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Economic

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Rural Development

Research Report

Number 80

The Role of the

Elderly's Income in

Rural Development

Robert A. Hoppe
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The Role of the Elderly's Income in Rural Development. By Robert

A. Hoppe, Agriculture and Rural Economy Division, Economic Research Service.

U.S. Department of Agriculture. Rural Development Research Report No. 80.

Abstract

The elderly receive substantial property income (interest, dividends, and rent)

and transfer payments (mostly from Government programs, such as Social

Security), which, if spent locally, can create jobs and help stabilize local

economies. Some rural development specialists advocate attracting older

migrants to stimulate local economies. However, the elderiy's property and

transfer income is not a panacea for rural economic development. While elderly

migrants have contributed to economic growth in some nonmetro areas,

attracting them to stimulate rural economies is limited by the number of elderly

of adequate means who are willing to move. Many elderly are poor,

particularly in nonmetro areas. Providing the local elderly poor with services

may be a more pressing issue for some nonmetro areas than attracting more

elderly. Development strategies that rely on the income of the elderly must

also consider the future of the Social Security Program, since it provides about

a third of the elderiy's income.

Keywords: Elderly, aged, transfer payments, Social Security, property

Income, investment income, unearned income, economic

development, rural development, poverty, rural poverty,

nonmetro areas, rural areas

Acknowledgments

I thank reviewers of this report for their helpful comments. Reviewers at the

Economic Research Service (ERS), Agriculture and Rural Economy Division,

were Calvin Beale, Susan E. Bentley, Richard J. Reeder, and Carolyn C. Rogers.

Reviewers at the U.S. Department of Commerce, Bureau of the Census, were

Arnold Goldstein and Daniel Kasprzyk. Thanks also go to Rita Petroni and

Rajendra Singh (Census Bureau) for their assistance with the significance

testing. I thank Mary Maher for her editorial assistance and Victor B. Phillips,

Jr., for his graphic assistance. Finally, I also thank Robert B. demons (formeriy

with ERS, now with the Census Bureau) for extracting data from the Census

Bureau's computer files.

1301 New York Avenue, NW.

Washington, DC 20005-4788 January 1991
Contents

Page

Summary ..... . . . . Hi

Glossary . . . . . ..... . . ... ............ v

Introduction . . . . 1

Data and Definitions 2

BEA Local Area Personal Income Series .V . . ..... ...... , ... .3

Survey of Income and Program Participation ............. . . . 3

Defining the Elderly . ...... ......... , . ..... . . ... ..... 3

Unit of Observation . . . . . . . . . ..... ... . . ........ . . ... . 4

Significance Testing . .... . . ................. .....,.., 4

The Elderly'^s Sources of Income . . .... . . . . .... ... . . . . . .... 4

Income Levels Among the Elderly . ... . . . . . ... ............ . 6

The Elderly's Share of Income ..................... .... . . 9

SIPP Income . . .......... . . ..... 9

BEA Property and Transfer Income ...... ......... ... . . . . .11

Implications ......... . . ............................. 12

Local Economic Impact ... .... . . ... ............ . . ..... 13

The Future of Social Security ..... . . . . . . , . . . . . . .... ..... 14

Beyond the Elderly ............ .... . . . ....... ... . .... 14

A Final Note .............. . . , . . . ....... , . .......... 14

References ......... . . ... . . . . . . . . . 15

Appendix 1: Underreporting . .......... ...... . . . .... ... 18

Appendix 2: Allocating BEA Unearned Income . . 19

Appendix 3' The Future of Social Security . . . . . . . ..... . . . . . .22
Summary

The elderly receive substantial property income (interest, dividends, and rent)

and transfer payments (mostly from Government programs, such as Social

Security). If spent locally, this income can create jobs and help stabilize local

economies. Some rural development specialists even advocate attracting older

migrants from elsewhere to stimulate local economies.

However, the elderly's income is not a panacea for rural economic

development. The elderly's share of property and transfer income is often

exaggerated. Many elderly are poor, especially in nonmetro areas, and have

little money to spend. Advantages and disadvantages of capturing the income

of the elderly as a development strategy should be weighed carefully.

This report examines the sources and levels of income among the U.S. elderly,

particularly in nonmetro areas. It estimates the share of transfer and property

income that actually goes to the elderly, and identifies the elderly's most

important sources of income. Because Social Security provides a third of the

elderly's income, the future of that program is also examined.

Transfer payments and property income have become large sources of income.

