living longer on less: the new economic (in)security of seniors

8/14/2019 Living Longer on Less: The New Economic (IN)Security of Seniors

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LIVING LONGER ON LESS

THE NEW ECONOMIC (IN)SECURITY OF SENIOINSTITUTE ON ASSETS

& SOCIAL POLICY

BYATHREAREPORT#4

TATJANA MESCHE

THOMAS M. SHAPI

JENNIFER WHEA


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Developed by:

The Institute on Assets and Social PolicyThe Heller School for Social Policy and Management

Brandeis University

in collaboration with:

Dmos: Ideas&Action

www.demos.org

Authors

Tatjana Meschede

Research Director, Institute on Assets and Social PolicyHeller School or Social Policy and Management

Brandeis University

Thomas M.Shapiro

Director, Institute on Assets and Social PolicyPokross Proessor o Law and Social PolicyHeller School or Social Policy and ManagementBrandeis University

Jennifer Wheary

Senior Fellow, Dmos

Acknowledgments

We like to thank a number o people who were instrumental in helping us create the Senior Economic Security Index. MarLiebowitz and Laura Sullivan helped conceptualize the index and provided valuable eedback on diferent report dras. Ware grateul to Virginia Reno, Phyllis Mutchler, and AARP researchers who reviewed the rst dra o the Index, and SariBhalotra and Walter Leutz who shared their eedback on the nal dra. Te authors would also like to thank the MacArthuFoundation or their current and uture support o our work on the Senior Economic Security Index.

Te multi-actor approach to measuring economic security applied in this report builds on previous work on middle claeconomic security published by IASP and Dmos.

Copyright

2009 Te Institute on Assets and Social Policy at Brandeis University 2009 Dmos: A Network or Ideas & Action


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INSTITUTE ON ASSETS

& SOCIAL POLICY

BYATHREAREPORT#4

TATJANA MESCHE

THOMAS M. SHAPI

JENNIFER WHEA


4/28

About the Institute on Assets and Social Policy

Te Institute on Assets and Social Policy (IASP), a research institute at the Heller School or Social Policy and Manage-ment at Brandeis University, is dedicated to the economic well-being and social mobility o individuals and amilies, par-ticularly those traditionally le out o the economic mainstream. Working in close partnership with state and ederal policymakers, constituencies, grassroots advocates, private philanthropies, and the media, IASP bridges the worlds o academicresearch, government policy-making, and the interests o organizations and constituencies. IASP works to strengthen the

leadership o policy makers, practitioners, and others by linking the intellectual and program components o asset-buildingpolicies.

Tomas M. Shapiro, Director

atjana Meschede, Research Director

About Dmos

Dmos is a non-partisan public policy research and advocacy organization. Headquartered in New York City, Dmos workswith advocates and policymakers around the country in pursuit o our overarching goals: a more equitable economy; avibrant and inclusive democracy; an empowered public sector that works or the common good; and responsible U.S. engagement in an interdependent world.

Te Economic Opportunity Program addresses the economic insecurity and inequality that characterize American soci-ety today. Te program ofers resh analysis and bold policy ideas to provide new opportunities or low-income individualsyoung adults and nancially-strapped amilies to achieve economic security.

Dmos was ounded in 2000.

Miles S. Rapoport, Presidentamara Draut, Vice President or Policy and Programs, Director o the Economic Opportunity Program

INSTITUTE ONASSETS&SOCIAL POLICY


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able of Contents

EXECUTIVE SUMMARY 1

Sources of Economic Risk 2

Policies to Rebuild the Foundation of Senior Economic Security 3

INTRODUCTION 5

MEASURING SENIOR ECONOMIC SECURITY 7

Housing Security and Risk for Older Americans 9

Health Security and Risk for Older Americans 9

Budget Security and Risk for Older Americans 9

Homeownership and Home Equity of Older Americans 10

Asset Security and Risk for Older Americans 10

Senior Economic Security and Risk 11

SOURCES OF ECONOMIC SECURITY AND RISK 12

POLICIES TO STRENGTHEN THE FOUNDATION OF SENIOR ECONOMIC SECURITY 15

Strengthen Social Security 15

Strengthen Pension Provisions 15

Enhance Asset Building Opportunities throughout the Life Course 16

Flexible Employment During Retirement 16

Address the Medicare Crisis 16

Institute LongTerm Care Insurance 17

CONCLUSIONS 17

ENDNOTES 18


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THE NEW ECONOMIC (IN)SECURITY OF SENIO

Executive Summary

A just society treats seniors with dignity, respecting their purpose, independence, and contributions.Promoting lielong sustainable well-being or seniors benets all citizens and strengthens the nation.Tis report examines the long-term economic security o seniors, depicts current trends and suggestspolicies promoting the enduring well-being o seniors.

Security or seniors was built on the three-legged stool o retirement (Social Security, pensions, andsavings) at the core o the social contract that rewards a lietime o productivity. Economic securityo seniors, however, is being challenged by two simultaneously occurring trends: a weakening o thethree legs o retirement security income and dramatically increasing expenses, such as or healthcareand housing. Tese undamental changes in the lives o older Americans make it not only more di-cult or seniors to enter retirement with economic security but also to remain economically securethroughout retirement.

In light o these altering conditions, this report assesses how the social contract is holding up into

the wenty-First Century. Using national data1

or seniors age 65 or above, we created the SeniorEconomic Security Index (SESI) to measure the long-term economic security o senior householdsthroughout their retirement years. Te undamental components that rame economic stability orolder Americans in the SESI are Housing Costs, Healthcare Expenses, Household Budget, HomeEquity, and Household Assets. Tese actors are critical because:

Research documents that the largest living expenses or older Americans are housing andhealth expenses.

