WP 2019-401

Recent literature has documented a widening gap in mortality in the United States between individuals with high socioeconomic status (SES) and low SES. An important question is whether this trend will continue. In this paper we document trends and inequalities in the health status at ages 54 to 60 of individuals born between 1934 and 1959. We do so by using detailed subjective and objective measures of health in the Health and Retirement Study to examine contributors to mortality inequality and to forecast life expectancy. We found that the health of individuals 54 to 60 years old has generally declined in recent years. In particular, we found large increases in obesity rates, notable increases in diabetes and reported levels of pain, and lower self-reported health and subjective survival probabilities. We also found strong evidence for increasing health inequalities, as the health of individuals in these cohorts with high SES remained largely stable while that for individuals with low SES declined. When we forecast life expectancies using these predictor variables, as well as gender- and SES-specific time trends, we predict overall life expectancy to increase further. However, the increase is concentrated among high SES individuals, suggesting growing mortality inequality. Results are similar among men and women.U.S. Social Security Administration Award RDR18000002, UM19-04https://deepblue.lib.umich.edu/bitstream/2027.42/152443/1/wp401.pdfDescription of wp401.pdf : Working pape

The Impact of Growing Health and Mortality Inequalities on Lifetime Social Security Payouts

The prevalence of obesity, diabetes, and other health problems has increased in recent decades in the United States, and there is a growing gap between the health and longevity of individuals with high socioeconomic status (SES) and low SES. These trends likely have implications for Social Security’s financial position in the coming decades. Because high-SES individuals tend to receive higher annual benefits and live longer, increases in health and mortality inequalities may result in increases in aggregate Social Security payouts. This paper uses data from the Health and Retirement Study, and a microsimulation model of health, mortality, and Social Security benefits, to forecast lifetime Social Security benefits of the 1934 to 1959 birth cohorts in the U.S. We compare alternative assumptions about the future course of mortality. We find that accounting for health and mortality inequalities is important. In a baseline model that ignores trends in mortality inequalities, we estimate that lifetime Social Security benefits would grow by 26% in real terms between the 1934 and 1959 birth cohorts due to increasing benefit levels and improvements in average mortality. When we account for mortality inequalities, we find an increase of 28% to 38% in average lifetime benefits, depending on the assumptions of the model. We also forecast lifetime benefits using the alternative assumption that improvements in population mortality will slow for younger birth cohorts.U.S. Social Security Administration, RDR18000002-02, UM20-04http://deepblue.lib.umich.edu/bitstream/2027.42/168223/1/wp412.pdfDescription of wp412.pdf : working paperSEL

WP 2017-372

As workers age, their physical and cognitive abilities tend to decline. This could lead to a mismatch between workers’ resources and the demands of their jobs, restricting future work. We use longitudinal data from the Health and Retirement Study (HRS) linked to detailed occupational characteristics from the O*NET project to investigate how mismatches between job demands and workers’ resources in two physical and two cognitive domains affect retirement outcomes. We estimate how changes in physical and cognitive resources as well as their interactions with occupational job-demands affect changes in 1) subjective reports of work-limiting health problems; 2) mental health; and 3) subjective probabilities of working past age 65. We also estimate hazard models for transitions from full-time work to retirement. We found that declines in physical and cognitive resources are strong predictors of all outcomes: Fewer resources lead to greater reporting of work-limiting health problems; decline in mental health; smaller subjective probabilities of working full-time past age 65; and more transitions from work to retirement. The interaction of resources with job demands, however, is only statistically significant for workers with large-muscle limitations who are more likely to report changes in outcomes when they work in occupations that rely heavily on physical strength. In contrast, the effects of declines in fine motor skills and cognition do not show statistically significant differences by occupational job demands. It appears cognitive and fine motor skills, at least as measured in the HRS, are universally important determinants of working, not specific to certain occupations.Social Security Administration, RRC08098401-09, R-UM17-10https://deepblue.lib.umich.edu/bitstream/2027.42/142346/1/wp372.pd

The Lifetime Risk of Spousal Nursing Home Use and its Economic Impact on the Community-Dwelling Spouse

