Let’s take a deep breath and step back from the daily news cycle, where the Social Security Administration is under repeated attack, and take a look at recent trends in retirement patterns and what they are likely to look like going forward.   

Prior to the 1880s, men generally worked as long as they could, and at the end of their lives, they had only about two years of ‘retirement,’ often due to ill health.  Beginning around 1880, however, the percentage of the older male population at work began to decline sharply (see Figure 1).  Experts attribute this decline initially to Civil War pensions, then to rising incomes and the shift from agriculture to employment in large enterprises, and finally to the introduction of Social Security and Medicare.

The downward trajectory stopped around the mid-1980s and, since the early 1990s, the labor force participation of men both 55-64 and 65+ has gradually increased.  This pattern has led to an increase in the “average retirement age,” defined as the age (in years and months) at which the labor force participation rate drops below 50 percent.  Based on this definition, in 2024 the average retirement age for men was 64.6, three years later than in 1994 and almost back to the 1960s (see Figure 2).

Many factors probably contributed to this recent increase in the average retirement age.    

Social Security: Changes to Social Security made work more attractive relative to retirement.  The liberalization, and for those at the Full Retirement Age (FRA) the elimination, of the earnings test removed what many viewed as an impediment to continued work.  The increase in the FRA from 65 to 67 reduced benefits for those claiming early.  And, the enhanced delayed retirement credit increased incentives to keep working between the FRA and age 70.   

Pension type: The shift from defined benefit to 401(k) plans eliminated built-in incentives to retire.  Moreover, since 401(k) participants bear investment risk, they need to work longer to accumulate a buffer against prematurely exhausting their resources.

Education: Better-educated workers have less physically demanding jobs, more employment opportunities, are paid more, and work longer.

Improved health and longevity: Average life expectancy for men at 65 has increased about 3.2 years since 1990, and until 2010 the evidence suggested that people were healthier as well.  The correlation between health and labor force activity is very strong. 

Decline of retiree health insurance: The rapid rise in health care costs has been accompanied by a significant decline in employer provision of retiree health insurance.  Hence, workers have a strong incentive to stay working until they qualify for Medicare at 65 

Less physically demanding jobs: As manufacturing has declined, the service sector has exploded with knowledge-based opportunities, which put less strain on older bodies.

Will the early drivers of delayed retirement continue to have an impact?  I would argue ‘no.”  All the changes in the Social Security program are now complete.  The shift from defined benefit to 401(k) plans in the private sector is now complete.  Educational attainment for men has leveled off and will likely level off for women by 2030.  Since 2010, estimates for healthy life expectancy at 50 – which combines the disability rate with changes in life expectancy – show actual declines for some groups.  Finally, the shift by firms away from offering retiree health benefits is virtually complete.   

The bottom line is that the factors contributing to the reversal in the labor force participation of older workers appear to have run their course.  Their impact will remain, so it is unlikely the average retirement age will decline.  On the other hand, they will provide little impetus for increases in the average retirement age.

The well being and employment advantages of three applications handed within the Sixties and Nineteen Seventies – meals stamps, Medicaid, and the Earned Earnings Tax Credit score (EITC) – are the main focus of a College of Wisconsin examine exhibiting they cut back the prevalence of work-limiting disabilities and allow older Individuals to stay within the labor pressure.

The EITC was very efficient in decreasing incapacity. This federal tax credit score for low-income and a few moderate-income employees can cut back their tax payments by a whole bunch or 1000’s of {dollars} a yr and tens of 1000’s of {dollars} over the course of a profession. As a result of folks should work to get the credit score, it has additionally been proven to encourage employment.

The researchers adopted people over a few years via a survey that included questions on disabling medical and bodily situations and the severity of these situations.

They discovered that the EITC made people a lot much less more likely to report having any incapacity once they had been of their 50s and that persistent or extreme disabilities had been much less frequent at that age. It follows that these older employees had been additionally much less more likely to be on federal incapacity advantages.

“The EITC throughout maturity can considerably and statistically considerably lower the likelihood of labor incapacity later in life,” the examine concluded.

The proof was not as compelling for meals stamps and Medicaid. But the applications appear to scale back disabilities in particular circumstances.

Take Medicaid, a federal-state medical health insurance program for low-income employees. Having Medicaid, significantly in maturity, lowered the prevalence of essentially the most extreme and persistent work limitations.

The outcomes had been comparable – not conclusive however nonetheless encouraging – for meals stamps. One promising signal is that individuals who had been uncovered to meals stamps, presumably throughout childhood, additionally had fewer extreme and persistent situations once they reached their 50s.  

This examine’s findings counsel considering extra broadly about how security internet applications can enhance older Individuals’ well-being and cut back the quantity of people that wind up with a incapacity that forces them to chop brief their years of labor. 

To learn this examine by Katie Jajtner, Keisha Solomon, and Yang Wang, see “The Impact of Public Insurance policies on Work Incapacity: a Lifecourse Perspective.”

The analysis reported herein was carried out pursuant to a grant from the U.S. Social Safety Administration (SSA) funded as a part of the Retirement and Incapacity Analysis Consortium. The opinions and conclusions expressed are solely these of the authors and don’t signify the opinions or coverage of SSA or any company of the Federal Authorities. Neither america Authorities nor any company thereof, nor any of their workers, makes any guarantee, specific or implied, or assumes any authorized legal responsibility or accountability for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any particular industrial product, course of or service by commerce title, trademark, producer, or in any other case doesn’t essentially represent or suggest endorsement, advice or favoring by america Authorities or any company thereof.

After a century of decline, work exercise amongst older males stabilized within the Nineteen Eighties and commenced to rise within the early Nineteen Nineties.

This turnaround mirrored modifications in Social Safety, retirement plans, the character of labor, training ranges, and well being protection.

In response, the typical retirement age for males rose by about three years to 64.

Lately, it has remained comparatively steady because the modifications that drove the rise have performed themselves out.  

Thus, additional vital will increase within the common retirement age are unlikely.

Introduction

After almost a century of decline, work exercise amongst older males stabilized within the Nineteen Eighties and because the early Nineteen Nineties the typical retirement age has elevated by about three years.  The query is whether or not the elements that led to the rise over the past 30 years – modifications to Social Safety, retirement plans, the character of labor, instructional attainment, and so on. – will proceed to push out the retirement age or have they, for probably the most half, performed themselves out.  

This dialogue proceeds as follows.  The primary part places the final 30 years in context by exploring the explanations for the decline in labor power participation of males between 1880 and 1980.  The second part seems on the turnaround in labor power participation and the rise within the common retirement age that started within the early Nineteen Nineties.  The third part discusses the elements answerable for this turnaround, and the fourth part assesses the seemingly future affect of those elements.  The ultimate part concludes that the forces resulting in elevated participation of older employees might be exhausted, suggesting additional will increase within the common retirement age are comparatively unlikely.   

The Lengthy-term Decline in Employment Charges

Previous to the Eighties, males typically labored so long as they might, and on the finish of their lives, they’d solely about two years of ‘retirement,’ typically as a consequence of unwell well being.1  (Males are the main focus of this early dialogue, as a result of shifts within the work patterns of older ladies have extra to do with their altering roles over the twentieth century than with their retirement choices.)  Starting round 1880, the share of older males at work started to say no sharply (see Determine 1).