Household budgets measure the capacity o senior households or meeting annual essen-tial expenses.

Research points to home equity as the largest source o wealth or all US citizens and inparticular or older Americans.

Financial household assets establish long-term stability.

Te Senior Economic Security Index nds that 78 percent o all senior households are fnanciallyvulnerable. Tat is, close to our o ve senior households do not have su cient economic security tosustain them through their lives. Tis risk is especially pronounced or single senior householdswith84 percent among them acing nancial insecurity.

Te data used in this report do not reect the housing and stock market meltdowns and economicrecession o 2008. Tis changing economic environment accentuates the challenges acing seniors

today and highlights the importance o a comprehensive assessment o security. Te SESI provides abenchmark o the economic lie prospects o older Americans and underscores areas o strength andvulnerability that public policy can address.


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2

SOURCES OF ECONOMIC RISK

More than hal o all seniorhouseholds (54 percent) donot have su cient nancialresources to meet medianprojected expenses basedon their current nancialnet worth, projected SocialSecurity, and pension in-comes.

Single seniors ace an evenmore troublesome situation.Fiy-seven percent amongthem are at risk o nancialcrisis based on their project-

ed assets. Forty-nine percento senior couples ace thesame risk.

Only one third o seniors(31 percent) have householdbudgets that allow or addi-tional savings or larger andunoreseen expenses, andanother third have no addi-tional unds aer paying oressential expenses.

Paying out-o-pocket healthexpenses, including costs oradditional insurance coverage, is burdensome or our out o ten senior households. Withincreased healthcare needs associated with older age, as well as cuts in medical provisions,these expenses will eat up an increasingly larger share o xed budgets in senior house-holds in the uture.

High housing costs put orty-ve percent o all seniors budgets at risk. Single seniors aceeven more pronounced challenges with more than hal (55 percent) at risk with respect totheir monthly housing expenses.

Overall, more than hal o all senior households are secure with respect to home equity dueto the large number o homeowners among them, especially among senior couples. Singleseniors are much more vulnerable in this area with three out o ten either not owning theirhome or holding a low amount o home equity.

FIVE FACTORS OF THE SENIOR ECONOMIC SECURITY INDEX

(SEE ALSO TABLE 1 ON PAGE 8):

Housing Costs : Households with housing expenses ex-ceeding 30 percent o household income are economi-cally at risk, and those who spend 20 percent or less aresecure.

Healthcare Expenses : Households who spend 15 percentor more or healthcare are economically at risk, and thosewho spend 10 percent or less are secure.

Household Budgets: Budgets that are negative aer ex-penditures or essential expenses pose a risk to economicsecurity, and households with annual additional unds o$10,000 or more, aer essential expenses, are secure.

Home Equity: Households who rent their home, andthereore do not have any home equity, are at risk, and

households with home equity o $75,000 or more, areeconomically secure.

Household Assets: Project the amount o resources basedon the three legs o retirement security income over theexpected liespan or each household and deduct romit estimated median expenses over the lie course. Assetrisk is evident when this amount is negative, and assetsecurity is set at $50,000 or single seniors, and $75,000or couples.

SESI: Asset security (or risk) plus security (or risk) on at least two

additional factors.


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Te current generation o Americans age 65 or older is better prepared or retirement than subsequentgenerations will be, primarily due to declining employer-based retirement savings and rising debt oyounger amilies. Even with current trends that include dramatic cuts in dened benet pension pro-visions, persistent increases in healthcare costs, increasing debt or seniors, the current housing crisis,and sharp declines in the stock market, todays senior citizens represent a best case scenario o senioreconomic security or the oreseeable uture.

Our recommendations thereore ocus on policies that impact households at diferent lie stages intheir retirement planning. Tus, while we report on the economic security status o older Americans,this work helps to identiy retirement-related vulnerabilities or younger amilies and policy interven-tions designed to ensure their economic security in retirement.

POLICIES TO REBUILD THE FOUNDATION OF SENIOR ECONOMIC SECURITY

In order to rebuild the oundations o the social contract that promotes retirement security, policyapproaches need to ocus on income provisions and expense controls or seniors. Our policy recom-

mendations on the income side o senior economic security include:

Strengthen Social Security, especially or vulnerable groups. Not only does Social Security need to remain a secure source o nancial support or all retirees, it should be strength-ened or beneciaries, particularly to ensure that those with lietime employment in lowwage work receive economically sustainable benets. Strengthening the special minimumbenet to assure above poverty benet levels is one example o a rst step to achieve thisgoal.

Strengthen Pension Provisions. With increasingly reduced worker access to pension plansand a marked shi rom dened benet to dened contribution plans, this leg o retire-ment security no longer holds its weight. Pension provisions need to be rebuilt by provid-ing incentives or employer-based access to pensions and government interventions thatsecure the stability o existing pension benets.

Expand Asset Building Opportunities for all Households Troughout the Life Course,including access to, and automatic enrollment in, dened contribution pension plans, -nancial education, adequate income opportunities, matched savings accounts or thosewith lower incomes, and protection o assets (mostly housing wealth).

Provide Employment Flexibility or seniors who desire and are able to remain in the work orce. Examples include extime and bundled work days; amount o time spent working,including job-sharing options; and career exibility with various points o entry, exit, re-

entry over a working career. When, where, and how to work, as well as what to receive orworking are key to exible work arrangements providing a better institutional t or olderworkers and their continued productive employment.


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Policy recommendations addressing the expense side o retirement security encompass:

Address the Medicare Crisis as part o the larger national healthcare crisis. Healthcarecosts, especially Medicare expenses, consume a prominent and growing proportion o thenational budget. Te need or building a more cost efective and equitable healthcare sys-tem can no longer be ignored. Without attention to healthcare access and afordability,

progress in all other areas o retirement security will be negated.

