Ch. 14 The Economics of Aging
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How are finances experienced by older adults in general?
- less income (drops to about half or one-third, have fixed incomes unless returning to work)
- constant inflation (prices go up which make living with fixed incomes difficult)
- marriage protects (better income)
- improved over time (poverty levels decreased over time)
Where are the sources of income shifting to in later life?
social security and assets rather than earnings income
Who are todays oldest cohort and what were their lives like?
- children of the great depression
- less children, more jobs available, and better educated (all leading to cumulative advantage)
What challenges did the aging baby boomers face and what were the results of those challenges?
- more economic challenges because they did not save as much as the oldest cohort
- resulted in delaying marriage for education, having fewer children and waiting to have children, and women went to work
How does social security work and what is the future of social security?
- children pay for your social security
- less social security will be available in the future due to less workers available for the increase in retirees
What are the options for restoring social security?
- restoring the trust fund
- means testing
What are the ways for restoring the trust fund and what would happen?
- raising the retirement age (leads to job discrimination, competition for jobs, and ability to obtain job varies based on life expectancies)
- reducing benefits (having to change "credit" formula and eliminate cost of living adjustments)
- increasing revenues
What is the current means testing and how would it change based on the proposed affluence test?
- current means testing is very low providing benefits to a high range of people including the upper class
- proposed affluence test would prevent benefits to the 1% (upper class) and thus discourage saving that would potentially put some people into the upper class level
What is the idea behind privatization and potential problems with this idea?
- providing people with the ability to save their own money
- allow the government to invest our money in stocks to save our money for us
- problems with these ideas are: not everyone has expert financial advisors or is good at saving money
What are the private sources of income in old age?
- employer pensions (defined benefit plans and defined contribution plans)
- personal savings
What is involved in Defined Benefit Plans?
- vesting rules (how long you have to stay with employer)
- Employee retirement income security act (required companies to establish minimum vesting standards, set more stringent funding requirements, and establish better methods of reporting plan benefits and finances to workers)
- Pension Benefit Guarantee Corporation (assists companies with paying employee defined benefit pan when company falls)
What is involved in Defined contribution plans?
company contributes a specific amount of money to match the amount put in from paycheck (have to stay with company 5 years to receive contributions)
What would you like to do?
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