A single person in a nursing home is relatively well-protected financially from nursing home expenses because Medicaid covers these once assets are depleted. Couples, however, are less well protected, because the high cost of nursing homes rapidly depletes household assets, possibly impoverishing the spouse living in the community, despite Medicaid provisions that shield spousal assets up to some threshold. In this paper, we estimate the lifetime risk that one spouse will reside in the community while the other resides in a nursing home, and the distribution of the accumulated number of days spent in a nursing home and costs. We use data from the longitudinal Health and Retirement Study and follow individuals and their spouses from age 70 to death. We also examine how spousal nursing home use affects families’ financial outcomes and to what extent Social Security income protects the community-residing spouse from the adverse effects of spousal nursing home use. We find that a 70- to 74-year-old married person who lives in the community faces a 34.3% chance that his or her spouse would move to a nursing home before death. When they do, spouses spend about nine months, on average, in nursing homes, and the average out-of-pocket cost is about $19,800 (2019 dollars). We find that spousal nursing home use significantly decreases households’ assets and increases the risk of further impoverishment. While Social Security income has an overall positive impact on families’ financial outcomes, it does not mitigate the financial effects of spousal nursing home use.U.S. Social Security Adminstration, RDR18000002-03, UM21-12http://deepblue.lib.umich.edu/bitstream/2027.42/171803/1/wp433.pdfDescription of wp433.pdf : working paperSEL

Explanations for the Decline in Spending at Older Ages

We use new data from the 2019 wave of the Consumption and Activities Mail Survey to help interpret the observed decline in spending as individuals age. At one extreme, forward-looking individuals optimally chose the decline; at the other, myopic individuals overspent and were forced to reduce spending because they had run out of wealth. Which interpretation is correct has important implications for the measurement of economic preparation for retirement. According to their own assessments, the fraction of respondents feeling financially constrained is lower at advanced ages, and the fraction satisfied with their economic situation is considerably higher at older ages than at ages near retirement. An important mechanism reconciling the evidence of reduced spending and greater economic satisfaction at older ages may be that individuals’ enjoyment of several activities declines with worsening health, widowing, and increasing age, leading to a lessening desire to spend on them. We find strong support for this hypothesis. Nonetheless, close to 20% of those older than 80 report not being satisfied with their financial situation, pointing to heterogeneity in economic security.The Social Security Administration through the Michigan Retirement and Disability Research Center award RDR18000002-03, UM21-10http://deepblue.lib.umich.edu/bitstream/2027.42/192453/1/wp440.pdfDescription of wp440.pdf : working paperSEL

Risk of Large Medical Expenditures at Older Ages and Their Impact on Economic Well-being

We study out-of-pocket (OOP) medical expenditure risk of the U.S. population ages 55 and older using data from the Health and Retirement Study and its supplemental survey on household spending. We document trends in individual-level OOP spending from 1998 to 2018, both at the median and 95th percentile, showing a large increase until 2004, followed by rapid declines, so that 2018 OOP was less than 1998 OOP spending. We show how these changes impacted the budget share of OOP as a fraction of total household spending and analyze how households adjust the composition of their spending as OOP expenses vary. Because the distribution of OOP expenses is skewed, households face a non-negligible risk of incurring a large expense. We examined the extent to which OOP medical expenditures contribute to economic hardship among older households, as measured by food insecurity and skipping medications because of cost. We found a weak relationship with respect to food insecurity, suggesting that government programs, like Medicaid, help protect against OOP risk leading to such as an extreme form of hardship. However, we obtained statistically significant and economically meaningful effects with respect to medication insecurity: An increase from the 10th to the 90th percentile in OOP spending would increase the probability of medication insecurity by about 15 percentage points. When asked about their perceived OOP risk, individuals tend to substantially overestimate the chances of large OOP spending, although less so at advanced ages; prior experience with OOP expenses seems to lead to more accurate expectations.The Social Security Administration through the Michigan Retirement and Disability Research Center award RDR18000002-04, UM22-09http://deepblue.lib.umich.edu/bitstream/2027.42/192617/1/wp457.pdfDescription of wp457.pdf : working paperSEL