So, why did workforce participation begin to drop?  Consultants attribute this decline to an surprising and substantial stream of revenue that appeared within the type of old-age pensions for Civil Warfare veterans.  Veterans eligible for these pensions had considerably increased retirement charges than the inhabitants at massive.2

Apparently, because the veterans died off, work charges didn’t return to their earlier ranges.  One rationalization is the expansion of employees’ incomes, which allowed them to buy extra leisure on the finish of their lives.3  However employer attitudes have been additionally changing into necessary.  The U.S. workforce was quickly shifting from self-employment, most notably in agriculture, to workers of huge enterprises.  Employers more and more launched obligatory retirement ages for his or her workers.  And so they have been reluctant to rent older employees, particularly throughout the Nice Despair.4

The subsequent massive decline within the work charges of older males occurred after World Warfare II.  One apparent issue was the provision of Social Safety advantages, which started in 1940.  The postwar interval additionally noticed the growth of employer pensions, as union energy grew and companies more and more acknowledged pensions as an important element of their personnel techniques.  

The introduction of Medicare in 1965 and the sharp improve in Social Safety advantages in 1972 in all probability led to the ultimate leg of the decline in workforce exercise of older males.  And, as a result of advantages have been obtainable at age 62, Social Safety can also clarify a part of the decline in workforce exercise for males ages 55-64.  

The Turnaround

The downward trajectory stopped across the mid-Nineteen Eighties and, because the early Nineteen Nineties, the labor power participation of males each 55-64 and 65+ has regularly elevated.  This sample has led to a rise within the “common retirement age.”  The dialogue begins by persevering with with the give attention to males, after which turns to the extra sophisticated story for ladies.  

To place the magnitude of the turnaround in perspective, it’s helpful to have a look at labor power participation charges in three completely different years: 1964 – earlier than the “reversal;” 1994 – concerning the time the reversal started; and 2024 – the newest statement.  Essentially the most hanging change is that labor power participation in 2024 was increased at virtually any age than it was in 1994 (see Determine 2).  The connection between 2024 and 1964 can also be attention-grabbing.  At older ages, 2024 participation for males seems similar to that in 1964.  In distinction, participation between ages 50 and 65 is dramatically decrease in 2024 than in 1964.

These information on labor power participation can be utilized to assemble a measure of the typical retirement age, outlined because the age (in years and months) at which the labor power participation charge drops under 50 %.5  Based mostly on this definition, in 2024 the typical retirement age for males was 64.6, three years later than 1994 and virtually again to the Nineteen Sixties (see Determine 3).

Determine 3 additionally exhibits the typical retirement age for ladies.  Over the twentieth century every cohort of ladies had spent extra time within the labor power than the earlier cohort, growing the probability that they might be working at older ages.  Certainly, the participation charge information present work exercise amongst older ladies growing steadily from 1964 to 1994 to 2024 (see Determine 4).

The altering work lives of ladies make it tough to interpret tendencies of their common retirement age.  Determine 3 means that the retirement age for ladies rose dramatically from about 55 within the Nineteen Sixties to 62.6 in 2024.  In fact, the obvious low retirement ages within the early Nineteen Sixties merely replicate the truth that fewer ladies had spent a lot time within the labor power.  Lately, the typical retirement age for ladies seems to have stabilized.  The questions are, for each women and men, why did the rise within the common retirement age happen and the place can we go from right here?

Causes for the Turnaround

As famous, the downward trajectory stopped across the mid-Nineteen Eighties and, because the early Nineteen Nineties, the labor power participation of males each 55-64 and 65+ has regularly elevated.  Many elements assist clarify this turnaround.6   

Social Safety: Modifications to Social Safety made work extra engaging relative to retirement.  The liberalization, and for these on the Full Retirement Age (FRA) the elimination, of the earnings check eliminated what many seen as an obstacle to continued work.7  The rise within the FRA from 65 to 67 diminished advantages for these claiming early.  And, the improved delayed retirement credit score elevated incentives to maintain working between the FRA and age 70.8  One current estimate suggests these modifications have been answerable for about one-fifth of the rise in work for these ages 65-69.9  Clearly different elements additionally performed a job.

Pension sort: The shift from outlined profit to 401(ok) plans eradicated built-in incentives to retire.10  Furthermore, since 401(ok) contributors bear funding threat, they should work longer to build up a buffer in opposition to prematurely exhausting their sources.  Research present that employees lined by 401(ok) plans retire a yr or two in a while common than equally located employees lined by an outlined profit plan.11

Schooling: Schooling is a key determinant of employee productiveness.  Higher-educated employees have much less bodily demanding jobs, extra employment alternatives, are paid extra, and work longer.  Between 1985 and 2015, the share of older employees with faculty levels elevated sharply, and the tutorial hole between older and prime-age males largely disappeared.  The motion of huge numbers of males up the tutorial ladder helps clarify the rise in participation charges of older males.12

Improved well being and longevity: Common life expectancy for males at 65 has elevated about 3.2 years since 1990, and till 2010 the proof instructed that individuals have been more healthy as nicely.13  The correlation between well being and labor power exercise could be very robust, which means that the rise in disability-free life expectancy would have contributed to the elevated labor power exercise of older males.  

Decline of retiree medical health insurance: The speedy rise in healthcare prices has been accompanied by a major decline in employer provision of retiree medical health insurance.  This decline has dramatically modified the incentives dealing with older employees.  In the event that they stick with their employer, they proceed to obtain medical health insurance; in the event that they go away earlier than 65, once they qualify for Medicare, they’re compelled to buy insurance coverage on their very own.  Therefore, employees have a powerful incentive to remain working till they qualify for Medicare.14  

Much less bodily demanding jobs: The character of employment has additionally modified dramatically because the mid-Nineteen Eighties.  As manufacturing has declined, the service sector has exploded with knowledge-based alternatives.  Even inside manufacturing the character of jobs has modified, as companies have automated and outsourced manufacturing and employed extra managers, engineers, and technicians.  The brand new jobs put much less pressure on older our bodies.15 

Joint decision-making: The elevated share of married ladies working means the choice to retire entails each spouses.  Research recommend that husbands and wives wish to coordinate their retirement.16  Since wives on common are three years youthful than their husbands, in the event that they retire at age 62 (when first eligible to assert Social Safety), it might push husbands’ retirement age towards 65.17

Non-pecuniary elements: Older employees are typically among the many extra educated, the healthiest, and the wealthiest.18  Their wages are decrease than these earned by their youthful counterparts and decrease than their very own previous earnings.  This sample suggests that cash might not be the one motivator.

On account of these varied elements, the workforce exercise of males has elevated considerably since 1990.  The query is how this pattern interprets into modifications within the common retirement age. 

The place Do We Go from Right here?

The query is whether or not the early drivers of delayed retirement – modifications to Social Safety, the shift from outlined profit to 401(ok) plans, the rise in instructional attainment, enhancements in wholesome life expectancy, and the decline in retiree medical health insurance – will proceed to have a considerable affect resulting in will increase within the common retirement age going ahead.    

Social Safety.  All of the modifications within the Social Safety program are actually full.  No additional changes have been made to the earnings check.  The rise within the FRA from 65 to 67 was regularly phased in, starting with these born in 1938 and ending at 67 with these born in 1960.  These born in 1960 flip 65 this yr; thus, future cohorts will see no additional improve within the FRA.19  Lastly, the delayed retirement credit score – payable for individuals who declare advantages between the FRA and 70 – was additionally elevated regularly, from 3 % in 1983 to eight % in 2008.  Therefore, future cohorts will see no additional improve on this incentive.  In brief, current modifications to Social Safety shouldn’t have any impact on the typical retirement age going ahead.

