Committee on Economic Security (CES)
Volume II. Old Age Security
Other Staff Reports
AMERICA'S OLD AGE PROBLEM
By Edwin E. Witte,
Executive Director of the President's Committee on Economic Security
At this time there are approximately 7,500,000 men and women in the United States who are 65 years of age or older. By 1970 there will be more than 15,000,000 people of this age group in the country; by the year 2000 above 19,000,000. The increase in the percentage of the aged will be only slightly less striking. Today somewhat less than 3% of the entire population is 65 and over; by 1970, more than 10% will fall in this class; and by the end of the century above 12%.
The question will naturally arise as to how it is possible to foretell how many people of 65 and over there will be in distant future years. No one can predict this fact with absolute certainty, but the figures given above do represent the probable minimum number of old people we shall have by these dates. Except for future immigrants, all those individuals who will reach the age of 65 before the year 2,000 are now living in this country. By applying the present expected mortality rates and estimating the probable immigration, it is a comparatively simple matter for actuaries to forecast the number of persons 65 and over for any year of this country. These estimates cannot make allowance for such factors as a possible lowering of the mortality rates among the aged resulting from future discoveries of cures for certain diseases such as cancer and heart disease, which now afflict older age groups; nor can they account the possibility of another great war which would reduce the number of persons reaching an advanced age. Such unpredictable factors may alter the figures considerably, but with all this, they are probably more accurate than any other types of projections into the future.
Not only the absolute number but the proportion of old people to the total population will increase remarkably in the next half century.
The explanation for this phenomenon is to be found primarily in decreasing birth rates, reduction of immigration, and the lengthening average span of life. The United States is rapidly approaching a stationary population, such as France and England have already attained. Birth rates have decreased rapidly since the World War, particularly since the depression set in. In 1930 there were less children under 5 years of age than in 1920. From 1920 to 1932 the birth rate per thousand decreased from 23.7 to 17.4--a decrease of 27% in 12 years--while the death rate declined from 13.1 to 10.9 deaths per thousand in the same period. In both 1932 and 1933 more people left the United States than came to our shores, these being the first years in the entire history of the country that this has occurred. With complete recovery, immigration will probably again exceed emigration, but it is very unlikely we will ever again admit any such large numbers of immigrants as swelled our population in past decades.
The percentage of the aged in the population has been increasing in each census. In 1860, those 65 and over constituted but 2.7% of the total number; in 1900, 4.1% in 1930, 5.4%. In time this increase in the percentage of the aged will cease, unless the chronic diseases from which old people die should be reduced, as is true of so many of the contagious diseases which are the principal causes of death in the younger age groups. However, a stable age distribution will not be attained until some decades after we have reached a stationery population. No foreign country has yet attained that state, inasmuch as a stationary population is but a recent phenomenon in these countries. Nevertheless, in those countries in which the population is stationary or almost so, the percentages of the total who are old approximates the forecasts made for this country. Unless present tendencies are sharply reversed, this country will attain a stationary population in 20 or 25 years and, by the end of the century, a stable distribution of population by age groups. By that time at least one-eighth of the total population will be 65 years of age and over.
Accompanying this increase in the number and percentage of the aged has been some tendency toward eliminating men from industry at earlier ages. This is by no means as general or pronounced as is commonly believed. The percentage of the older people in some industries is actually increasing, but with greater mechanization the general trend is in the other direction. During the depression a large percentage of the older workers (although relatively no more so than in younger age groups) lost their jobs and these older men are experiencing far more difficulty in finding other work than is true of the younger man.
Numerous surveys made before the depression indicated that from one-third to one-half of the aged were dependent upon others for all or a part of their support. The depression, which wrought havoc with the savings of so many families, has greatly aggravated this situation. In the case of people now middle aged it has meant the destruction of whatever security they had been able to build up for their later years. With savings gone and with but slight opportunity for work at good wages, it is extremely unlikely that these people will be able unaided to provide adequately for their old age during the few remaining years of their working lives.
Most of the needy old people have been and are still being supported, in whole or in part, by their children, other relatives, and friends. The depression has made it impossible for many children to continue to support their parents and consequently many more of the aged have had to resort to relief. In the nine months from December, 1933, to October, 1934, the number of people on old age pension rolls under state laws increased from 115,000 to 180,000. A much larger number of those 65 or over somewhere between 700,000 and 800,000 are on Federal Emergency Relief lists, and an unknown number are in receipt of relief from purely local funds. A total of about 1,000,000 people over 65 are now actually receiving financial assistance from public funds and the majority of these are entirely dependent on this source.
