Aug. 7, 2012
Last week on Washington Post's Wonkblog, Suzy Khimm reviewed a recent report from the National Bureau of Economic Research (NBER) that examines the asset holdings of elderly households near the end of life. The paper "Were They Prepared for Retirement? Financial Status at Advanced Ages in the HRS and AHEAD Cohorts" relies on data from the Health and Retirement Study and includes the striking finding that 46.1% of people in the study died with less than $10,000 in total assets, many with nothing more than their Social Security benefits.
As Khimm notes, the problem with low asset levels in old age is similar to the problem with low assets at any age: the inability to weather unexpected events. Asset poverty (defined as net worth low enough that a person cannot subsist at the poverty level for 3 months without income) is an all too common impediment to enjoying a comfortable retirement and old age. Low net worth is not just uncomfortable: the data presented here indicate that people with less wealth actually die sooner than those with more wealth. As the study reads, "there is a strong correspondence between the level of assets in 1993 and the number of yeras a person survives after 1993." In other words, higher levels of net worth (or wealth) are correlated with longevity.
Khimm also links to my recent post on the inefficiency of the mortgage interest deduction, remarking that the relationship between health and wealth is in fact "part of the reason there’s renewed interest in passing policies to help lower-income Americans build up their assets over the course of their life, as mortgage tax breaks and other assistance for asset-building predominantly benefit middle- and upper-income Americans."
I hope her assessment is accurate, and that this renewed interest translates into lasting change. NBER's research adds to a strong body of work demonstrating the connections between health and wealth across the lifespan. We know that improving people's economic security is a key part of keeping them healthy as they age. But how do we get there?
The tax code is indeed a great place to start. As our 2012 Assets Report infographic highlights, federal allocation of resources to support retirement savings for low-income people is woefully inadequate, with 99% of the benefits going to higher-income people through regressive tax subsidies. Addressing tax code inefficiencies like this and that of the mortgage interest deduction (which similarly accrues overwhelmingly to higher income people) is key.
Looking for equitable opportunities for retirement savings is another way to promote lifelong economic stability. Lower-wage workers are much less likely to have access to employer-based retirement savings. The over-concentration of people of color in low-wage jobs reinforces the gulf in economic security between white Americans and Americans of color in two key ways: first through the lower wages themselves, and second through less access to longer-term benefits like retirement savings. As a report from UC Berkeley recently noted, "less than one-third of employed Latinos and less than half of black workers are covered by an employer-sponsored retirement plan." As people leave the workforce, poverty remains higher among elderly people of color. Indeed, research from the Social Security Administration finds that people of color rely more heavily on Social Security as they age because they have less access to income from other assets.
A universal 401(k) model, such as the one detailed in Michael Calabrese's 2011 paper Facing Up to the Retirement Savings Deficit, would help workers at all income levels access the savings opportunities that lower income people are currently excluded from. Phil Longman also wrote recently on a lifespan approach to savings that would include people of all socioeconomic backgrounds. His work on the concept of American Stakeholder Accounts is available in last month's Washington Monthly issue. Reid Cramer's piece in the same issue highlights a range of other promising policies to similarly introduce lifelong savings opportunities to Americans at all income levels.
As Suzy Khimm reminds us, the study from NBER makes a robust case for supporting Social Security. Without it, elderly Americans, and particularly people of color and women (who frequently live longer than but earn less than men), will be financially vulnerable. The statistically significant relationship between financial vulnerability (low assets) and mortality makes the message plain: we can support good health by helping people build and preserve their wealth.