Pension Kind.  The shift from outlined profit to 401(ok) plans is now full. Sure, some outlined profit plans live on within the public sector, however state and native employees account for less than about 10 % of the workforce and no main shift in pension sort is presently underway for this group.

Instructional Attainment.  A lot of the achieve within the labor power participation of older people has been attributed to their elevated instructional attainment.20  Certainly, for many of the twentieth century every technology of employees obtained extra training than the earlier one.  Because of this, the share of males ages 50-54 with a school diploma elevated sharply.  Nonetheless, within the mid-Nineteen Seventies the tempo of beneficial properties slowed, which meant that the share of males 50-54 with a school diploma stopped growing round 2000.  Since then the share with a school diploma has declined and rebounded, however stays roughly on the 2000 stage.  For girls, the advance in instructional attainment has continued – after a decade-long pause – however will seemingly stage off by 2030.21  The underside line is that instructional beneficial properties are unlikely to be a significant driver of longer work lives going ahead.

Improve in Wholesome Life Expectancy.  Till 2005, the pattern of rising disability-free life expectancy instructed elevated capability for work, however current research recommend this progress has stalled.22  Estimates of wholesome life expectancy at 50 – which mixes the incapacity charge with modifications in life expectancy – confirmed precise declines for lower-educated white employees and lower-educated Black males.  Therefore, substantial will increase within the capability to work longer is unlikely to maneuver the typical retirement age in coming a long time.  

Decline in Retiree Well being Insurance coverage.  As famous, the decline in employer-provided medical health insurance mixed with quickly rising healthcare prices has pushed employees to postpone retirement till they’re eligible for Medicare.  This shift away from providing retiree well being advantages is nearly full.  Lower than 20 % of huge companies – 200 or extra workers – provide retiree medical health insurance to present employees.  Smaller companies historically have hardly ever supplied this profit.23  Thus, altering employer-provided well being advantages will not present an growing incentive to work till 65. 

The underside line is that the elements contributing to the reversal within the labor power participation of older employees seem to have run their course.  Their affect will stay, so it’s unlikely the typical retirement age will decline.  Alternatively, they’ll present little impetus for will increase within the common retirement age.24    

Conclusion

After almost a century of decline, work exercise amongst older males stabilized within the Nineteen Eighties and commenced to extend within the Nineteen Nineties.  This turnaround mirrored modifications in Social Safety, retirement plans, and the character of labor, enhancements in instructional attainment, the necessity to look ahead to Medicare protection, and quite a lot of different elements.  In response, the typical retirement age elevated by about three years. 

You will need to put this three-year achieve in perspective.  The common retirement age remains to be decrease than it was when Medicare was enacted.  And the main drivers for the beneficial properties thus far seem to have performed themselves out, making vital future will increase within the common retirement age unlikely.  In brief, the beneficial properties thus far in working longer have been nice, however we in all probability have gone so far as we are able to go with out some new growth to alter folks’s incentives.   

References

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Mastrobuoni, Giovanni. 2009. “Labor Provide Results of the Latest Social Safety Profit Cuts: Empirical Estimates Utilizing Cohort Discontinuities.” Journal of Public Economics 93(11): 1224-1233.

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Endnotes

By attacking Social Safety, crashing the inventory market, and imposing unconscionable tariffs that may enhance each unemployment and costs, Trump has taken purpose on the retirement safety of hundreds of thousands of American households.

The assault on Social Safety is shameful.  The preliminary foray was justified by the broadly debunked declare that 20 million lifeless folks had been receiving advantages.  Regardless of no proof of widespread “waste, fraud, or abuse” and already-existing customer-service challenges, the company has introduced plans to chop 7,000 employees and shut six regional workplaces; and extra cuts could also be on the best way.  Because of this, hundreds of thousands of Individuals will discover it actually arduous to entry advantages that they’ve earned over a lifetime of labor. 

Much more regarding, DOGE plans to rebuild Social Safety laptop’s code in months, the place consultants agree that rewriting that code safely would take years.  It’s true that Social Safety’s system, like these of many authorities companies, accommodates code written in COBOL, a programming language created within the Nineteen Fifties.  It must be up to date, but it surely’s arduous to repair a bicycle when you’re driving it.  The company may by no means get all the sources it wanted to assemble an entire new system after which migrate the information.  Now is likely to be the time to start such an initiative, however take the time to do it correctly.  A rushed job will produce cascading failures, with folks getting unsuitable advantages, ready ages to get their advantages, or getting no advantages in any respect.

Crashing Social Safety’s laptop programs can be catastrophic, with greater than 13 million Individuals nearly completely reliant on Social Safety for retirement revenue.  The truth that they may in the end obtain their promised quantities can not compensate for the devastation that may be prompted within the quick run.

The injury to retirement safety goes past the assault on the Social Safety Administration.  Many personal sector employees and most new retirees now depend on the belongings of their 401(okay) plans (and rollovers to Particular person Retirement Accounts) to complement their Social Safety advantages.  The Federal Reserve’s Survey of Shopper Funds supplies a complete image of the holdings in these accounts amongst households approaching retirement in 2022 – the newest knowledge accessible.  These balances are modest for all however the prime revenue quintile.  Importantly, they’re principally invested in equities, and subsequently very depending on the efficiency of the inventory market.  Within the wake of Trump’s tariff announcement, the indices declined by greater than 10 p.c.  If the markets proceed to tank, retirements can be in danger.

Lastly, Trump’s tariff insurance policies have the potential to harm the broader economic system each by rising layoffs and costs.  To the extent that employees lose their jobs, they won’t be able to contribute to their 401(okay) and could also be compelled to withdraw belongings to assist themselves.  And to the extent that tariffs result in increased costs, even those that keep employed will discover they should spend extra to take care of their lifestyle, making them much less capable of save.  As well as, inflation will erode the worth of present belongings.

The subsequent replace to the Middle’s Nationwide Retirement Threat Index, which measures the proportion of at the moment’s working households unable to take care of their lifestyle in retirement, can be primarily based on the Federal Reserve’s Survey of Shopper Funds for 2025.  In 2022, primarily because of the appreciation in home costs, the information was good (see Determine 1).  Solely 39 p.c of working households had been projected to be in danger.  Primarily based on the economic system’s present trajectory, the outcomes for 2025 might properly present a rise that approaches ranges seen in the course of the Nice Recession – with greater than half of households in danger in retirement.

The Earned Revenue Tax Credit score (EITC) encourages low-income individuals with children to work – these with out children get a a lot smaller credit score.

Earlier EITC analysis has targeted on youthful households, however some analysts counsel an expanded childless credit score may enhance work amongst close to retirees.

This research finds that elevating the EITC by $1,000 would produce a modest rise in employment amongst single girls ages 55-64.

Nevertheless, this influence is far smaller than that for youthful single girls, maybe as a result of older girls have increased earnings or extra well being limitations.

Thus, an expanded EITC would primarily profit youthful employees, although with a optimistic facet impact for a minimum of some older employees too.

