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Older Americans Are Better Off Than Ever
They invested for decades, are working longer and get bigger Social Security checks than past cohorts.
By John F. Cogan and Daniel L. Heil, WSJ
Nov. 9, 2023 5:32 pm ET
Wednesday’s Republican presidential debate confirmed that the issue of Social Security reform isn’t going away. But missing from the debate is some important context: The good life for senior citizens has never been better. Newly released Federal Reserve data reveal that seniors’ financial well-being is the best in U.S. history. Private markets and individual initiative, not Social Security, have been the driving forces behind seniors’ high income and wealth.
We used the Federal Reserve data to analyze four decades of income growth. We found that the inflation-adjusted income of the median household headed by someone 65 or older rose by 94% from 1982 to 2021. The increase was nearly three times the 35% increase among younger households.
For most of U.S. history, incomes of senior households have been well below those of younger households. But after adjusting for relevant differences—seniors live in smaller households and pay a lower portion of their income in taxes—this is no longer the case. As of 2018, the adjusted median household income of seniors equaled that of younger households. In 2021, despite Covid, seniors’ adjusted income continued to equal that of younger households.
Senior income growth has been broad-based, occurring across all education levels, household types and income distribution. Most notably, over the past four decades, incomes of the poorest 25% of senior households grew faster than those of middle-income senior households. Also, the inflation-adjusted median income of senior households headed by people 75 and older increased by 140%.
The growth in seniors’ household income is matched by an increase in their wealth. The typical senior household’s inflation-adjusted net wealth in mid-2022 was nearly 200% higher than it was in 1983. Households headed by people now 55 to 64 are positioned to continue this improvement. Their median wealth level is more than double that of today’s retirees when they were the same age.
Seniors’ remarkable financial status today is primarily thanks to decades of saving as well as continuing to work later in life. The increase in income from investing household savings and higher earnings from working past 65 account for 80% of the growth in the average senior household’s income. News reports that baby boomers weren’t saving enough for retirement were wrong.
Government policies to encourage younger workers to save for retirement and older workers to work longer have played an important role. The revolutionary changes in the retirement-savings landscape ushered in by the creation of individual retirement accounts in 1974 and 401(k)s in 1978 and their subsequent expansions were crucial to the growth in private savings. Employment among seniors reversed its long-term secular decline in the late 1980s for women and in the mid-1990s for men, and it steadily rose thereafter to 2019.
Part of this reversal is due to greater work incentives created by changes in tax policy and a reduced Social Security employment penalty. Since the sharp decline during the pandemic, seniors’ employment growth has returned, and it is likely to persist. The employment rate of senior women has already returned to its pre-pandemic level and the employment rate of senior men has recovered nearly two-thirds of its decline during the pandemic.
For the majority of seniors, Social Security has played a minor role in income growth. The typical senior household today enjoys Social Security benefits that have twice the purchasing power of benefits received by the average household in 1982. Yet because private savings and labor income have grown so much, Social Security’s contribution to income growth has been relatively small. Had Social Security benefits remained at their inflation-adjusted 1982 level, the typical senior household’s income would still have increased by 78%, more than twice as fast as the income of the typical younger household.
Social Security remains vital for lower-income seniors, but for upper-income ones it merely enhances their already comfortable lives. Despite this, the program’s benefit formula means the wealthiest seniors receive the biggest monthly checks. In 2021 the richest 10% of seniors received more than twice as much from Social Security as the bottom 10%.
Maintaining healthy financial trends for senior citizens requires robust labor and capital markets. Keeping tax rates on work, saving and capital formation low is the best way to ensure that these gains continue. This includes not only lowering tax rates on workers but reforming disability insurance and other safety-net programs to remove provisions that penalize work and savings. Lawmakers should also lift burdensome regulations that undermine private initiative and investments. The recently enacted Secure Act 2.0, which makes it easier for employers to offer 401(k) plans, was a good step.
The main threat to labor and capital markets is the rising national debt. Since Social Security, Medicare and other programs that assist seniors account for about 40% of non-interest federal spending, the growth in the national debt can’t be curtailed without reforming these programs. The high level of financial well-being enjoyed by most seniors provides Congress and the next president with an opportunity for reform.
Mr. Cogan is a senior fellow at Stanford University’s Hoover Institution and author of “The High Cost of Good Intentions.” Mr. Heil is a policy fellow at Hoover.