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Demography of Aging (1994) / Chapter Skim
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4 Income, Wealth, and Intergenerational Economic Relations of the Aged
Pages 102-145

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From page 102...
... the recent trends in the economic status of the aged and their sustainability in the foreseeable future; 3. the role of intergenerational transfers in affecting the welfare of the aged; and 4.
From page 103...
... Comparisons are made both over time and across countries regarding the poverty and affluence of the aged. In order to present these materials in a comprehensive way, we concentrate on income comparisons that provide the single best widely available measure of economic status at a point in time or over time.
From page 104...
... Second, many resources of considerable economic value for example, home ownership and medical insurance affect consumption but not money income. Thus, two families with similar money incomes could, in fact, have very different levels of economic well-being, and two families that might generally be judged as having a similar level of economic well-being might have very different levels of money income.
From page 105...
... allows one to make comparisons between the elderly and the entire population using a broader definition of income. "Expanded" income is money income including capital gains, plus fringe benefits, in-kind transfers, and implicit rent, minus rent paid.
From page 106...
... bMoney income before taxes is the traditional Census Bureau's measure of income used to generate annual income and poverty statistics. CExpanded income adds realized capital gains, employer-provided fringe benefits in the form of health insurance, noncash transfers in the form of health insurance (Medicare, Medicaid)
From page 107...
... Beware of the mean. ', tar "The elderly do In particular, a major contributor to the rising average economic status for the elderly over time is the very fact that the group is changing.
From page 108...
... of retiring couples over this period: 7 to 8 years after retirement, a widow's income-to-needs ratio is only 40 percent as high as that of the preretirement couple. The lesson to be learned here is that when explaining trends in the economic status of the aged, it is important to differentiate across types of studies (panels, cross section)
From page 109...
... In contrast to income-based measures of economic status, following specific persons in families over a 10-year or longer time period yields a similar picture for changes in poverty status (Burkhauser and Duncan, 1988, 1991; Burkhauser et al., 19911. For instance, 35-41 percent of elderly women were likely to be poor at least once between either 1969 and 1979 or 1983 and 1988 as compared to 20 percent of women age 25-45.
From page 110...
... Although these panel data studies are quite suggestive, they are hampered to some extent by relatively small samples of the aged. Moving to broader measures of economic well-being, for instance, those used in Table 4-1 that include noncash income, capital gains, imputed rent, and other sources of income, we find lower overall poverty rates both in absolute terms and relative to the overall poverty rate for the entire population among the aged.
From page 111...
... The income value of home ownership to the aged is also open to some question. As we have seen, poverty rates among the aged fall by a third or more when one imputes as income the rental value of home equity (defined as market value minus mortgage owed)
From page 112...
... (1988) find that adopting the same equivalence scales for both poverty and OASI would reduce poverty rates among elderly single women by 22-33 percent.
From page 113...
... Hence, a single aged person needs 50 percent of the income of a threeperson household, while an aged couple needs 75 percent as much to reach the same standard of living. Ratios of group adjusted household median to overall adjusted household median income are presented.
From page 114...
... The LIS data can be extended to examine further the relative poverty of single women (Smeeding et al., 1993:Tables 3 and 4~. Table 4-3 displays a very large difference in the United States between the median adjusted income of elderly married couples and the median adjusted incomes of single aged women living alone.
From page 115...
... The sum of SSI benefits, plus the $20 monthly disregard for OASI or other unearned income, plus the value of food stamps equals 34 percent of adjusted median income for a single aged person, and 37 percent for a couple (see the bottom half of Figure 4-2~. These figures are far lower than those found in other nations; the average benefit for all countries is 53 percent for a single person and 59 percent for couples.
From page 116...
... 116 In E c ~ o o so {L C ._ o ~ ~ _ ~ 2 q)
From page 117...
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From page 118...
... We have already seen the effect that imputed rent from the major asset of the agedtheir home has on relative economic status and on poverty. Wealth plays other important roles as well.
From page 119...
... wealth data for the aged present a snapshot of the composition of the net worth of the elderly. Home equity represents about 40 percent of total net worth among those 65 and over.
From page 120...
... each yield three major findings for older households: 1. The income distribution among older households is more unequal 1 1Because of the undersampling of this upper tail, the levels of total wealth reported in most household surveys provide biased estimates of the size distribution of net worth.
From page 121...
... (1993) addressed these wealth questions by comparing home ownership and liquid wealth holdings to income using the LIS data base (Table 4-4~.
From page 122...