Introduction 

The Earned Revenue Tax Credit score (EITC) – a refundable credit score that rises with earnings up to a degree earlier than phasing out – is likely one of the federal authorities’s largest poverty discount packages.  The EITC’s design – which yields no profit to non-workers – has been discovered to encourage employment amongst lower-income people.  This uncommon mixture of poverty discount and work encouragement signifies that enlargement of the EITC has lengthy loved bipartisan assist.  One of the crucial widespread strategies for enlargement is a rise within the measurement of the credit score for childless households, which is presently so small that few individuals use it.1  Certainly, a tripling of the childless profit was a part of a brief package deal enacted in the course of the COVID pandemic.2   

An enlargement of the childless profit is often framed as a boon for the well-being of youthful, low-income employees.  Nevertheless, some have identified that one other profit could also be to encourage low-income people approaching retirement – who are sometimes susceptible to insufficient retirement sources – to increase their careers.3  For the reason that overwhelming majority of employees close to retirement – outlined right here as ages 55-64 – wouldn’t have dependent kids, they’d profit from such an enlargement.  Nevertheless, as a result of the present EITC is used primarily by these with kids, no analysis has targeted on how older people would possibly reply to any enlargement.  However, roughly 15 % of people close to retirement do have dependent kids, and this temporary makes use of them as a base for an evaluation of how older people responded to previous expansions relative to their youthful counterparts.4   

The dialogue proceeds as follows.  The primary part supplies background on the EITC.  The second part discusses the methodology used to discover the influence of EITC expansions on older employees, and the third part discusses the outcomes.  The ultimate part concludes that whereas previous EITC expansions doubtless have inspired some older employees to increase their careers, the impact is critical only for single girls and solely at a 3rd the speed of their youthful counterparts.  Therefore, expansions of the childless credit score must be thought-about primarily within the context of youthful employees, however with the popularity that such an enlargement will doubtless encourage a minimum of some older people to work longer.    

Background on the EITC

The EITC began as a small, non permanent provision in 1975, however enlargement over time has made it one of many greatest federal antipoverty insurance policies.5  The credit score is refundable, in order that it might probably enhance the revenue out there to a family as an alternative of merely decreasing its tax burden.  The essential construction of the EITC is illustrated in Determine 1, utilizing the 2019 guidelines for example (the evaluation stops that yr to keep away from non permanent adjustments in EITC guidelines throughout COVID).  The determine exhibits 4 outstanding options of this system.  First, as talked about above, the EITC could be very small for households with out dependent kids.6  Second, the EITC will increase with the variety of dependent kids.  Third, the credit score will increase as a family goes from no earned revenue as much as a reasonable revenue earlier than plateauing.  And fourth, the credit score is regularly phased out as earned revenue will increase.  Mixed, these 4 options imply that the EITC presently impacts primarily low-income households with kids, typically single moms.

As a result of the EITC solely applies to employees, it goals to encourage individuals to go from not working to working.  Analysis on the subject strongly means that the coverage achieves this aim, particularly for youthful single mother and father.7  However, little analysis up to now has targeted on the EITC’s impact on older employees, although non-EITC-based analysis has advised that they might reply otherwise than youthful people to tax incentives.8  The rationale for this lack of focus is easy.  Simply 15 % of people ages 55-64 nonetheless have dependent kids.  Nonetheless, although small in proportion, this group who do have dependent kids can function a base for analysis.  

Methodology

This temporary makes use of the Present Inhabitants Survey (CPS) from 1988-2019 and follows the methodology of Bastian and Jones (2021).  That paper exploits variation within the measurement of the EITC each over time and throughout households with totally different numbers of dependent kids.  Determine 2 exhibits this variation and illustrates two tendencies.  First, in actual phrases, the utmost measurement of the EITC credit score has elevated because the Nineteen Eighties, with discrete jumps in 1991, 1994, and 2009.  Second, the utmost credit score has diversified extra by the variety of kids in a family as households with extra dependent kids got bigger advantages relative to these with fewer.

The evaluation compares the employment of people with totally different entry to the EITC, utilizing the utmost credit score that every group can obtain as a proxy for program generosity.  Though Determine 2 exhibits that enormous jumps in EITC advantages happen only a few instances, these adjustments introduce substantial variation within the most profit throughout households.  For instance, in 1987, households with dependent kids obtained a modest most credit score of $1,915 (in 2019 {dollars}), no matter their household measurement.  By 1996, that quantity for households with a single youngster had practically doubled to $3,513, and households with two or extra kids had seen their most profit triple to $5,796.  Additional separation occurred for households with three or extra kids in 2009, once they obtained an almost 20-percent enhance of their most profit.  Throughout the pattern thought-about right here, the common most EITC is $2,697, with a normal deviation of $2,334.

A regression is used to match the employment price of people going through totally different most EITC advantages, controlling for variety of kids, schooling, race, age, state of residence, and yr noticed.  Regressions are run solely on these with a highschool diploma or much less, as they’re more than likely to be impacted by any enlargement of the EITC primarily based on their decrease earnings ranges.  

Prob(Employment) = f(maxEITC, kids, race, schooling, age, yr, state of residence)

This strategy takes benefit of the truth that households with the identical variety of kids face totally different advantages at totally different instances, whereas households on the identical cut-off date face totally different advantages primarily based on their variety of kids.  So, for instance, to the extent that people in households with three versus one dependent youngster work much less in 1987, the regression asks: did that distinction change when a three-child family obtained a relatively bigger EITC profit in 2010?  Utilizing this strategy, Bastian and Jones report that the EITC considerably will increase the employment price of ladies, with the impact concentrated amongst single girls.9

The query right here is, does this end result differ primarily based on the age of the person?  Thus, the evaluation is carried out individually for employees ages 25-54 and 55-64.  As a result of the consequences of this system doubtless differ for ladies relative to males (who are inclined to earn extra), the evaluation can be completed individually by gender.  And, as a result of the EITC can influence single versus married households otherwise, the evaluation is additional separated by marital standing.10  

Outcomes

Earlier than turning to the regression outcomes, Desk 1 highlights key traits of the pattern by age.  The older people are much less more likely to be employed, to have dependent kids, and to be Hispanic, and barely extra more likely to be highschool dropouts.

Determine 3 highlights the primary outcomes of the regression evaluation, with full ends in the Appendix.  The determine exhibits how the varied teams’ probability of employment is predicted to reply to a $1,000 enhance within the highest EITC profit out there to them.  For ladies, the outcomes counsel that older singles could be anticipated to extend their likelihood of working by 1.5 proportion factors, which is statistically important.  Nevertheless, the dimensions of the impact is considerably smaller than for youthful single girls, whose employment could be anticipated to extend by 5.5 proportion factors.  This end result could stem from the truth that older girls have extra work expertise and better earnings and so are much less affected by expansions.  Or, the decrease impact may mirror extra well being limitations amongst this older group.11   

The impact for older single males is comparable in magnitude to single girls, however insignificant statistically.  This insignificance is probably going as a result of the pattern of single males ages 55-64 is simply 60 % the dimensions of single girls of this age, each as a result of increased mortality of males and the (associated) indisputable fact that males on this age bracket usually tend to be married.  Youthful single males are considerably affected however at a decrease price than youthful single girls, once more doubtless because of their increased earnings.

