New AARP Study of 50+ Americans

May 23, 2001 - Americans age 50 and over are "unquestionably" better off financially than people the same age were 20 years ago. Yet, there are troubling signs that not all boats have been lifted by the rising tide of prosperity - and not all boats will stay afloat, according to a new report by AARP.

Beyond 50 - A Report to the Nation on Economic Security, is an unprecedented look at the status and trends affecting the 76 million Americans age 50 and over. The first of an annual series planned by AARP, the report suggests a clear need for families and policy makers to rethink their strategies for improving economic security.

"This report provides important new perspectives as Congress and the President debate the budget, tax cuts, health care and Social Security. It also sheds important light for families as they discuss the 'pocket book' elements of these issues," AARP Executive Director Horace Deets said in commenting on the report. "It is crucial that policy discussions recognize the current and future needs of 50 and over Americans."

The report takes a unique approach to analyzing the 50+ population, segmenting this group into three distinct age subgroups: age 50-61, called "pre-retirees;" age 62-74, identified as "younger retirees;" and those over age 75, the "older retirees." Using data that spans 20 years, it focuses in part on the key issues of Social Security, personal retirement savings and investment, workplace opportunities and health care coverage.

Based on its findings, AARP is unveiling an alternative to the traditional concept of the so-called "three-legged stool" of retirement security, which includes Social Security, private pensions and personal savings. Instead, AARP calls for a foundation for retirement that includes four supporting "pillars" - a sort of four freedoms - Social Security, pensions and savings, earnings and health insurance.

Among the report's key findings:

Faster growth in income among retirees. Thanks to faster growth in income among retirees, the income gap between retirees and pre-retirees has diminished. Retirees' incomes grew more than twice as fast as pre-retirees' incomes since 1980. Wealth also grew at a more robust pace among retirees than among pre-retirees. But inequality of income and wealth increased. Incomes grew faster among the top quarter than the bottom quarter, and wealth disparities widened.

Four in ten Americans over age 60, regardless of their current economic circumstances, will experience poverty at some point in their later lives. The chances of a person in this age group experiencing near-poverty (falling below 125% of the poverty line) is even greater: 1 in 2. Low-income pre-retirees age 50 to 61 have median savings of just over $6,000 and may need to work longer than they had planned to survive economically. Census data show a recent up tick in the number of 65 and over Americans who are working now, and a 1999 national AARP study of 2,000 Boomers found that 80 percent said that they planned to work into their retirement years.
Health care coverage, which is critically important to the economic well-being of all Americans, decreased among people age 50-64 since 1988. Even those with Medicare coverage (age 65+) spend nearly one-fifth of their income on healthcare. This situation is exacerbated by declines in health and the rising cost of health care.
Pension coverage for pre-retirees has not increased in two decades, and risk has been sifted to workers and retirees due to the shift from defined benefit to defined contribution pension plans. Pension participation rates have declined slightly in every age group since 1980. Just over one-third of those over age 65 have pension income, and just over half of pre-retirees have pension coverage - figures that have changed very little since 1980.
Social Security is even more critical as one of the four pillars or freedoms for the foundation of retirement security. Some of the key points in the report show:
- Over the past two decades, the number of those over 65 who rely on Social Security for 90 percent or more of their income jumped to 27 percent, a four percent age point increase from 1980.
- Overall, Social Security provides 40 percent of retirement income, as it has throughout the previous period. Without it, poverty would increase five-fold to nearly 50 percent among those over 65, making it the "chief bulwark against poverty."
- Noting that Social Security provides all of the income for 17 percent of 65 and over beneficiaries, the report says: "(The program's) importance to retirement security can scarcely be overestimated."
Fully 60% of 401(k) participants who change jobs take cash payments rather than roll their balances over into their new employers' plan or an IRA, jeopardizing their long-term economic security. A key benefit to employer-provided 401(k) plans is that those plans are portable - that is, employees may take their contributions with them when they change jobs, and continue contributing to them over the length of their working years.

The report combined pensions and savings as one pillar because today's employer-sponsored pensions, which are most often in the form of 401(k) or other kinds of 'defined contribution' plans, are generally indistinguishable from individual saving. Pension participation rates have declined slightly for pre-retirees and other age groups in the past 20 years, probably in part because the newer defined contribution plans offer employees a choice whether or not to take part.
Women, in particular, face obstacles to economic security. Women make up a disproportionate share (65%) of the bottom income quarter of the 50+ population. Poverty rates are higher among women than among men, and the probability of being poor for a long period of time after age 65 is higher for women than for men. And among retirees, women are far less likely than men to have income from a pension - in 2000, 44% of men age 65-74 had pension income, compared with only 26% of women in the same age group.

Beyond 50 was released May 23, 2001 at a press briefing at AARP's offices in Washington. Dawn Sweeney, an AARP Associate Executive Director; John Rother, AARP's director of Legislation and Public Policy; Tom Gardner, co-founder of The Motley Fool, and Marcia D. Greenberger, founder and co-president of the National Women's Law Center, participated in the event.