Institute a Universal Long-erm Care Public Insurance Program to protect against thecost o long-term care, as done in other countries, to mitigate economic risks associated

with ill-health and long-term care needs.

Future retirees will be worse of, unless we attend to policies that grow and stabilize their resourcesor the uture, and attend to the rising costs or seniors. Policymakers have an opportunity to rea rmtheir commitment to ensure that elders have the resources to live without ear o poverty. Building onpast commitments to our elders, we must strive to construct a new retirement security system o thewenty-First Century that meets the needs o our diverse and aging population.


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Introduction

Te social contract or seniors in the wentieth Century was based on the assumption that years owork should be rewarded with a retirement characterized by economic security. With the incorpo-ration o Social Security, and newer programs such as Medicare, our society has continuously seenthe contract grow and adapt to changing times. Promoting lielong sustainable well-being or seniorsbenets not only them but is a broader amily policy or all citizens, thus strengthening the nationsstability. Tis report examines the long-term economic security o older Americans, depicts currenttrends, and suggests policies promoting long-term senior well-being.

Te traditional conception o senior economic security builds on income support rom three comple-mentary sources: Social Security, pensions, and savings. Oen reerred to as the three-legged stool oretirement security, seniors have relied on income rom these three sources as part o the social con-tract that rewards a lietime o productivity with security, dignity, and respect in older age.

Economic security o seniors is being challenged by two simultaneously occurring trends: a weakening

o the three legs o retirement security and dramatically increasing expenses, such as or healthcareand housing. Tese undamental changes in the lives o older Americans make it more di cult or se-niors to enter retirement with economic security as well as to remain economically secure throughoutretirement.

Seniors are living longer than ever beore, an average o 18 years aer they reach age 65. Tis meansthat they need su cient income and assets to meet essential needs, to be able to spend a modestamount above essential expenses, to manage unexpected costs such as healthcare expenditures orlong-term care expenses, and to pass anything along to help children or grandchildren get a goodstart in lie. Tese shiing realities also mean that many opt or working longer, i they have the op-portunity to do so.

At a time when the economic resources o seniors must last more years, there is a dramatic shi inemployer-provided pensions. Employer-based retirement coverage is declining, as employers continueto cut back costs among those who have employer-based pensions.2 Even when private pensions areavailable to workers, they are increasingly less secure with the ongoing shi rom dened-benet todened-contribution pensions. Te current economic crisis clearly reveals the vulnerability o pen-sions.

In 1980, among private employees with pensions, the vast majority (83 percent) had dened-benetpensions, which provide a guaranteed monthly income to retirees upon retirement. Workers withdened-contribution plans, however, have no such guarantee since the value o their retirement ac-counts may uctuate due to changes in the value o their investments. By 2004, 89 percent o privateworkers with pensions had dened-contribution plans, while just 39 percent o workers had dened

benet plans.3

With the decline o guaranteed pension incomes or older Americans, more and more ace economicuncertainty during their retirement years. Many employers are also cutting back on health benetsor retirees either by cutting them entirely, reducing covered benets, shiing health insurance coststo current employees and retirees, or increasing out o pocket medical expenses. Te proportion ocompanies who ofer health coverage or retirees has declined rom 66 percent in 1988 to 33 percentin 2007.4


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Te retirement and health systems that older Americans rely on, Social Security and Medicare, arebecoming stretched by expanding numbers o beneciaries. As baby boomers retire, there will beewer workers paying Social Security taxes to support a growing number o retirees eligible or ben-ets. Medicare costs continue to rise much aster than ination, the result o rapidly rising overallhealthcare costs. Because todays retired workers, particularly blue collar workers, are more likely tohave healthcare coverage and pension income under an employer-based retirement plan, the current

generation o retirees is in a very real sense the best prepared generation or retirement that we will seeor decades to come.

Subsequent generations will ace even more severe challenges. From this perspective, this study o theeconomic security o seniors in 2004 paints a highly optimistic picture o the economic prospects thatworkers who are not yet 65 will ace when they retirei current trends in pensions and health cover-age are not reversed.

Te impact o the current housing crisis which has reduced the asset holdings o many households,and thereby reduced the largest asset o most retired households, will be seen many years down theroad. An indication o the impending crisis is that the number o older Americans who are ling orbankruptcy has now reached record levels.5 Te 2008 recession bodes a more uncertain uture.

Tis report examines the economic security o senior households with members age 65 and above.While Social Security and Medicare have been successul in reducing abject poverty among seniors byproviding a stable minimal source o income and health coverage or almost all people 65 and older,signicant pockets o economic insecurity persist or many older Americans.

Tese economic challenges are immediately in ront o the nation. Within the context o Social Secu-rity, Medicare, and the U.S. economy, this report provides evidence in three key areas:

Description o the economic status o older Americans: Are senior households able tomaintain economic well-being above the income poverty line to ensure long-term eco-

nomic security; and how many are holding on by a thread, having di culty even meetingessential needs?

Analysis: Why are some seniors economically secure while others are vulnerable and liv-ing by a thread?

Policies: Are there areas that can be strengthened through public policies to ensure theeconomic security o seniors?

SUBSEQUENT GENERATIONSWILL FAC

E

EVEN MORE SEVERE

CHALLENGES...IF

CURRENTTRENDS IN

PENSIONS AND

HEALTHCOVERAGEAR

ENOTREVERSED.


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Measuring Senior Economic Security

Te Senior Economic Security Index (SESI) measures the economic capacity o older Americans overtheir lietime. Tis approach difers rom previous methods o measuring senior economic security.raditionally senior economic security has been measured in relation to the prevailing ederal pov-erty line. Te poverty line is a snapshot in time that gauges the capacity or annual income to providebasics needed or minimal well-being. Te lie course approach o the SESI moves the discussion to amore policy-relevant conversation about the capacity o older Americans to sustain an adequate levelo economic well-being throughout every stage o their lie.