Married girls in each age brackets usually are not predicted to be considerably affected.  Such a discovering is widespread for younger ladies a minimum of, as married {couples} typically earn an excessive amount of to qualify for even the expanded variations of the EITC.  Plus, if a girl has decrease potential earnings than her husband, he stands out as the one to decide on to work for wages and declare the EITC.  Certainly, a optimistic important impact is discovered for youthful married males.  Older married males appear to not be affected, doubtless as a result of their increased earnings typically push them out of EITC eligibility no matter whether or not the dimensions of the credit score expands.

Conclusion

Enlargement of the EITC – and specifically the childless employee profit – is one coverage that might encourage older people to work longer.  The outcomes right here counsel that increasing the EITC would doubtless have a statistically important influence on some older people’ employment.  However, that influence is more than likely to happen for older single girls – who characterize simply 20 % of these ages 55-64 – and at a price simply one-third that of comparable, youthful people.  Whereas this evaluation relies totally on expansions to these with kids, it supplies a few of the first proof that older employees could also be much less conscious of the EITC than their youthful counterparts. 

That stated, it’s clear from this evaluation and others prefer it that EITC enlargement has a substantial impact on the labor provide of youthful employees and with a optimistic facet impact: a minimum of some older employees are more likely to enter the labor pressure.  These optimistic results on employment, which scale back poverty and dependence on different authorities packages, could also be purpose sufficient to assist an enlargement of the coverage.   

References

Alpert, Abby and David Powell. 2014. “Estimating Intensive and Intensive Tax Responsiveness: Do Older Employees Reply to Revenue Taxes?” Working Paper WR-987. Santa Monica, CA: The RAND Company. 

Bastian, Jacob E. 2020. “The Rise of Working Moms and the 1975 Earned Revenue Tax Credit score.” American Financial Journal: Financial Coverage 12(3): 44-75.

Bastian, Jacob E. and Maggie R. Jones. 2021. “Do EITC Expansions Pay for Themselves? Results on Tax Revenues and Authorities Transfers.” Journal of Public Economics 196: 104355.

Breunig, Robert V. and Andrew Carter. 2018. “Do Earned Revenue Tax Credit for Older Employees Delay Labor Market Participation and Enhance Earned Revenue? Proof from Australia’s Mature Age Employee Tax Offset.” Working Paper 2018-15. Canberra, AU: Tax and Switch Coverage Institute. 

Congressional Analysis Service. 2018. “The Earned Revenue Tax Credit score (EITC): A Transient Legislative Historical past.” CRS Report R44825. Washington, DC.

Crandall-Hollick, Margot, Nikhita Airi, and Richard C. Auxier. 2024. “How the American Rescue Plan’s Non permanent EITC Enlargement Impacted Employees With out Youngsters.” Tax Coverage Heart Transient. Washington, DC: City Institute and Brookings Establishment.

Eissa, Nada and Hilary Williamson Hoynes. 2004. “Taxes and the Labor Market Participation of Married {Couples}: the Earned Revenue Tax Credit score.” Journal of Public Economics 88(9-10): 1931-1958.

Flood, Sarah, Miriam King, Renae Rodgers, Steven Ruggles, J. Robert Warren, Daniel Backman, Annie Chen, Grace Cooper, Stephanie Richards, Megan Schouweiler, and Michael Westberry. 2024. IPUMS CPS: Model 12.0 [dataset]. Minneapolis, MN: IPUMS.

Laun, Lisa. 2017. “The Impact of Age-targeted Tax Credit on Labor Power Participation of Older Employees.” Journal of Public Economics 152: 102-118.

Maag, Elaine. 2018. “Tax Reform 2.0 Ought to Broaden Childless EITC to Cut back Poverty.” Tax Coverage Heart TaxVox. Washington, DC: City Institute and Brookings Establishment.

Meyer, Bruce D. and Dan T. Rosenbaum. 2001. “Welfare, the Earned Revenue Tax Credit score, and the Labor Provide of Single Moms.” Quarterly Journal of Economics 116(3): 1063-1114.

Moulton, Jeremy G., Alexandra Graddy-Reed, and Lauren Lanahan. 2016. “Past the EITC: The Impact of Decreasing the Earned Revenue Tax Credit score on Labor Power Participation.” Nationwide Tax Journal 69(2): 261-284.

Munnell, Alicia H. 2018. “Need Individuals to Hold Working Longer? Broaden the Earned Revenue Tax Credit score.” (November 14). New York, NY: MarketWatch. 

Tax Coverage Heart. 2024. “EITC Parameters.” Statistics. Washington, DC: City Institute and Brookings Establishment.

Yin, Yimeng, Anqi Chen, and Alicia H. Munnell. 2024. “The Nationwide Retirement Threat Index: An Replace from the 2022 SCF.” Challenge in Transient 24-5. Chestnut Hill, MA: Heart for Retirement Analysis at Boston School.

Appendix

Endnotes

Hope springs eternal.  Every time a tax cut is proposed, the promise is made: the increased economic growth will eventually result in more, not less, government revenue.  For example, in 2017 we had Treasury Secretary Mnuchin exclaiming that the “Tax Cuts and Jobs Act (TCJA)” would “pay for itself with growth.”  Guess what: according to the nonpartisan Tax Foundation, it didn’t.  The TCJA shouldn’t feel too bad.  It joins a long list of tax cuts that failed to deliver, including cuts during the Reagan and George W. Bush Administrations (the Bush cuts were largely renewed under Barack Obama).  So, I was surprised to find evidence of a tax cut that might do the seemingly impossible: pay for itself.

The find came as I was doing research on a different topic – policies that might encourage low-income individuals to work longer to improve their often inadequate retirement resources.  One that fit the bill was the Earned Income Tax Credit (EITC), a refundable credit that rises with earnings before phasing out.  The EITC is one of the government’s largest anti-poverty programs.  Its design – which yields no benefit to non-workers – has been found to encourage employment.  So, I started writing an issue brief for the Center for Retirement Research at Boston College (coming out this April) on how much an expansion of the EITC to more near retirees would increase their employment.

Right now, the EITC hardly serves these folks.  The reason is simple: the EITC is much larger for households with children.  But, just 15 percent of those ages 55 to 64 still have dependent children.  Since so few workers approaching retirement use the EITC, little research has focused on how they might respond to an expansion of the childless benefit.  Yet, due to the combination of poverty reduction and work encouragement, such an expansion has long enjoyed bipartisan (gasp!) support.  A temporary expansion was even briefly implemented during COVID. 

To look at how older workers might respond, I turned to work published in The Journal of Public Economics by Jacob Bastian and Maggie Jones.  They examined how past increases in the generosity of the EITC altered economic outcomes like employment for lower-income individuals.  They found that each time the EITC was increased by $1,000, single women were 5.1 percentage points more likely to be employed.  However, they didn’t look specifically at workers near retirement who might react differently if, for example, health issues get in the way of a return to work.

So, to look at near retirees’ response, I adjusted their methodology slightly, splitting the sample into workers ages 25-54 and those ages 55-64.  My findings were interesting, but hardly earth-shattering.  A $1,000 increase in the EITC has a significant effect on single women approaching retirement, increasing their employment by 1.5 percentage points.  This amount is roughly one-third the size of single women ages 25-54.  Single men and married individuals near retirement were not significantly impacted.  It turns out that the research energy focusing on younger individuals is appropriate – the EITC impacts them more, perhaps with a positive side effect of encouraging some near retirees to work longer.

