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I. INTRODUCTION
II. Background
1. Trends in Marriage and Divorce
2. Trends in Earnings and Labor Force Participation
3. Trends in Economic Growth
4. Trends in Poverty
III. METHODOLOGY
1. Description of Model of Income in the Near Term (MINT)
2. Measuring Poverty Among the 62 and Over Population
IV. RETIREMENT INCOME IN THE EARLY 1990s
1. Per Capita Income by Source
2. Family Income Divided by Poverty
3. Poverty Rates
4. Contribution to Poverty Rate by Subgroup
5. Importance of Sources of Income in Reducing Poverty
V. RETIREMENT INCOME IN 2020
1. Per Capita Income by Source
2. Family Income Divided by Poverty
3. Poverty Rates
4. Contribution to Poverty Rate by Subgroup
5. Importance of Sources of Income in Reducing Poverty
VI. EFFECTS OF USING DIFFERENT INCOME AND POVERTY MEASURES
1. Effects of Alternative Ways of Measuring Income
2. Indexing the Poverty Threshold by Wages Instead of Prices
VII. CONTRIBUTIONS OF ECONOMIC, DEMOGRAPHIC, AND POLICY CHANGES
TO POVERTY IN 2020
1. Effects of Changes in the Normal Retirement Age
2. Effects of Changes in Marital Composition of Retirees Between Early 1990s and 2020
3. Effects of Changes in Relative Earnings for Post-1950 Birth Cohorts
4. Effects of Changes in the Earnings Distribution for Post-1950 Birth Cohorts
VIII. CONCLUSIONS
I. INTRODUCTION
The past 30 to 40 years have been accompanied by considerable changes in marriage patterns, earnings and work patterns, the economy, and retirement policy. While these changes will undoubtedly impact future retirees, it is difficult to know exactly how they will influence their economic well-being. The aim of this paper is to analyze the factors that may be related to increased or decreased poverty among the 62- to 89-year-old population in 2020.
This paper projects future changes in poverty among the 62 and over population and deconstructs the sources of those changes. Our analysis provides insights on how overall poverty rates among retirees are likely to change between the early 1990s and 2020, which groups of retirees are most likely to be at risk of poverty, and what factors contribute most to changes in poverty rates.
Our analysis is based on projections of the major sources of retirement income from the Social Security Administration's Model of Income in the Near Term (MINT). MINT starts with data from the 1990 to 1993 U.S. Census Bureau's Survey of Income and Program Participation (SIPP) matched to Social Security Administration's (SSA) earnings and benefit records through 1999. MINT then projects retirement income (Social Security benefits, pension income, asset income, earnings—both before and after benefit take-up, Supplemental Security Income (SSI), and income from nonspouse co-resident family members) from the base SIPP year through 2032 for individuals born between 1926 and 1965.1
In Section II, we provide some background information on some of the salient historic trends likely to influence the demographic characteristics and well-being of the future retired population. In Section III, we describe how MINT projects demographic changes and incomes and explain how we measure poverty. In Section VI, we present data on the economic status of the aged population in the early 1990s. We report per capita income by source, family income divided by poverty, poverty rates, and the marginal contribution each income source has on family income relative to poverty. In Section V, we report MINT projections of income and poverty in 2020 and contrast them with those of the early 1990s. In Section VI, we explore the sensitivity of our income and poverty results to alternate measures of asset income.
In Section VII, we examine the effects of various economic, demographic, and policy changes on poverty rates in 2020. We estimate the effects on future poverty rates of
- the decline in Social Security benefits relative to the average wage, resulting from the scheduled increase in the normal retirement age (NRA),
- the increase in the proportion of retirees who are unmarried,
- changes in average relative earnings of males and females in post-1950 birth cohorts compared with earlier cohorts, and
- increases in earnings inequality for post-1950 birth cohorts, compared with earlier cohorts.
Finally, Section VIII presents a summary and conclusions. An Appendix to this paper compares these latest MINT results with earlier findings using a previous version of MINT and describes the source of the differences.
We find that price-adjusted poverty is projected to decline from 7.8 percent in the early 1990s to 4.2 percent in 2020, but that wage-adjusted poverty is projected to increase from 7.8 percent to 9.9 percent. Despite increased earnings of women and higher projected real wages, however, some subgroups of the population will continue to experience persistently high poverty rates in 2020.
We estimate that rising real wages are the major source of lower projected price-adjusted poverty rates. Among the other sources of change between the early 1990s and 2020, poverty rates are influenced much more by changes in the NRA and marriage patterns than by changes in earnings patterns. We find that the increase in the normal retirement age and changes in marital composition each explain about 25 percent of the projected increase in wage-adjusted poverty. The changes in the relative earnings of men and women did not affect the poverty rate—it only affected who was in poverty. The rise in earnings inequality had almost no effect on poverty rates largely because of the progressive Social Security payment formula. The projections of poverty rates are very sensitive to economic growth assumptions. Independent of these assumptions, high school dropouts, unmarried, and older retirees remain at high risk of both price-adjusted and wage-adjusted poverty in the future.
Acknowledgements
This research report was performed pursuant to a grant from the U.S. Social Security Administration (SSA) to the Boston College Center for Retirement Research (CRR).
The opinions and conclusions in this paper are solely those of the authors and should not be construed as representing the opinion or policy of SSA, the Internal Revenue Service, any other agency of the Federal Government or of the CRR. They also do not necessarily reflect the views of The Urban Institute, its Board, or its Sponsors.
The authors wish to thank Jillian Berk for her superb research assistance and Howard Iams for his helpful comments.
Note
1. MINT was designed to analyze the distribution of retirement incomes of individuals born between 1931 and 1960. In order to get spousal incomes for the key cohorts, MINT includes individuals born five years before and after the key cohorts. While it includes those born between 1926 and 1930, these individuals are included as spouses of the primary MINT cohorts. Spousal incomes are less certain for out-of-bound individuals.
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