Back to Preface and SummaryFrom Planning for the Future
p. 1-6, published 2002
Sweeping demographic change is underway globally, as growing portions of populations reach what we once thought of as “old age” and enjoy increased longevity. Here in the United States, this demographic phenomenon will accelerate as Baby Boomers, the largest generation in U.S. history, begin reaching retirement age around 2010.
Their arrival at this milestone is expected to place unprecedented strain on publicly supported entitlement programs, such as Social Security, Medicare, and Medicaid. As these programs absorb this fiscal shock, costs to state and local governments will, in turn, almost certainly rise. The state share of Medicaid alone represents the fastest growing budget item for most states, and most Medicaid spending is for seniors. Under the present structure, younger workers, whose numbers are declining, finance the public programs on which retirees depend.
While costs associated with the aging of the population raise concerns that must be addressed, changing circumstances will likely mitigate high rates of dependency. Coming retirees will be the healthiest, wealthiest, and most educated in history.
The rate of dependency in our society will be influenced by demographic factors, such as birth rates and the life expectancies of men and women.
Past and Projected US Elderly per 100 Workers, Aged 20 to 64, 1960-2040
As shown, the number of elderly per 100 workers is expected to sharply increase as a wave of Baby Boomers move into retirement after 2010.
The simple arithmetic of these numbers makes a compelling argument for reform of the Social Security system, argues the Urban Institute’s Eugene Steuerle: “... if a smaller share of adults in a society work, then nonworkers get less income, workers pay a higher share of their income in transfers to the nonworkers, or nonworkers make up for a shortfall in wage income or transfer income by holding a much larger share of society’s (hopefully larger) stock of wealth.”
As a caveat, the National Academy on an Aging Society (NAAS) notes that, if children are factored into the dependency equation, our society will actually experience a decline in dependency rates if birth rates remain low.
Further, if gaps in the longevity of men and women continue to close, fewer women will face their senior years alone, a factor that could significantly alter dependency rates.
The model for adequate retirement income has long been portrayed as a three-legged stool— Social Security, savings, and pension income. But, as the stock market’s recent free fall has shown, things change. Today’s economic realities, the American Association of Retired Persons (AARP) suggests, recommend four pillars of retirement planning: Social Security; pensions and savings; earnings; and health insurance. This dramatic change in the preferred architecture of retirement planning has come in response to a number of factors. Health insurance has earned its place in the retirement support structure because health care now consumes so much of retiree income, and Medicare benefits do not include prescription drugs, the medical treatment many seniors most need. At the same time, employer-sponsored pension plans have become less commonplace and less certain. In place of the defined benefit pension plans of the past, employees increasingly must fashion their own retirement plans, which are defined largely by the contributions and investments they make. The need for earnings reflects the uncertainty of the remaining pillars of economic security, including Social Security, as well as the improving capabilities of elders.
Social Security is the dominant source of income for most older Americans and the only source of income for about 17 percent of seniors.
Average Income of the Elderly, 2000
Social Security is increasingly the dominant source of income for older Americans. In 1998, according to the Social Security Administration, it provided 37 percent of all retirement income. By 2000, an Employee Benefit Research Institute analysis of Census data found that it provided 41.3 percent of average income for the elderly. In 1998, Social Security was the only source of income for 17 percent of older Americans.
About 62 percent of full-time private industry workers had access to employer-sponsored retirement plans in 2000 compared with 20 percent of part-time employees.
The percent of men aged 62-64 who remained in the labor force began to increase in 1997 after declining steadily from the early 1960s. Today, 47.1 percent of Americans aged 60-64, 24.4 percent of those aged 65-69, and 13.5 percent of those aged 70-74 remain in the labor force.
The burden of health care costs is much greater for low-income elders. In 1998, those in the bottom one fifth of income groups spent 13 percent of their income on health care compared with 9 percent for the top fifth.
In spite of the many dire prognostications, our individual and corporate preparations for the future will ultimately determine whether older Kentuckians have a good or poor quality of life. For years, the assumption has been that Kentucky’s older population will be a disproportionately large one in the years to come, as birth rates and youth population declined sharply, and the population of coming retirees in the state grew significantly. By 2025, the U.S. Census Bureau predicts that Kentucky’s older population will rank 14th in the nation, compared to the 2000 ranking of 24th. But projections are educated guesses based upon current trends, which could change.
Disproportionate poverty among older Kentuckians is further cause for concern. The 2000 Current Population Survey estimates that 15 percent of Kentuckians 65 and older have poverty-level incomes, compared with 10.2 percent nationally. While considerable, the percentage point difference in 2000 is nearly half that of 1990 when 20.6 percent of older Kentuckians were poor compared with 12 percent nationally, again illustrating the force and unpredictability of change.
Kentucky’s Baby Boomer population grew by 46.2 percent between 1990 and 2000, more than twice the rate of growth in any other age group.
Kentucky Population, Aged 45 and Older, 1980-2000
Kentucky’s population aged 65 to 74 grew only modestly (2.5 percent) between 1990 and 2000 and at a much slower pace than the 7.4 percent growth rate seen between 1980 and 1990.
Growth in the 75 and older population slowed from the 22.9 percent seen between 1980 and 1990 to 16.8 percent from 1990 to 2000.
Between 1990 and 2000, the highest rate of population growth in Kentucky occurred among Baby Boomers—tomorrow’s retirees—who are between the ages of 45 and 54. Their numbers grew by 46.2 percent, a growth rate that significantly exceeded that of all other age groups.
The median age of Kentuckians has risen steadily over the past 20 years, from 29.1 years in 1980 to 32.9 years in 1990 to 35.9 years in 2000, only slightly higher than the 2000 national median age of 35.3 years.
We compared the distribution of our sample to the Current Population Survey (CPS) conducted annually by the U.S. Census Bureau to determine how representative it is of Kentuckians aged 45 and older. We also used the CPS national sample to show the average differences between Kentucky and the rest of the nation for this age group.
Our survey sample is representative of Kentucky’s general population, aged 45 and older; the distribution of Kentuckians in this age cohort is similar to that of the CPS sample. As shown, the average Kentuckian from both samples is 60 years old and white. A little more than half of each sample is female, more of our respondents live in rural areas, and more of our respondents are future, rather than current, retirees. Also, our sample has a larger portion of persons with some college experience or a two-year degree or higher than the CPS sample and fewer persons with less than a high school degree. The CPS sample has a higher portion of persons with annual household incomes of $50,000 or more while our sample has a higher proportion in the second income quartile.
Both the CPS sample and our sample are relatively less educated, poorer, and less racially diverse than the U.S. sample.
Characteristics of Survey Respondents
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