Publications : Facts

People think of retirement security as balancing on a three-legged stool, with income from assets, private pensions, and Social Security as the legs. However, despite growing awareness about the importance of saving for retirement, many elderly people cannot rely on their financial assets. According to data from the 2004 Health and Retirement Study, lower-income adults age 65 and older rely less on income from assets and traditional defined-benefit pensions than their higher-income counterparts. Instead, older adults with lower income rely primarily on Social Security and public transfers for their retirement security.

How households cope with financial emergencies depends largely on the resources at their disposal. Differential access to good financial options affects how much households pay for credit in a time of need, which can vary substantially. Using data from the Making Connections Cross-Site Survey (2002–2004), we examine how households with incomes over $30,000 and those with incomes below $30,000 would respond in a financial emergency and find that in general, higher-income households were more likely to use conventional methods while lower-income households were more likely to use alternative (and often more expensive) methods to pay unexpected bills.

According to the federal government, elderly poverty rates among blacks are nearly triple and among Hispanics are more than double those of whites. Data from the 2004 Health and Retirement Study on adults age 65 and older, living alone or with only a spouse, show how assets, which are excluded from the official poverty measure, change elderly poverty overall and between racial/ethnic groups. Adding imputed housing rent and annuitized asset values to resources reduced overall poverty by 1.8 percentage points, but increased racial disparities because blacks and Hispanics have relatively little housing equity or financial assets.

A great way to assess how well adults have accumulated wealth is to look at their finances in the years shortly before they retire. We show wealth among households with an adult age 57–61 in 2004, using the Health and Retirement Study. This wealth snapshot highlights the extraordinary importance of Social Security, traditional pensions, and owner-occupied housing for typical near-retiree households today, which together comprise nearly four-fifths of wealth for middle quintile households on the verge of retirement.

A family's housing can take one of two forms: renting and homeownership. Although both provide shelter, they differ significantly in their implications for asset accumulation. Direct outlays made up 87.1 percent of federal rental-assistance spending in 2006, while tax breaks provided over 98 percent of federal homeownership subsidies. This breakdown reveals that the federal government places a priority on homeownership as opposed to rental housing; however, the distribution of homeownership tax breaks suggests that they provide little benefit to low-income families.