Projecting Poverty Rates in 2020 for the 62 and Older Population: What Changes Can We Expect and Why?

PROJECTING POVERTY RATES IN 2020 FOR THE 62 AND OLDER POPULATION: WHAT CHANGES CAN WE EXPECT AND WHY? Barbara A. Butrica, The Urban Institute Karen Smith, The Urban Institute Eric Toder, Internal Revenue Service* August 2002 *This research report was performed pursuant to a grant from the U.S. Social Security Administration (SSA) to the Boston College Center for Retirement Research (CRR). The opinions and conclusions in this paper are solely those of the authors and should not be construed as representing the opinion or policy of SSA, the Internal Revenue Service, any other agency of the Federal Government or of the CRR. They also do not necessarily reflect the views of The Urban Institute, its Board, or its Sponsors. The authors wish to thank Jillian Berk for her superb research assistance and Howard Iams for his helpful comments. 2 I. INTRODUCTION...............................................................................................................1 II. Background..........................................................................................................................2 1. Trends in Marriage and Divorce..........................................................................................2 2. Trends in Earnings and Labor Force Participation..............................................................3 3. Trends in Economic Growth................................................................................................4 4. Trends in Poverty.................................................................................................................5 III. METHODOLOGY...............................................................................................................5 1. Description of Model of Income in the Near Term (MINT)...............................................5 2. Measuring Poverty Among the 62 and Over Population.....................................................7 IV. RETIREMENT INCOME IN THE EARLY 1990s.............................................................9 1. Per Capita Income by Source...............................................................................................9 2. Family Income Divided by Poverty...................................................................................11 3. Poverty Rates.....................................................................................................................12 4. Contribution to Poverty Rate by Subgroup........................................................................14 5. Importance of Sources of Income in Reducing Poverty....................................................15 V. RETIREMENT INCOME IN 2020...................................................................................17 1. Per Capita Income by Source.............................................................................................17 2. Family Income Divided by Poverty...................................................................................19 3. Poverty Rates.....................................................................................................................21 4. Contribution to Poverty Rate by Subgroup........................................................................22 5. Importance of Sources of Income in Reducing Poverty....................................................24 VI. EFFECTS OF USING DIFFERENT INCOME AND POVERTY MEASURES.............24 1. Effects of Alternative Ways of Measuring Income...........................................................24 2. Indexing the Poverty Threshold by Wages Instead of Prices............................................27 VII. CONTRIBUTIONS OF ECONOMIC, DEMOGRAPHIC, AND POLICY CHANGES TO POVERTY IN 2020.....................................................................................................30 1. Effects of Changes in the Normal Retirement Age...........................................................31 2. Effects of Changes in Marital Composition of Retirees Between Early 1990s and 2020............................................................................................................................................32 3. Effects of Changes in Relative Earnings for Post-1950 Birth Cohorts..............................37 4. Effects of Changes in the Earnings Distribution for Post-1950 Birth Cohorts..................38 VIII. CONCLUSIONS................................................................................................................39 I. INTRODUCTION The past 30 to 40 years have been accompanied by considerable changes in marriage patterns, earnings and work patterns, the economy, and retirement policy. While these changes will undoubtedly impact future retirees, it is difficult to know exactly how they will influence their economic well-being. The aim of this paper is to analyze the factors that may be related to increased or decreased poverty among the 62-