SESI ofers a ramework to assess the strengths and vulnerabilities o economic security among olderAmericansand, importantly, helps to identiy policy areas to strengthen well-being. In developingthis concept, we identied essential actors or economic security and well-being, and set common-sense and research-tested thresholds while creating an index anchored to a single, easily understoodand interpreted metric.6

Te traditional view o retirement security ocuses on three complementary income sources to coverliving costs during retirement. Tese are Social Security, pensions, and savings.

Te SESI examines these resources but widens its lens to encompass other actors afecting economicstability and vulnerability:7Housing Costs, Healthcare Expenses, Household Budgets, Home Equity,and Household Assets.

Tese ve actors were selected or the ollowing reasons:

A body o research documents that largest living expenses or older Americans are housingand health expenses.

Household budgets are important because they measure the capacity o senior householdsto meet annual essential expenses.

Research points to home equity as the largest source o wealth or all U.S. citizens and inparticular or older Americans.

Financial assets establish long-term stability.

Our understanding o senior economic stability has come a long way. Previous eforts to examinesenior economic security have ocused on the sel-su ciency capacities o older Americans or shortperiods, typically regionally determined living expenses or one year. Te Elder Economic SecurityStandard8 provides a benchmark or the capacity o seniors to meet a realistic level o basic expenses.Te National Retirement Risk Index uses replacement rates comparing pre and post retirement con-sumption to assess whether assets and savings would support proportionate consumption levels dur-ing retirement.9

Te SESI extends this line o research by delivering a policy-relevant marker with signicant implica-tions or revitalizing Americas social contract. By building nancial assets and housing wealth into alonger-term, economic security calculation, SESI provides a benchmark o the lie prospects o olderAmericans that underscores areas o strength and vulnerability that public policy can address.


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Te Senior Economic Security Index (SESI)

Te ve components that comprise the Senior Economic Security Index (SESI) include measures orhousing, health security, amily budgets, home ownership and equity, and asset security. We used the2004 Consumer Expenditure Survey to build this Index.10Te Consumer Expenditure Survey con-tains detailed inormation on household budgets as well as income and assets and other critical ele-ments comprising the SESI. In the analyses we include households in which all members are age 65 orolder, excluding single seniors that live in multi-generational households. Te data also do not containinormation o elders in long-term care institutions.11

Below we outline the rationale or each o the actors measured by the SESI on a spectrum rom eco-nomic security to risk.

TABLE 1: ECONOMICSECURITYANDRISKTHRESHOLDSFOR EACH FACTOR

Factor Standard for Senior EconomicSecurity

Risk to Senior Economic Security

Housing Housing consumes 20 percent or LESS oincome

Housing consumes 30 percent or MOREo income

Health Medical expenses, including supplemen-tal health insurance, LESS HAN 10 per-cent o total beore tax income

Medical expenses, including supplemen-tal health insurance, 15 percent or MOREo total beore tax income

Budget $10,000 or MORE aer annual essentialexpenses

Risk when budget at zero or negative aeressential expenses

Home Equity Home equity o $75,000 or above Renter/no home equity

Assets Net nancial assets plus Social Securi-ty/pension income MINUS median ex-penses over lie expectancy GREAERor EQUAL to $50,000 or single seniors,$75,000 or senior couples.

Net nancial assets plus Social Security/pension income MINUS median expens-es over lie expectancy EQUAL to zero orless.

SESI Asset secure PLUS security in at leasttwo12 other factors

Asset fragile PLUS fragility in at leasttwo other factors


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HOUSING SECURITY AND RISK FOR OLDER AMERICANS

Housing costs are the largest expense, not only o seniors but or all U.S. households. Te Departmento Housing and Urban Development (HUD) has set guidelines that declare housing expenses at 30percent or more o income as a nancial burden. We adopt this standard or senior households. Seniorhouseholds spending 30 or more percent o their total income on housing are at increased economicrisk, as dened in the SESI, whereas senior households spending 20 or less percent o their income onhousing are housing secure.

HEALTH SECURITY AND RISK FOR OLDER AMERICANS

Rising medical expenses, chronic conditions that need medical attention, and anxiety regardingunoreseen medical issues are challenges or most senior households. Indeed, healthcare needs andhealthcare costs rise considerably or older Americans. Te SESI health actor measures out-o-pocketmedical expenses in relation to income. Although ormally insured through Medicare, more and morehealthcare needs and expenses that used to be covered now all onto private amily budgets. Tese out-o-pocket medical expenses include expenditures or supplemental health insurance, medical servicesand supplies, and prescription drugs.

For the purpose o the SESI, a senior household is considered secure when the household spends lessthan 10 percent o its income on medical costs, the threshold used or assessing underinsurance inprior research.13 By contrast, median health expenses or working age amilies amount to two to ourpercent o amily income. A senior household is at risk when the households medical expense-to-in-come ratio is 15 percent or higher.14

BUDGET SECURITY AND RISK FOR OLDER AMERICANS

Most seniors rely on xed incomes. As a result, their budgets have a smaller cushion than manyyounger households. In the SESI, we calculate the households total income and deduct its essential ex-penses, which include expenditures or housing, ood, clothing, transportation, healthcare, personalcare, education, and personal insurance.

We assess a senior households annual budget as secure when it has a cushion o $10,000 aer essen-tial expenditures. A cushion o $10,000 provides a basis or common but non-essential expenses, andsavings to meet unexpected expenses. Such unexpected expenses might include home repair, newappliances, car repair, and higher out-o-pocket essential expenses such as medical costs in case oillness, or large increases in the price o necessities such as heating uel, gas, or medicine. Te marker

or budget security thus is a scant $833 per month or a quality o lie beyond basic necessities and aminimal saety net. A senior household is clearly at risk when it spends more than comes in, leavingthe household with no additional resources to cover expenses that are not essential.