But, the Bastian and Jones paper showed me something beyond a methodology.  It also showed how a tax cut – which an expansion of the EITC is – can pay for itself.  How is such a feat possible in the face of so many failures?  First, the EITC reduces dependence on needs-based government programs, since new workers are now earning income.  Second, these new workers generate some payroll tax revenue.  In the end, the authors found that 83 percent of the cost of EITC expansion ends up being paid for by these effects.  The authors also point out that other research has shown that the EITC improves maternal health, decreases female incarceration, and improves kids’ long-term outcomes.  If these effects are considered, the program may completely pay for itself.

Sadly, I haven’t heard the EITC discussed too much by the current administration.  But, unlike re-upping the TCJA – which is currently under consideration by Congress – an expansion of the EITC may achieve a long-held but long elusive goal:  a tax cut that pays for itself.  And it does it while achieving a side effect near and dear to my retirement researcher heart – encouraging some individuals nearing retirement to work longer.

While financial readiness measures suggest many could fall short in retirement, most retirees say they are satisfied with their lives.

To explore this disconnect, the analysis reviews existing measures of objective and subjective well-being across many datasets.

The results show that the objective measures – such as health and income – are generally poor predictors of reported satisfaction. 

This finding suggests that survey responses on satisfaction provide little help to policymakers concerned with financial security.

Thus, new ways to capture well-being could focus on whether retirees need to cut spending and how they respond to emergencies and expense shocks.

Introduction 

Measures of retirement preparedness often suggest that a substantial share of U.S. households are not on track to maintain their standard of living in retirement.  And many retirees report regret for not saving enough.1  Yet, when asked about their life satisfaction, the overwhelming majority – 92 percent – of retired households say that they are “very satisfied” or “moderately satisfied.”  In fact, gerontologists and psychologists have found a weak correlation between older Americans’ financial circumstances and retirement satisfaction.2  These conflicting signals suggest that financial or life satisfaction questions do not provide a complete assessment of how retirees are actually doing.  While a comprehensive assessment of retirement well-being may be hard to capture in one simple question, it is unclear what a good measure would encompass.  

This brief represents the first step towards developing a more comprehensive measure of satisfaction that includes financial as well as other factors.  The analysis begins by assessing the extent to which various measures of well-being are consistent across a variety of public surveys.  It then evaluates the extent to which subjective assessments are consistent with objective measures of well-being.  

The discussion proceeds as follows.  The first section provides an overview of the existing measures of well-being and the datasets used in the analysis.  The second section compares the various subjective well-being measures to see if they are consistent across datasets.  The third section examines the relationship between subjective and objective measures of well-being to see which of the objective measures are better predictors of life satisfaction.  The final section concludes that objective physical health is the only moderately good predictor of life satisfaction and the only financial component that matters for satisfaction is non-mortgage debt.  But even so, the relationship between both measures and life satisfaction is small. 

Existing Measures of Well-being 

Surveys that ask older adults about life satisfaction have consistently shown that the vast majority of retirees are quite satisfied and happy.  This trend has been relatively stable over time (see Figure 1 for an example).

Objective measures of retirement well-being, however, suggest that a large portion of retirees do not have the resources to maintain their pre-retirement standard of living.  Indeed, to maintain their lifestyle, many retirees rely on credit cards and forego any financial buffer for emergencies.  One explanation for this disconnect between life satisfaction and objective financial measures is that retirees’ life satisfaction is not really related to financial measures but rather other aspects of well-being. 

Fortunately, multiple surveys include an array of questions on different facets of retirement well-being – financial, physical health, mental health, and living situation – that go beyond simple self-assessments of life satisfaction.  Table 1 shows a sample of these types of questions.3 

Data

The questions come from a variety of publicly available surveys including: the Health and Retirement Study (HRS), Panel Study of Income Dynamics (PSID), National Health Interview Survey (NHIS), National Health Behavioral Risk Factor Surveillance System (BRFSS), Survey of Consumer Finances (SCF), Understanding America Study (UAS), Medical Expenditure Panel Survey (MEPS), Survey of Income and Program Participation (SIPP), and the Survey of Household Economic Decisionmaking (SHED).4  Table 2 summarizes which measures are available in each dataset.  We use the latest available year for each dataset.  For a brief description of each survey, see the Appendix. 

Do Surveys Have Consistent Measures of Well-being?

The first question is whether respondents provide consistent assessments to various measures of well-being across surveys.  The broadest measure is life satisfaction.  Here, older adults provided fairly consistent responses, hovering around 7-8 on a 10-point scale, where 10 represents being extremely satisfied.5  The lowest rating is 7.1 from the UAS – a relatively new survey conducted by the University of Southern California – and the highest is 8.1 in the BRFSS – a survey that tracks health-related risks, chronic conditions, and use of preventative services (see Figure 2).  Across various surveys, older adults seem to report being fairly satisfied with their lives.

Another measure of well-being is self-assessed health.  Similarly, responses are fairly consistent across surveys, generally hovering between 5.5 and 6.5 on a 10-point scale, where 10 is extremely healthy.  The lowest is 5.3 from the PSID and the highest is 6.7 from the UAS (see Figure 3).  Across various surveys, older adults seem to report more moderate levels of satisfaction with their health when compared with life satisfaction.

Measures of subjective mental health are a little less consistent across surveys, likely because they ask slightly different questions.6  Surveys that ask about the frequency of stress or whether someone felt depressed for two weeks in a row – such as the HRS and the MEPS – rather than standard medical assessments show a much higher share of older adults reporting poor mental well-being (see Figure 4).

Shifting to subjective financial satisfaction, responses from older adults are also somewhat consistent – although not as consistent as life satisfaction or self-assessed physical health (see Figure 5).  The SCF, which shows lower levels of financial satisfaction, asks whether respondents are satisfied with their retirement income whereas the other surveys ask about their satisfaction with their current household income or financial situation.  It is not clear why asking about retirement income might elicit a relatively more pessimistic response.  Older adults also are more likely to report lower levels of financial satisfaction than life satisfaction.

Several surveys also ask older adults about their satisfaction with their living situation – some surveys ask about their home and neighborhood while others ask about safety.  Once again, the responses are fairly consistent (see Figure 6).  The only exception is the SIPP, where respondents are very satisfied (9 on a 10-point scale) with their neighborhood safety. 

A smaller number of surveys ask about family satisfaction and whether respondents are worried about running out of food.  The satisfaction score for family situation was about 7.5 in the HRS and the UAS.  In terms of running out of food, the PSID and the NHIS showed that only 0.5 percent were concerned.   

The results thus far show that older adults’ responses to different categories of well-being questions are fairly consistent across surveys, with most variation attributable to differences in what is being measured or question phrasing.   

How Do the Subjective and Objective Measures Compare?

The key question for this study is how the subjective measures of well-being compare with the objective ones.  This exercise involves estimating regressions to see how well changes in the objective measures predict different responses for subjective measures.

Life Satisfaction 

The first group of regressions estimated the relationship between life satisfaction and four objective measures: 1) physical health; 2) mental health; 3 financial security; and 4) living situation.   

Physical Health Index.  Objective physical health can be captured in a variety of ways, such as whether someone needs help with activities of daily living, has a serious chronic condition such as cancer, had a health shock such as a stroke or heart attack, or has serious issues with eyesight or hearing.  We combine a variety of health conditions and diagnoses into a physical health index, using the first principal component of the various conditions to measure older adults’ physical health.7  The relationship between individuals’ physical health index and life satisfaction across different surveys is shown in Figure 7.

