Working Paper: NBER ID: w19930
Authors: James M. Poterba
Abstract: The share of the U.S. population over the age of 65 was 8.1 percent in 1950, 12.4 percent in 2000, and is projected to reach 20.9 percent by 2050. The percent over 85 is projected to more than double from current levels, reaching 4.2 percent by mid-century. The aging of the U.S. population makes issues of retirement security increasingly important. \n\nElderly individuals exhibit wide disparities in their sources of income. For those in the bottom half of the income distribution, Social Security is the most important source of support; program changes would directly affect their well-being. Income from private pensions, assets, and earnings are relatively more important for higher-income elderly individuals, who have more diverse income sources. The trend from private sector defined benefit to defined contribution pension plans has shifted a greater share of the responsibility for retirement security to individuals, and made that security more dependent on choices they make. A significant subset of the population is unlikely to be able to sustain their standard of living in retirement without higher pre-retirement saving.
Keywords: retirement security; aging population; social security; pension plans; income disparities
JEL Codes: E21; G11; H55; J14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Aging population (J11) | Increased reliance on social security (H55) |
| Changes in social security policies (H55) | Well-being of lower-income elderly individuals (I32) |
| Transition from defined benefit to defined contribution plans (H55) | Increased individual responsibility for retirement savings (D14) |
| Transition from defined benefit to defined contribution plans (H55) | Disparities in retirement income (J26) |
| Increased life expectancy (J17) | Higher saving rates during working years (D14) |
| Increased life expectancy (J17) | Lower level of annual consumption (D12) |
| Cognitive decline among the elderly (J14) | Ability to manage retirement savings effectively (D14) |