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From page 123...
... to ~ To'c ¢ ¢¢ ¢ ~¢ oo cry ~an, oo ~ oo~ oo =,<; ¢ ¢ ~ ~ ~ ~ ~ z ~ ~ ~ - ~ ~ ¢ ¢ ¢ .
From page 124...
... The only anomaly seems to be the higher rate of home ownership among poor single aged women as opposed to nonpoor single aged women in all nations but the United States. The LIS data base does not directly measure liquid wealth, but does include nominal property income (interest, rent, and dividends from investments in stocks, bonds, savings instruments, and rental property)
From page 125...
... Even with the focus on private transfers, there remain numerous dimensions to the analysis of intergenerational transfers. One could focus on the direction of transfers, types of transfers, timing of transfers, motives for transfers, division of transfers among recipients, and impact of transfers on donors, donees, and the economy as a whole.
From page 126...
... But the posttransfer level of well-being may fall short of societal norms, or the transfers may have larger implications for the performance of the economy as a whole, for example, by affecting aggregate capital accumulation. Intergenerational transfers constitute an important part of aggregate wealth accumulation, thus influencing the overall path of productivity and real wage growth in the economy.
From page 127...
... Finally, they estimate that an upper bound of 32 percent of wealth comes from inheritances.l~ As noted earlier, averages may be misleading because there is considerable diversity among the elderly. Also, this approach raises the difficulty that transfers are calculated as a residual and thus carry the brunt of specification errors in modeling household wealth accumulation.
From page 128...
... Thus, transfers will play a central role in determining intergenerational income and wealth mobility, as well as the cross-sectional distribution of income and wealth. For these reasons, discerning the degree to which "bequest motives" determine wealth accumulation has been of central attention in the literature on intergenerational transfers.
From page 129...
... Another test is to examine the allocation of intergenerational transfers. The basic altruism model predict that the bequest should compensate for differences in income among siblings.
From page 130...
... By focusing on this subset of transfers, they eliminate the ambiguity posed by bequest motives. Using the SCF data, they estimate that intended intergenerational transfers support, life insurance, and trusts are at least 20 percent of wealth.
From page 131...
... As with transfers in the other direction, theories of altruism postulate that children make financial transfers to their parents because they care about their well-being. In contrast, exchange theories suggest that the inter vivos transfer compensates for a service provided to the child or, perhaps, a larger inheritance.
From page 132...
... He finds a correlation in economic status (income) of 0.4 between fathers and sons.
From page 133...
... , or workers' compensation in 1987 also received private transfers, but that the private transfers averaged only 4 percent of income. Focusing only on those receiving UI, he also concludes that government transfers "crowd out" about 30 percent of private transfers.27 Virtually every study of intergenerational transfers treats income as exogenous, but there is evidence that transfers may also affect labor supply.
From page 134...
... had net worth holdings that ranged only from 39 to 56 percent above the national average. The generation that will become aged before the turn of the century and shortly after is also more likely to have a greater fraction of long-term twoearner families, and hence a larger share of persons receiving higher than average amounts of private pensions and larger Social Security benefits than any preceding generation.
From page 135...
... And last, but not least, recent research on cross national comparisons of the aged indicates that the United States is at one extreme or another both good (the highest income and wealth, younger aged couples) and bad (poor older women living alone)
From page 136...
... and AHEAD (health, assets) , will put us in a much stronger position to assess, explain, and forecast the economic status of the aged.
From page 137...
... In the area of wealth transfer, we have literally touched only the tip of the iceberg. The most obvious step is to extend research into the motives for intergenerational transfers.
From page 138...
... The policy implications of this research are vital. If we are to provide a more secure, stable, and healthier old age for our citizens, changes in economic status cannot be ignored.
From page 139...
... Kotlikoff, and D Well 1992 The Increasing Annuitization of the Elderly-Estimates and Implications for Intergenerational Transfers, Inequality, and National Saving.
From page 140...
... Smeeding, and B.B. Torrey 1990 The change in the economic status of the low income elderly in three industrial countries: Circa 1979-1986.
From page 141...
... :298 312. 1990 Research on the aged: Economic status, retirement and consumption and savings.
From page 142...
... Summers 1981 The role of intergenerational transfers in aggregate capital accumulation. Journal of Political Economy 89(August)
From page 143...
... :9-28. 1992 An Assessment of the Economic Status of the Aged.
From page 144...
... Smeeding, T 1990 Economic status of the elderly.
From page 145...
... American Economic Review 82(June)


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