Not surprisingly, the coefficients are all positive – that is, the healthier someone is, the higher their life satisfaction.  While the results are all statistically significant, the magnitude is quite modest, as a one-standard-deviation improvement in health is associated with just about a half-point improvement in life satisfaction on a 10-point scale.  For example, moving from the 25th percentile of health to the 75th percentile is associated with only a 0.5-point improvement in life satisfaction in the HRS.

Mental Health.  Objective mental health is measured by whether someone was diagnosed with conditions such as depression or anxiety.  Not surprisingly, such a diagnosis is negatively correlated with life satisfaction (see Figure 8).  The correlation is larger than physical health conditions and is also statistically significant across all surveys.  Even so, the results show that a serious mental health diagnosis is only associated with a 1.0-1.5-point reduction in life satisfaction on a 10-point scale.

Financial.  The analysis uses three measures of objective financial well-being: 1) household income; 2) household net wealth; and 3) non-mortgage debt.  Both income and wealth are components of retirement income adequacy, and non-mortgage debt represents the financial stress a household might be under due to debt payments.  Household income is measured in $10,000 increments, household net wealth in $1 million increments, and non-mortgage debt in $100,000 increments.  Interestingly, the correlation between various financial measures and life satisfaction is virtually zero and often not significant across most surveys (see Figure 9).  The only exception is non-mortgage debt – primarily credit card debt – in the UAS survey.8  This weak correlation raises doubts about the suitability of life satisfaction survey responses as a measure of the success or failure of retirement income policy, since the measure seems unresponsive to the objective financial situation of retirees.

Living Situation.  Objective living conditions can be measured by whether older adults have problems such as mold, pests, or heat and water issues at home.  Only one survey, the MEPS, allows us to compare the objective living conditions with life satisfaction.  The coefficient between the two is also small, -0.95, albeit statistically significant. 

The simple regressions show that objective health measures – both physical and mental – are more predictive of life satisfaction than financial or living conditions, although none of the different measures are very strongly related to life satisfaction.

Objective vs. Subjective Measures within Category

Objective and subjective well-being questions might have a stronger correlation within categories.  

Physical and Mental Well-being.  Not surprisingly, regressions of our physical health index on self-assessed health show that objective physical health is a better predictor of self-assessed health than of life satisfaction, although still moderate.9  Interestingly, the association of having a mental health diagnosis on self-reported subjective mental health is much smaller.10 

Financial Well-being.  Similarly, the correlation of income or wealth on financial satisfaction, although larger than on life satisfaction, is also small.  Our regressions show that a $10,000 increase in annual income only predicts an increase of financial satisfaction by 0.01 to 0.05 on a 10-point scale.  Similarly, a $1 million increase in wealth is also only associated with a 0.3- to 0.8-point increase in financial satisfaction on a 10-point scale.11  

What is more important to older households’ financial satisfaction is how much non-mortgage debt they own (see Figure 10).  Households are roughly 1-point (out of 10) less financially satisfied for every $100,000 in non-mortgage debt they own. 

Living Situation.  Once again, only one survey, the MEPS, allows a comparison of objective and subjective living conditions.  Having mold, pest, and/or water/heating problems is associated with a reduction of a respondent’s satisfaction with their living standard by 1.25 on a 10-point scale.  The results are statistically significant.

Conclusion

Surveys that ask older adults about life satisfaction have consistently shown that the vast majority of retirees are very satisfied and happy.  However, measures of retirement preparedness often suggest that a substantial share of U.S. households will need to cut their spending in retirement and many retirees report regret for not saving enough.  This disconnect makes it hard to assess how worried individuals and policymakers should be about households falling short in retirement. 

The analysis in this brief shows that the disconnect occurs because objective financial measures – such as income and net wealth – are poor predictors of older adults’ self-reported life satisfaction.  Objective health and non-mortgage debt are slightly better predictors of life satisfaction.  But even so, each additional $100,000 in non-mortgage debt is only associated with a 1-point decrease in life satisfaction on a 10-point scale, and moving from the 25th percentile of health to the 75th percentile is associated with only a 0.5-point improvement

The weak relationship between objective financial outcomes, and even health outcomes, and life satisfaction suggests that survey responses on satisfaction are a poor test of retirement income policy.  Future research could construct a better measure of well-being in retirement that captures whether households need to make cuts in their spending and how they handle emergencies and expense shocks.

References

Agency for Healthcare Research and Quality. Medical Expenditure Panel Survey 2021, 2023. Rockville, MD.

Chen, Anqi, Siyan Liu, and Alicia H. Munnell. 2023. “What Are the Implications of Rising Debt for Older Americans?” Issue in Brief 23-20. Chestnut Hill, MA: Center for Retirement Research at Boston College.

Hansen, Thomas, Britt Slagsvold, and Torbjørn Moum. 2008. “Financial Satisfaction in Old Age: A Satisfaction Paradox or A Result of Accumulated Wealth?” Social Indicators Research 89: 323-347.

Hurwitz, Abigail and Olivia S. Mitchell. 2022. “Financial Regret at Older Ages and Longevity Awareness.” Working Paper w30696. Cambridge MA: National Bureau of Economic Research.

Isaacowitz, Derek M. 2022. “What Do We Know about Aging and Emotion Regulation?” Perspectives on Psychological Science 17(6): 1541-1555.

RAND. Health and Retirement Study Longitudinal File, 1992-2020v2. Santa Monica, CA.

University of Michigan. Panel Study of Income Dynamics, 2024. Ann Arbor, MI.

University of Southern California. Understanding America Study, 2024. Los Angeles, CA.

U.S. Board of Governors of the Federal Reserve System. Survey of Household Economics and Decisionmaking, 2024. Washington, D.C.

U.S. Board of Governors of the Federal Reserve System. Survey of Consumer Finances, 2023. Washington, DC.

U.S. Census Bureau. Survey of Income and Program Participation, 2023. Washington, DC.

U.S. Center for Disease Control. Behavioral Risk Factor Surveillance System, 2024. Atlanta, GA.

U.S. Center for Disease Control. National Health Interview Survey, 2024. Atlanta, GA. 

Appendix: Description of Datasets

Health and Retirement Study (HRS).  The HRS is a household panel survey, conducted biennially since 1992, that interviews a nationally representative sample of about 20,000 people ages 50+ and their spouses.  The survey has a variety of questions, including at least one question in each of the subjective and objective categories found in Table 1, with the exception of objective living situation.  It has the most comprehensive set of questions on various measures of well-being. 

Panel Study of Income Dynamics (PSID).  The PSID is also a household panel survey, conducted biennially since 1968, that collects in-depth information on households as well as their children over time.  Like the HRS, the survey includes a variety of questions on various objective and subjective measures of well-being.  The only exception is that it does not ask respondents about their subjective or objective satisfaction with their living situation or environment. 

National Health Interview Survey (NHIS).  The NHIS has been collecting information on the health status, healthcare access, and health behaviors of individuals since 1963.  It includes measures of both objective and subjective physical and mental health as well as subjective financial satisfaction. 

