economics of Aging for
Society
• Concepts basic to understanding Population
Aging:
• FERTILITY
– “When fertility falls below the replacement
level of 2.1 births per woman, as it has in
Russia, Spain, Italy, Germany, China, Taiwan,
Korea, and many other countries…the
proportion of the elderly rises as population
growth rates fall.”(Population Reference
Bureau, p. 3)
• MORTALITY:
– “If long-term rates of improvement continue,
U.S. life expectance will rise from its current
77 years to 86 by 2075 , and to around 88 by
the end of the century.” (Pop. Ref. Bur. P. 4)
• DEPENDENCY RATIOS:
– “…reflect the general expectation that children
(< 18 y.o.) and older persons (> 64 y.o.) are
economically inactive while those in between
are economically active, creating the goods and
services that we all consume.” (Pop. Ref. Bur.,
p.4)
• Old Age Dependency Ratio-- # of persons
65 or older per 100 people ages 19 to 64)
– Currently 21 per 100
– By 2035: 36 per 100
– “…instead of there being nearly five persons of
working age for each older person, there will be
fewer than three.” (Pop. Ref. Bur., p.4)
Which Programs Will Aging
Affect?
• Fig. 2 “…illustrates how the aging of the
population is putting pressure on public
budgets.”…(federal, state, and local
combined). (Pop. Ref. Bur.)
• Fed’s programs most affected:
• SOCIAL SECURITY
• MEDICARE
• MEDICAID
Impact on: Social Security
• Between 1962 and 1999, Social Security
payments went from 2.5% of the gross
domestic product (GDP) to 4.5% of the
GDP.
• SS benefits provide more than 50% of
family income for 2 out of 3 older
Americans
• “The system is not in fiscal balance, and it
the low is not changed, the trust fund will
be exhausted at some point before midcentury.” (Pop. Ref. Bur, p. 6)
Impact on: Medicare
• “Medicare, created by amendments to the
Social Security Act of 1965, provides
insurance covering hospital bills (Part A)
and physician fees (Part B) for most
Americans age 65 and older.” (Pop. Ref.
Bur., p. 7)
• Medicare expenditures:
–
–
–
–
0.7% of GDP in 1970
2.4% of GDP in 1999
# of enrollees doubled
expenditures /enrollee quadrupled
• Projections for the Future:
– very difficult to make
– Medical costs may rise (medical technology)
OR
– Med costs my slow (population’s better health
& cost control via managed care)
Impact on: Medicaid
• The government health program for poor
people
• The largest source of payment for long-term
care the the disabled and older people
• 70% of nursing home residents are covered