Non-contributory old age pensions have everywhere been considered the best means of providing for those aged who must be supported by the public and who do not need institutional care. While they must be granted on the basis of need, the regularity and popular approval of such pensions make them vastly preferable to relief. Twenty-eight states and two territories already have old age assistance laws and with public sentiment strongly crystallized in favor of old age pensions it seems highly probable that such laws will soon be enacted in all states. This is in conformity with the practice in nearly all civilized countries where old age pension systems are now in operation on a nation-wide basis.
Non-contributory old age pensions will entail a very considerable cost. While, at the outset, probably not more than 15% of all those who are 65 and upward will be able to qualify for pensions and many of these will need only small grants, this percentage is very likely to increase considerably. In England more than 60% of all people over 70 have qualified assistance on a means test basis. A somewhat smaller percentage of those 65 to 70 years of age are dependent than are those 70 and over, but actuaries estimate that ultimately 50% of all persons who are 65 and over may qualify for pensions. With more than twice as many people over 65 as there are now, such a dependency ratio would by 1980 involve a total pension cost (estimated on an assumed average pension of $25) of nearly $2,600,000,000. Under the pending Social Security Bill this cost would be divided equally between the federal and state governments.
The above estimate assumes that non-contributory old age pensions will be our only measure of security for the aged. The Administration bill, however, proposes that a contributory annuity system be inaugurated almost simultaneously with federal grants-in-aid, for non-contributory pensions. It this is done it is estimated that the cost of the non-contributory old age pensions in 1980 can be considerably reduced. According to actuarial calculations, the cost will be from less than one-fourth to one-half the total of old age pensions alone, the range depending upon the number who might be brought under the system. In any event, the self-employed groups must be excluded, and agricultural, domestic, and casual worker can only very uncertainly and with great difficulty be brought under the system. Because there are bound to be exclusions, the need for old age pensions on a means test basis will remain. The more exclusions from the contributory system there are the greater the cost of the non-contributory pensions. Unless there are still broader exclusions than those mentioned, however, the contributory annuities will in time very materially lessen the cost of the old age pensions.
Such a contributory system can be made entirely self-supporting, as will be the alternative plan of the Committee on Economic Security which was presented to the House Ways and Means Committee by Secretary Morgenthau. Under that plan substantial annuities will be paid to people now middle-aged, whose own contributions will buy but a small pension at age 65.
Yet the entire system will be supported wholly from contributions, with no federal subsidy at any time.
Contributory annuities are desirable for still another reason. Under a contributory system a young worker can, with matching contributions from his employers, provide for his old age on a much more adequate basis than is possible with only non-contributory pensions. No country has ever given free pensions to old people except on a needs basis. This country cannot afford to do so now. It is only when people have built up their own provisions for old age that need can be disregarded or an annuity paid which is sufficient for comfort, and not merely for subsistence.
When, as Governor of New York, President Roosevelt signed the State old age pension act, he declared that a permanent solution of the problem of supporting the aged must include a contributory annuity system. Non-contributory pensions for the needy must be established now throughout this country and substantial federal aid for this purpose cannot be avoided. A contributory annuity system will certainly follow ere long and, the sooner it is set upon, the less will be the total cost of the Government in future years.
Provision for the aged will, in any event, be a very great charge upon the income of the next and succeeding generations. Those now living will see the number of old people increase both absolutely and relatively to more than twice their present number. Without a contributory annuity system four to six times as many old people as at present will be dependent upon public assistance. Men who reach the age of 65 will on the average (at present mortality rates) still live nearly 12 years; women 15. To provide support for such long periods is unavoidably costly.
The aged of any given time, like the rest of the population, must be supported primarily from current income, inasmuch as commodities needed by consumers can be stored only to a very limited extent. Provisions for old age do not alter this fundamental fact, but do operate to give old people a definite claim upon a portion of the current income sufficient to provide for their needs. Such provisions are vitally important both to the individual and to society. Without them old people lack security and governmental expenditures for supporting the dependent aged will become unbearable. To give such security and to reduce future tax burdens is the aim of the Administration's Social Security Bill.