Behavioral Risk Factor Surveillance System (BRFSS).  The BRFSS tracks health-related risk behaviors, chronic health conditions, and use of preventive services among individuals.  BRFSS completes more than 400,000 adult interviews each year, making it the largest continuously conducted health survey system in the world.  The BRFSS includes objective and subjective measures of physical health, mental health, and financial well-being. 

Survey of Consumer Finances (SCF).  The SCF is a triennial survey conducted by the Federal Reserve that provides comprehensive data on household balance sheets, income, pension, and other socioeconomic characteristics of households.  While the SCF is the most comprehensive public survey on household finance, it only contains questions on retirement income satisfaction and objective financial well-being. 

Understanding America Study (UAS).  The UAS is a relatively new nationally representative survey conducted by the University of Southern California to track a wide range of social, economic, and health behaviors across diverse populations.  The UAS contains measures of objective and subjective physical health and financial well-being.  It also includes questions of subjective mental health. 

The Medical Expenditure Panel Survey (MEPS).  The MEPS is a nationally representative, longitudinal dataset from 1996 to the present on health status, healthcare utilization, and healthcare expenditures for individuals.  In additional to objective and subjective health measures, the MEPS also includes information on objective financial wellness, mental well-being, and respondents’ living situation. 

Survey of Income and Program Participation (SIPP).  The SIPP is a nationally representative longitudinal survey that interviews individuals on a monthly basis, over a three-to-four year period.  The SIPP includes measures on subjective and objective health, as well as objective financial wellness. It also asks respondents about the safety of their neighborhood. 

Survey of Household Economics and Decisionmaking (SHED).  The SHED is an annual survey conducted by the Federal Reserve to gather data on financial well-being and focuses on topics such as income, savings, debt, access to financial services, and individuals’ experiences with economic hardship among households.  In addition to objective measures of financial well-being, the SHED also includes questions on objective and subjective health and objective living conditions.  

Endnotes

As part of an extended study on the risks faced by households approaching retirement, we just completed a project that focused on the risks associated with medical and long-term care costs. 

As it turns out, while medical risks are highly uncertain and potentially expensive, much of these risks are insured by Medicare (and Medicaid for those eligible for both programs).   Long-term care risks, in contrast, are not well insured.  Only 3 percent of all U.S. adults or 15 percent of those ages 65+ have long-term care insurance.  And a major finding was that people had little idea of the likelihood of needing long-term care or of the potential costs of that care. 

The implications of households underestimating their healthcare risks are that they may not plan well to protect themselves against these risks.  Without the appropriate insurance or resources, older households may have to make substantial adjustments or consider less-preferred options.  The question is, how realistic are those contingency plans?

The analysis was based on a 2024 Greenwald Research online survey of 508 individuals ages 48-78 with at least $100,000 in investable assets.  The survey included a question regarding what contingency plans respondents would consider if they could not afford their medical or long-term care expenses.  These contingency plans were then compared to reality using data from the Health and Retirement Study – a nationally representative sample of those over age 50 who are interviewed every two years.

Interestingly, about 60 percent of survey respondents said they would consider spending down to Medicaid, while only 30 percent said they would consider using their home equity or moving in with their children (see Figure 1).  However, many of these preferences may not be realistic.

Many older households who believe they can always fall back on Medicaid may not realize that the program’s income and asset limits require impoverishment.  In 2025, the monthly income limit for Medicaid eligibility for those over age 65 is typically around $2,800 ($5,600 for couples) and the asset limit is typically $2,000 ($3,000 for couples), but varies by state. 

Among households with more than $100,000 in investable assets, like those in our survey, almost none would qualify based on the standard income rules because their Social Security benefit and defined benefit income would put them above the limit.  Several states have special income rules for long-term care with slightly higher limits.  Even then, 70 percent of households in our sample would not qualify.  In reality, only 15 percent of households with more than $100,000 in initial assets will actually end up on Medicaid (see Figure 2), compared to the 60 percent of households who think that spending down to Medicaid is an option for them.

One of the least popular contingency options for financing healthcare costs is tapping home equity.  Less than a third of households said they would consider it.  However, in reality, over 40 percent will tap home equity in retirement – either by getting a second mortgage, applying for a home equity line of credit or other loans against the house, or downsizing and moving to a less valuable house (see Figure 3).

Finally, another unpopular option for managing healthcare needs among respondents is moving in with children.  Again, less than a third say they would consider this option.  Interestingly, in the real world, only about a quarter of older households in our wealth group end up living with their children (see Figure 4).  So, this option does seem like the least preferred back-up if plans fail.

In short, the uninsured components of healthcare costs in retirement – particularly those associated with long-term care – can be substantial, and older households do not have an accurate perception of these risks.  As a result, many will end up with inadequate resources.  When participants in our survey – individuals having $100,000 or more in investable assets – were asked how they would deal with such a situation, about 60 percent said they would spend down to qualify for Medicaid.  That is not a reasonable option for most given the program’s tight income and asset requirements.  In fact, only 15 percent of this group is ever likely to qualify for Medicaid.  Respondents were less enthusiastic about tapping their home equity, but many (over 40 percent), in fact, do tap home equity as a source of support.

Households approaching retirement face a wide variety of risks to their financial security.  They may live longer than planned and deplete their resources; they may experience unexpectedly high inflation; or they may receive unusually poor returns on their investments.  Equally consequential is the risk that households will face major expenses to cover medical and long-term care costs.  My colleagues and I just completed a study based on a new survey to determine the extent to which older adults understand the risks they face. 

The focus of our concern was primarily the costs associated with long-term care.  Of course, medical risks are highly uncertain and potentially expensive, but much of this risk is insured by Medicare (and Medicaid for those eligible for both programs).   

Long-term care risks, in contrast, are not well insured.  Only 3 percent of all U.S. adults or 15 percent of those ages 65+ have long-term care insurance, and Medicaid, the public insurance program targeted at low-income individuals, is not a realistic option for most middle-income families.

Yet, 80 percent of 65-year-olds will need long-term care at some point over their remaining life (see Table 1).  And while the intensity and duration of these long-term care needs vary substantially, about 40 percent will require high-intensity care for more than a year.

Given the extensive needs and lack of insurance, family members often cover the majority of care hours for people with low and moderate needs and supplement the efforts with paid caregivers as needs increase.   Paid LTC, however, is very costly – in 2023, the median annual costs were $116,800 for a private room in a nursing home, $75,500 for home health aides, and $64,200 for an assisted living facility.

To look at households’ perceptions regarding healthcare risks, Greenwald Research interviewed online 508 individuals ages 48-78 with at least $100,000 in investable assets in July 2024.  The results showed that medical and long-term care needs were low on most respondents’ list of concerns (see Figure 1) – a finding consistent with other studies.

Moreover, only 39 percent of older households could correctly estimate the cost of a nursing home, 34 percent for home care services, and only 15 percent for assisted living facilities (see Figure 2).

One reason that households have such big misperceptions about both the risks and the costs of long-term care is that survey after survey has found that many mistakenly believe that Medicare covers LTC.  The most recent example from KKF shows that 45 percent of respondents ages 65+ think that Medicare will pay for their LTC and another 9 percent think that their costs will be covered by private health insurance (see Table 2).

Underestimating healthcare risks – particularly the risks of long-term care needs – has real costs.  Households do not purchase long-term care insurance nor save in advance for such an event.  Instead, they are left on their own with inadequate resources to navigate a very demanding, complicated, and costly challenge.