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0

HOMEOWNERSHIP AND HOME EQUITY OF OLDER AMERICANS

Homeownership provides a backbone o economic security or older Americans, both or those whoown their home with a mortgage and those who have paid of their mortgage. ypically, homeowner-ship allows or stable and relatively xed costs, as well as a potential source o equity. Especially i thehome was purchased a long time ago and/or i the mortgage is paid of, housing costs may have beenlocked in at comparatively low rates.

Owning a home by itsel does not provide more economic security. Equally important is the amounto home equity senior households hold as home equity is the largest asset or most senior households.It is the asset that many plan to use or assisted living or nursing home expenses. At age 65, a personhas a 25 percent chance o entering a nursing home. At age 85, the majority o older Americans havelong-term care needs. In 2005, the average annual cost o a private room in a nursing home was over$74,000ranging rom a low o $42,000 to a high o $194,00015. Average monthly assisted living ex-penses are estimated to range rom $2,100-$2,900 (not including application ees) with a large rangeamong the diferent types o such communities.

Based on this inormation, we set the security threshold or the home equity actor at $75,000 whichwould provide or just over two years in an average priced assisted living community or one year ata nursing home. Senior households are at risk on this actor i they do not own a home and thereorehave no home equity. Tis is a conservative approach to setting economic security as most seniorsrequire more than one or two years o long-term care.

ASSET SECURITY AND RISK FOR OLDER AMERICANS

Do older Americans have su cient nancial assets to support a moderate liestyle during their re-maining years o lie (as projected by actuarial estimates)? Our asset calculation includes all nancial

assets such as savings, stocks, bonds and equity in real estate other than ones own home. In additionto these nancial assets, we include the projected income or Social Security, pension and other retire-ment income over the expected lie span or each household (or couples based on the age o the heado household). Home equity is not included in the asset measure because homeownership and homeequity are a separate actor o the index. Further, we do not want to incorporate an assumption thatamilies must sell their homes to provide or essential living expenses.

We used median total expenses or single seniors and senior couples as the measure o what seniorsneed to support themselves over their remaining years, thus dening a basic standard o living acrossincome groups.16 Aer deducting the total sum o median expense estimates or all o the projectedremaining years o lie rom each households asset estimates, we set the thresholds or asset securityand risk as ollows. Asset security or senior households requires $50,000 or individuals and $75,00017

or couples or long-range economic security. Equivalent to about three years o expenses or thesehouseholds, these amounts could cover more than three years o median total expenses above andbeyond their actuarial lie expectancy. Tis represents a crucial economic bufer given that, by deni-tion, hal o seniors will live beyond average lie expectancy. A senior household thereore is worse ofwhen there are no su cient assets to cover the actuarial lie span.


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SENIOR ECONOMIC SECURITY AND RISK

Overall economic security is established when a senior household is assessed as asset secure in additionto security in at least two o the other our actors. Asset security captures the three income legs otraditional retirement security, thus providing the oundation o economic stability or seniors. Ac-cordingly, overall economic risk to senior households is established when these households are at riskbased on the asset actor in addition to at risk status in at least two additional actors.

HOW SECURE ARE SENIORS?

According to the SESI, only 22 percent o seniors meet the criteria or long-range economic security.More than one in our, or 29 percent, o all seniors are at risk and vulnerable.

Te story or senior couples is better31 percent are secure and 20 percent are at risk. For single se-niors, the Index demonstrates less security and more riskonly 16 percent among them are securewhile 36 percent o all single seniors are vulnerable and at risk o inadequate resources to sustain theirolder age lie cycle.

FIGURE 1:OVERALL ECONOMICSECURITYANDFRAGILITYOFSENIORS

SingleSeniors

SeniorCouples

All

Seniors 22% 29%

78%

84%

31% 20%

16% 36%

Secure Not Secure/Not At Risk

At Risk


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Put in a larger perspective, the SESI shows that 78 percent o seniors are not economically secure; thatis, they are economically at risk or borderline (not secure and not at risk). Tis means that i presentconditions continue, close to our out o ve senior households do not have economic security su-cient to sustain them through their lives. Tis risk is especially pronounced or single senior house-holds with 84 percent among them not reaching an adequate level o nancial security. For seniorcouples, this rate is at 69 percent.

Te SESI thus pinpoints not only areas o vulnerability, but provides a uller picture o economic se-curity among senior citizens. Te power o examining the long horizon o the later part o ones liecourse is illustrated by a comparison with the traditional, income-based poverty line.

According to o cial government data, 13 percent o olderAmericans live in povertySESI demonstrates how the tra-ditional poverty line vastly underestimates the lie prospectso seniors as 29 percent are presently at risk as dened bythe more comprehensive actors in the SESI. In addition, an-other 49 percent are just getting by on a slender thread wherean unoreseen crisis puts them at risk.

Sources of Economic Security and Risk

O the ve actors that comprise the Senior Economic Security Index, not surprisingly the asset orwealth factor poses the greatest riskor most seniors. Tis actor annuitizes current Social Securityand pension incomes18 and adds current assets such as savings, property values (excluding ones ownhome), and investments. Such privately held assets are less important when Social Security and pen-sions provide adequate benet levels or seniors and protections or long-term care expenses have beeninstituted. In act, secure incomes o Social Security and dened-benet pensions provide among thesecurest o economic resources given the volatility o other assets as has been demonstrated so clearlyin the markets volatile markets o 2008. However, with more and more emphasis put on private sav-ings, including 401(k) plans, assets have become increasingly more vital to ll the gap between SocialSecurity income and living expenses.

