Rutgers research finds life after 65 in the United States is a "two worlds of aging" experience

Elderly couple walking

Photo: Adams Jones, Ph.D./Wikimedia Commons

Economic conditions have caused older Americans to see significant increases in financial inequality over the past three decades and it could get worse, according to a new Rutgers study. 

In the article “Cumulative Advantage, Cumulative Disadvantage and Evolving Patterns of Late-Life Inequality,” published online in The Gerontologist, Rutgers professor and lead author, Stephen Crystal and co-authors Dennis G. Shea and Adriana Reyes, from Pennsylvania State University, found that inequality is higher after age 64, and is especially apparent after age 74, than during traditional working years.

“Increasingly, life after age 65 in the U.S. is a ‘two worlds of aging’ experience, with the well-off older adults doing better and the less well-off part of the income distribution doing worse,” said Crystal, a professor in the Institute for Health, Health Care Policy and Aging Research and at the School of Social Work. “Based on the economic experience to date of people who are now in their middle years and will make up the future elderly, we can expect this problem to become worse, not better.”

In a line of work beginning in the 1980s, Crystal and Shea say the process, they refer to as cumulative advantage or cumultive disadvantage, shows how early economic, educational and other advantages can increase over a lifetime, causing these financial inequalities.  

This new study -- taken from data included in the Survey of Income and Program Paticipation -- compared inequality across age groups in 2010 versus data collected from similar goups in 1983 and 1984. The researchers examined the age-related inequality by measuring economic resources -- taking into account income, annuitized wealth and household size.  

Researchers found that between 1983-84 and 2010, the share of total income received by 65-to-74-year-olds in the lower 40 percent of the income distribution went down from 17 percent to 14 percent, while the share of income of the best-off 20 percent of those in the study increased from 46 percent to 48 percent. For people 75 and over, the share received by the lower 40 percent decreased from 15 percent to 14 percent, while the share of the top 20 percent increased from 47 percent to 50 percent, with the lower 80 percent receiving only 50 percent.

Concentration of wealth among older people also increased. By 2010, the top 20 percent accounted for 62 percent of total annuitized value of wealth. Overall, inequality within each birth group increased as its members moved from early to mid to later life. The sharpest increases occurred in the groups that reached ages 65-plus by 2010 (those born generally during the Great Depression and World War II) and those reaching ages 55 to 64 in 2010 (leading edge baby boomers). Although these groups experienced a lower-inequality environment during their earlier working years, as they moved into middle and later life in this higher-inequality environment, their financial inequality increased sharply. 

“Middle-aged and older people who are not members of the educational and economic elite have seen their financial security whittled away experienced by the disappearance of well-paying industrial jobs bearing good benefits, the disappearance of traditional pensions and other changes. They face a difficult future in their retirement years,” Crystal said.

Researchers say those who are not members of the financial elite depend more on Social Security income.They found that individuals in the lower 40 percent of the income distribution are heavily reliant on Social Security with the lowest 20 percent receiving 66 percent of their income from this source and the second quintile receiving 50 percent. The article states that many of these individuals have experienced an increasingly services-oriented economy with fewer well-paid industrial jobs, decreased family stability in lower-income groups and an increasing trend for higher-status men and women to marry one another. Changes in retirement income systems, such as the move from defined-benefit to defined-contribution pension arrangements, have also impacted retirement outcomes of lower-wage workers because individual retirement accounts have failed to make up the gap created by the erosion of traditional pensions.

“The current and projected levels of inequality in later life are not inevitable – they are strongly affected by policy choices, in areas ranging from Social Security to taxation to health care financing,” Crystal said. “We can and should do better in providing a decent floor for retirement income in the future. As the U.S. considers what to do about the looming shortfall in the Social Security Trust Fund – and whether to close it by providing more revenues to the fund, or by reducing the benefit levels provided under current law – the implications for the less-advantaged in America’s high-inequality retirement future need to be carefully considered.”

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