The Economics of Individual Aging Andrew Mason Economics 432

The Problem People are living to be 80 or more People are retiring in their 60s or younger How can they be supported in their old age? Three possibilities –Self-sufficiency – rely on personal wealth accumulated during working years –Public pension programs –Family (adult children)

The problem quantified

The Problem Quantified (cont) Source: US Current Population Survey 2000.

Source: Smith 1997.

Option 1: The Family Small percentage of elderly in the US live with their children Interhousehold monetary transfers from children to elderly parents are very small. Interhousehold time transfers are more important in the US. In many developing countries and some developed countries family support system is more important (but declining)

Option 2: Social Security Source: Smith 1997.

Option 3: Saving Budget constraint L – years lived; Yl – earnings T – transfers; C – consumption