With an average lie expectancy o 83 years at age 65, seniors need net nancial assets, secure incomesuch as Social Security, and/or home equity to provide economic security or 18 years, despite otherincome losses or increasing expenses. Absent o employment income, ew seniors have total assets thatcan provide security or even a much smaller number o years.

More than hal o all senior households (54 percent) are at risk o not having su cient nancial re-

sources to ace median projected expenses based on their nancial net worth and projected SocialSecurity and pension incomes. Only 30 percent o senior household are secure with respect to theirnancial net worth, Social Security and pension assets, the three traditional legs o senior economicsecurity, as captured by the asset risk actor.

Overall, close to one third o seniors (31 percent) have budgets that allow or an additionalcushion o savings or larger and unoreseen expenses. Another one-third have no addi-tional unds aer paying or essential expenses.

IFPRESENTCO

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CLOSETOFOUR

OUTOFFIVESE

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HOUSEHOLDS D

O NOTHAVE E

CO-

NOMICSECURITY

SUFFICIENTTOS

US-

TAINTHEM

THROUGHTHEIR

LIVES.


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Despite surprisingly high homeownership rates well above rates o younger amilies (71percent or single seniors, 93 percent or couples), housing-related expenses are high. For-ty-ve percent o all seniors are economically at risk based on their housing expenses.

Four out o ten senior households are at risk based on their current health expenses. Withincreased age, these expenses tend to increase as well, demonstrating that all households

should expect costs to increase with age. Also, given the overall rising health costs in theU.S. system, healthcare premiums are rising disproportionately to income or seniors re-lying on xed incomes, posing an even larger burden or senior economic security in theuture.

Home equity is the largest asset o seniors. Approximately hal o all seniors have medianhome equity worth $90,000 or more (pre-2008 housing values). Close to three in ve o allsenior households (57 percent) are secure with respect to home equity, and one in ve is atrisk.

FIGURE 2:SOURCESOF ECONOMICSECURITYANDRISK

Assets

Housing

Health

Budget

Home Equity 57% 21%

33%

41%

45%

54%

31%

40%

34%

30%

Secure Not Secure/NotAt Risk

At Risk

Greater economic hardship alls on single seniors. Single seniors are or the most part older (close to40 percent age 80 or older) and more likely to be emale (73 percent). Tis group also includes a higher

proportion o Arican Americans and tends to have lower educational attainment.

Among the ve SESI actors, asset and housing or single seniors are especially troublesome. Fiy-eight percent o single seniors are at risk based on their assets, and 55 percent are at risk based on theirhousing expenses.

Te budget actor yields the greatest security and risk gap between single and couple senior households.Only 19 percent o single seniors are budget secure as compared to 46 percent o senior couples.


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4

As single seniors tend to be older, this points to the economic risk o older seniors, who are oenwomen because women generally live longer than men. Subsequent analyses will ocus on long-termeconomic security o older Arican-American and Latino senior households as well as older seniors.We already know this will be critically important as 93 percent o older Arican-American householdsand 91 percent o older Latino households are not economically secure as captured by the overall SESImeasure.

FIGURE 3: ECONOMICSECURITYOFAFRICAN-AMERICANAND LATINOSENIORHOUSEHOLDS

Not Secure

0%

20%

40%

60%

80%

100%

Latin

oSenior

Hous

ehold

s

Afric

an-Ame

rican

enior

Hous

ehold

sAll

Senio

r

Hous

ehold

s

91%93%

78%

Tese compelling statistics reect the realities o many seniors and demonstrate the roots o eco-nomic security and ragilitya undamental mismatch between income and costs o essential andother day-to-day expenses. Put simply, many seniors have too little income and ace costs that aretoo high and rising.

FIGURE 4:SOURCESOF ECONOMICSECURITYANDRISKFORSINGLE SENIORS

Assets

Housing

Health

Budget

Home Equity 45% 31%

38%

42%

55%

58%

19%

41%

24%

25%

Secure Not Secure/Not At Risk

At Risk

AFRICAN-AMERICAN,

LATINO,

AND SINGLE FEMALE

SENIOR

HOUSEHOLDS ARE LEAST SE-

CUREANDMOSTATR

ISK.


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Policies to Strengthen the Foundation of Senior EconomicSecurity

Many countries are undergoing demographic changes that are characterized by an increase in the

proportion o older citizens. Unlike the years beore the implementation o Social Security and Medi-care in the United States, older U.S. citizens now have independent income sources and health insur-ance coverage, and thereore much more participation in public lie. Te uncertainties o older lie aremitigated by the risk-sharing policies o our social insurance programs that address unexpected liecircumstances. One o the key advantages o Social Security and Medicare is the large risk pool (mosteveryone over 65) that no private plan can replicate.

Unable to keep pace with the trends described in this report, the brittle three-legged stool currentlyundermines senior economic security, and we need to rebuild the social contract or our current anduture senior citizens. Our policy recommendations address a combination o income- and expense-related policies that together can reduce the economic risk or all seniors.

STRENGTHEN SOCIAL SECURITY

Social Security, which signicantly reduced poverty among seniors when it was implemented, is theonly strong (certain and ination-adjusted) leg o the three-legged stool. It thereore continues to playa vital role in supporting the economic well-being o many older households.

Tirty-six percent o senior singles and 17 percent o senior couples rely solely on income rom SocialSecurity.19 Social Security provides at least three-quarters o income or low-income and poor elderlywho have ew other resources.20 With Social Security as the only widely available income source that isguaranteed and adjusted or ination, it needs to be strengthened and not urther weakened by replac-

ing it with private accounts that avor the more a uent.

