Economic Well-Being

Table 2 shows the Census Bureau estimates of income in 1975, 1987, and 1999 for households headed by someone over sixty-five versus all households, adjusted for changes in the prices of goods and services between those years (they are comparable to 1999 prices). According to the Census, mean income for households headed by someone age sixty-five and over in 1999 was $34,671. This was 63 percent of the mean for all U.S. households ($54,842). This percentage is up from thirty years ago, when it was 54 percent, but it has remained stable since its peak of 65 percent in 1985. It is also important to note that there are some older individuals that live in households where the head is not over sixty-five (i.e., the older individual is not the head). Since these individuals are more likely to have fewer resources, the ratios in Table 2 probably underestimate the actual differences in income between older adults and the young. On the other hand, any improvement in economic well-being by the older relative to the young is probably underestimated by this Table, since more older Americans are living independently now relative to thirty years ago.

Table 3 gives the changes that have occurred over time in the sources of income of the aged. In general, Social Security is the most important source of income for the aged, and is of greater importance for individuals with low incomes. The proportions have remained relatively stable over time, except that in recent years, a declining proportion of total income has come from earnings, while more has come from assets and pensions. This trend exists even in the face of more opportunities in the labor market for older workers and more strict regulations in employment Table 3 Where Do Older Americans Get Their Income? SOURCE: U.S. Census Current Population Survey (2000) procedures. What is no doubt offsetting these opportunities are more incentives provided by employers in the form of pension benefits, and the tendency for increases in economic well-being to cause earlier retirement for many older Americans.

One statement that is commonly used to implicitly compare the economic well-being of older adults to that of the young—that older people are more vulnerable to inflation—is largely mythical. For low-income households, the majority of retirement income comes from Social Security retirement benefits, which, since 1975, are automatically indexed to the Consumer Price Index to account for price changes over time. For high-income households, most income comes from savings, where rates of return are generally correlated with inflation. Defined Benefit Pensions are not necessarily indexed to inflation. Nevertheless, it is a misrepresentation to talk about the aged as a group of citizens that generally have "fixed" incomes.

According to the U.S. Census, the distribution of income of older Americans is more equal than the distribution of nonaged, although the distribution has become more dispersed for both groups. While the Gini coefficient for the distribution of younger Americans' income went from .44 to .47 from 1973-1999, it went from .36 to .42 for the over-sixty-five population. Social Security and defined benefits, and entitlement programs such as Supplementary Security Income and the Social Security Earnings Test work to make the distribution of income more equal for both groups. This seems to be true, even though one might expect differences in financial planning and financial preparation for retirement, earnings inequality, and varying investment performance between households to skew the incomes of older Americans more than those of the young.

Table 4 shows the wealth differences between older households and all households in 1995 and 1998 (not included in the wealth measures are pension and social security wealth). It is not surprising that the net worth of the average older American is greater than that of the population in general. In 1998, households headed by someone sixty-five and over had a mean net worth of $392,187, compared to $282,979 for the entire U.S. population. Older households own more of just about every type of asset—monetary (highly liquid assets such as savings accounts, checking accounts, and money market accounts), investment assets (stocks, bonds, mutual funds, etc.) housing assets, and nonhousing real property. Furthermore, older households have much less debt. This latter fact should not surprise, given that older households have less earnings with which to guarantee future payment, and their higher asset levels make credit less necessary. Recall that we would expect older households to have more wealth ceteris paribus, since more of a younger household's economic well-being is made up of earnings ability. It should also be expected that the distribution of wealth among households over sixty-five is more equal than that of the population in general. For example, while the net worth of the household at the 25th percentile is only 4.7 percent of the wealth of the 75th percentile household for the population in general, the comparable statistic for over-sixty-five households is 16.9 percent, suggesting that the distribution of wealth is "tighter" for Table 4 Net Worth SOURCE: Federal Reserve Board of Governors' Survey of Consumer Finances older households. Nevertheless, 10 percent of households over sixty-five have net worth of $4200 or less, not enough to generate significant levels of income.

Examining the changes that have occurred in the wealth characteristics of older households over the last few years reveals some cause for concern. From 1995 to 1998, the net worth of over-sixty-five households increased 31 percent, from $299,317 to $ 392,187 in 1998. The comparable increase for all U.S. households was 36 percent. This is surprising since the strong performance of investment markets implies that households with many assets would be the most fortunate. It seems that for some reason, older households were not able to take as much advantage of the unparalleled prosperity in the American economy as their younger counterparts, even when using an aged-biased criterion like net worth. This could be because of an inability to take advantage of labor markets the way younger individuals can. It might also suggest that the conservative investment habits of older Americans might prevent them from taking advantage of opportunities in capital markets.