In addition, Social Security benet levels need to be adjusted to provide more adequate income or low-earning beneciaries. For example, strengthening the special minimum benet which was institutedin 1972 to ensure, at a minimum, poverty level Social Security income or low-wage workers but nolonger provides benets at this level, would be a rst step to reducing economic risk or our elders. Inaddition, benets could be strengthened by reviewing interactions between programs targeting low-income seniors, and increasing asset limits in means-tested programs to allow or reasonable amountso savings or unexpected nancial costs and emergencies.21

STRENGTHEN PENSION PROVISIONS

With ewer and ewer workers having access to pension plans and a marked shi rom dened-benetto dened-contribution plans, the employer-pension leg o retirement security no longer holds itsweight. Pension provisions need to be rebuilt by providing incentives or employer-based access topensions. Policymakers should keep in mind that longer range economic security is better anchoredby dened-benet provisions which provide guaranteed benets or the rest o the beneciarys lieand do not require that the retiree stretch what has been saved in a 401(k) plan over an unknown pe-riod o time. Government interventions are also needed to secure the stability o existing pensions toensure the stability o employer and employee investments.


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ENHANCE ASSET BUILDING OPPORTUNITIES THROUGHOUT THE LIFE COURSE

Policies or seniors are in essence amily policies. Most o us will be among the older population oneday. Tereore, enhancements o asset building opportunities that support household asset-buildingand nancial management across the lie course are critical. Tese asset building opportunities shouldinclude:

Access to and automatic enrollment in dened-contribution pension plans or all;

Education on nancial management throughout the lie course as well as specically orseniors;

Adequate income opportunities;

Matched savings accounts or IDAs that permit long-term savings or low-income popula-tions; and

Asset protection, mostly as it relates to housing wealth.

FLEXIBLE EMPLOYMENT DURING RETIREMENT

With increased lie expectancies and economic insecurity in older age, more and more seniors opt towork during their early retirement years.22 Institutional and structural gaps interere with the desireo many older workers to continue work but not necessarily ull-time.

Flexible work arrangements ofer older workers choices that are perhaps more appropriate to theirdesires, stage in the lie course, and productivity or employers. Such arrangements might include

scheduling exibility, including extime and bundled work days; amount o time spent working, in-cluding job-sharing options; and career exibility with various points o entry, exit, and re-entry overa working career.

When to work, where to work, how to work, and what to receive or working are key to exible workarrangements providing a better institutional t or older workers and continued productive employ-ment. Indeed, one study indicates that one in our older workers continue to work because their em-ployer provided exible work options.23

ADDRESS THE MEDICARE CRISIS

Without attention to healthcare access and afordability, progress in all other areas o retirement secu-rity will be negated. Seniors are especially anxious about health risks and the volatility o healthcarecosts. Te U.S. healthcare system is one o the most expensive healthcare systems in the world, ironi-cally achieving health outcomes that are oen no better, and sometimes worse, than those in othercountries. Like all healthcare costs, Medicare costs have risen and continue to rise disproportionatelyto other expenses. As such, Medicare reorm needs to be addressed in the context o a reorganizationo the overall healthcare system. Te system needs to be restructured in order to curb current escalat-ing costs and to provide health services to all citizens.


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INSTITUTE LONG-TERM CARE INSURANCE

One o the major economic security threats to each U.S. citizen is the need or long-term care. Currentpolicies require spending down assets in order to qualiy or Medicaid, the only public program thatprovides coverage or such expenses in many cases. Private long-term care insurance programs areunafordable or most. Federal long-term care insurance would spread the risk o needing long-termcare among all U.S. citizens. A proposal put orward by Senators Kennedy and Harkin, the Commu-nity Living Assistance Services and Supports (CLASS) Act o 2007, addresses the need or a ederallong-term care insurance program or all citizens.

Conclusions

Even though todays seniors present a best-case scenario, they ace a bleak outlook based on the datapresented here. Future retirees will be worse of, unless we attend to policies that grow and stabilizetheir resources or the uture, while attending to the rising costs or seniors. Policymakers have anopportunity to rea rm their commitment to ensure that elders have the resources to live withoutear o poverty or economic insecurity. Building on past commitments to our elders, we must strive toconstruct a new retirement security system o the wenty-First Century that meets the needs o ourdiverse and aging population.


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8

Endnotes

U.S. Department o Labor, Bureau o Labor Statistics, Consumer Expenditure Survey, 2004.1.

Center or Retirement Research, Boston College,2. Frequently requested data. http://crr.bc.edu/re-quently_requested_data/requently_requested_data.html (accessed December 19, 2008).

Ibid.3.

Kaiser Family Foundation/HRE,4. Employer Health Benefts 2007 Annual Survey. Menlo Park: CA:Kaiser Family Foundation, 2007.

Deborah Torne, Elizabeth Warren, and eresa A. Sullivan,5. Generations o Struggle. Washington DC:AARP Policy Institute.

Te complexity o this task requires a number o assumptions, which we will clariy in the text.6.

IASP and Dmos rst took the approach o creating a multi-actor examination o economic stability7.and vulnerability in measuring the nancial security o middle class households. For more inorma-tion on this work see, By A Tread: Te New Experience o Americas Middle Class, Dmos/IASP,2007.

Laura Henze Russell, Ellen A. Bruce, and Judith Conahan.8. Elder Economic Security Initiative: TeElder Economic Security Standard or Massachusetts. John W. McCormack Graduate School o PolicyStudies, University o Massachusetts, Boston and Wider Opportunities or Women: Boston, MA,December 2006.

Center or Retirement Research, Boston College,9. Special Projects: National Retirement Risk Index.http://crr.bc.edu/special_projects/national_retirement_risk_index.html (accessed December 19,2008).

We have been very careul to make the most conservative assumptions when creating the SESI and10.setting thresholds. For example, we do not adjust or change o amily composition (death o a spousewhich most oen leaves the surviving spouse in more constraint economic circumstances), we do notadjust or ination due to our assumption that the ratio o income to expenses remains the same overthe lie course o seniors, and we do not assume a worsening in health status which would prompthigher healthcare expenses. Further, seniors in long-term care institutions are not included thus

eliminating households with largest healthcare expenses rom these analysesBecause those in long-term care institutions are not included in our estimates, our ndings a slightly11.more optimistic as those in long-term care are most likely to have ew assets and savings to coverlong-term economic needs.

We also ran the data using the criteria or the ull index Assets plus at least one other actor which12.yielded slightly higher levels o security and much higher levels o risk. We decided to base the Indexon the more conservative approach o Assets plus two or overall economic security and risk.

Jessica S. Banthin and Didem M. Bernard, Changes in Financial Burdens or Health Care National13.Estimates, Journal o the American Medical Association, vol. 296, no. 22 (December 13, 2006), pp.2712-2719.

Please note that we expect to update the measurement o this actor when better data on supplemen-14.tary Medicare coverage will be made available. However, capturing medical expenses will remain a

critical part o this measure.James H. Schulz and Robert H. Binstock,15. Aging Nation: Te Economics and Politics o Growing Olderin America (Westport, Conn.: Praeger, 2006).

We chose the median over the mean as the latter tend to be inated by extreme values on the upper16.end.

Prior research identied that senior couples budgets and nancial needs are between 41 and 6617.percent o that o single seniors. We thereore chose 50 percent as the middle ground to establish theasset threshold or senior couples.


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By no means do we advocate or the privatization o Social Security. We annuitize Social Security as18.it presents income that is secured throughout the end o the lie course.

Consumer Expenditure Survey, 2004, authors calculations.19.

Barbara A. Butrica,20. Older Americans Reliance on Assets. Opportunity and Ownership Facts, No. 10,Urban Institute: Washington DC, March 2008.

Laura Sullivan, atjana Meschede, and Tomas Shapiro,21. Enhancing Social Security or Low-IncomeWorkers: Coordinating an Enhanced Minimum Beneft with Social Saety Net Provisions or Seniors,National Academy o Social Insurance: Washington DC, January 2009.

In 2008, about 36 percent o men age 65-69 remained in the work orce, as compared to 25 percent22.just ten years earlier.

D. Parkinson,23. Voiceso Experience: Mature Workers in the Future Workorce. Research Report NewYork, NY: Te Conerence Board, 2002.


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RELATED RESOURCES FROM IASP AND DMOS

THE BY A THREADSERIES

From Middle to Shaky Ground: Te Economic Decline o Americas Middle Class, 20002006

Economic (In)Security: Te Experience o the Arican-American and Latino Middle Classes

By a Tread: Te New Experience o Americas Middle Class

RELATED RESOURCES FROM THE INSTITUTEON ASSETS AND SOCIAL POLICY (IASP)

THE SENIOR ECONOMICSECURITYSERIES

Forthcoming Senior Economic Security Brieng Papers

Te Massachusetts Senior Economic Security Index

Economic Security o Senior Households o Color

Economic Security o Women and the Older Old

Senior Economic Security rends

INSTITUTE REPORTS/PAPERS

Enhancing Social Security or Low-Income Workers: Coordi-nating an Enhanced Minimum Beneft with Social Saety NetProvisions or Seniors, by Laura Sullivan, atjana Meschede,and Tomas Shapiro, January 2009

Sub-Prime as a Black Catastrophe, in Te American ProspectbyMelvin L. Oliver and Tomas Shapiro, October 2008

Statewide Asset Building Initiatives

Innovative State Policies to Reduce Poverty and Expand the

Middle Class: Building Asset Security Among Low-IncomeHouseholds

Minimum Wage: Creating an Asset Foundation

Building a Real Ownership Society

BOOKS

Te Hidden Cost o Being Arican-American: How Wealth Per- petuates Inequality, Tomas, Shapiro, (Oxord University Press,

2004)

CONTACT

atjana Meschede, Research [email protected]

http:/iasp.brandeis.edu

RELATED RESOURCES FROM DMOS

THE FUTURE MIDDLE CLASSSERIES

Arican Americans, Latinos and Economic Opportunity in th21st Century

Measuring the Middle: Assessing What It akes to Be MiddleClass

Millions to the Middle: Tree Strategies to Expand the Middl

Class

YOUNGADULT ECONOMICSSERIES

Higher and Higher Education

Paycheck Paralysis

Generation Debt

Te High Cost o Putting a Roo Over Your Head

And Baby Makes Broke

POLICYBRIEFINGBOOK

FULFILLING AMERICAS PROMISE:

Ideas to Expand Opportunity andRevitalize Our Democracy

BOOKS

Up to Our Eyeballs: How Shady Lenders and Failed EconomicPolicies Are Drowning Americans in Debt, Jos Garca, JamesLardner & Cindy Zeldin (Te New Press, April 2008)

Strapped: Why Americas 20- and 30-Somethings Cant GetAhead, amara Draut (Doubleday, January 2006)

Inequality Matters: Te Growing Economic Divide in Americaand Its Poisonous Consequences, James Lardner & David A. Smi(eds.), (Te New Press, January 2006)

Falling Behind: How Rising Inequality Hurts the Middle Class ,Robert Frank (UC Press, July 2007)

Te Squandering o America: How the Failure o Our PoliticsUndermines Our Prosperity, Robert Kuttner (Knop, Novembe2007)

CONTACT

Visit www.demos.org to sign up or updates, register or events,and to download research reports, analysis and commentary romthe Economic Opportunity Program.

Media inquiries:im Rusch, Communications [email protected]


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