According to the Survey of Income and Program Participation (SIPP), these

sources provided about a quarter of total income in the early 1980's,

Households headed by the elderly received nearly half of the transfer and

property income, although such households formed only 21 percent of all U.S.

households.

The elderly's large transfer and property income can have an important impact

on nonmetro areas that attract older migrants. It also can be important in

nonmetro areas where the elderly form a large share of the population because

of outmigration of younger people. For example, the elderly's transfer and

property income may make local economies less susceptible to variations in

employment by local Industries. The elderly's income also has multiplier

effects: by spending their income, the elderly create jobs. Attracting elderly

migrants has contributed to rural economic growth. The per capita income gap

between metro and nonmetro counties narrowed only in nonmetro retirement

counties that received substantial influxes of people at least 60 years of age.

However, the property and transfer income of the elderly has some drawbacks

as a rural development tool. For example, the potential for attracting the

elderly as a development strategy is limited by the number of elderly of

adequate means who are willing to move. And, the jobs created by the

elderly's spending may be relatively low-paying. Much of the elderly's

spending goes for purchases from retail stores and service firms, which often

pay relatively low wages. Some counties with a small population and business

base may not benefit much from potential multiplier effects. Sufficient local

businesses must exist, or the elderly will have to shop elsewhere.

The elderly should not be viewed solely as potential business customers. Many

elderly are poor, particularly in nonmetro areas. For some nonmetro areas,

ill
finding ways to provide services to the local elderly poor may be a more

pressing issue than finding ways to attract elderly people with income to

spend. Most elderly are in good health, both physically and financiafly. As

they age, however, some will become frail, and some may outlive their assets.

They may eventually need help.

Not all property income goes to elderly people of modest means who are

drawing interest to use in their retirement. People of all ages in the upper

income brackets who have accumulated assets also receive property income.

Over time, a more unequal income xllstribution could develop in the nonmetro

areas depending on property income.

About a third of the income of the elderly comes from Social Security. The

share is even higher in nonmetro areas, about two-fifths. The future of the

Social Security Program is critical to rural areas depending on income from

migrating or native elderly. Anyone devising development strategies based on

the income of the elderly must recognize the importance of Social Security,

both now and in the future.

IV
Glossary

Elderly

Anyone 65 years of age or over. When income levels and poverty status of the

elderly are examined in this report, the elderly population is divided into two

groups: the seniors and the aged.

Seniors

Anyone between the ages of 65 and 74 years.

Aged

Anyone 75 years of age or over.

Family

A group of two or more people related by birth, marriage, or adoption who live

together.

Household

All the people living in a housing unit. A house, an apartment, or a single room

is considered a housing unit if it is occupied as separate living quarters; if the

occupants do not live or eat with any other people in the building; and if there

is direct access from outside or indirect access through a common hall.

Income

Cash or other material benefits periodically received by persons, families, or

households. Income is commonly classified as earned or unearned.

Earned income (or earnings)

Income from work. The work can be performed for others (a wage or salary

job) or for oneself (self-employment).

Unearned income

Income from property and transfer payments. Unearned income comes from

sources other than earnings from employment. Unearned income often

reflects earned income received earlier in life. For example, elderly people

now receive Social Security and interest payments because they used some

of their wages in the past to pay Social Security payroll taxes and to save.

Property income. Income from investments. Includes dividends, interest, net

rental income, income from estates or trusts, and income from royalties and

other investments.

• Dividends. Payments to stockholders of corporations organized to make

a profit.

• interest Includes interest received from savings accounts, money

market deposit accounts, certificates of deposit, and interest-bearing

checking accounts held at banks, savings and loan associations, and

credit unions. Interest also comes from mortgages, money market

mutual funds, and municipal and corporate bonds. Depending on the

data source, interest may or may not include imputed interest. Imputed
interest consists of the value of services provided without charge to

depositors by financial institutions and income credited to individuals'

accounts by life insurance companies and uninsured private pension

funds.

• Rent Income, after expenses, received from renting out real property.

Depending on the data source/ rent may or may not include imputed

rent. Imputed rent is the net rental value of owner-occupied housing,

after expenses. In other words, net imputed rent is equal to what

homeowners would have paid to rent their housing unit, minus

expenses.

• Royalties. Income from patents, copyrights, and rights to natural

resources.

Transfer payments (transfers). Income for which no work was performed in

the current period.

• Government transfer payments. Transfers provided by Government

programs. The categories of Government transfer payments examined

in this report are: retirement and related programs, medical payments,

income maintenance, and veterans' benefits.

Retirement and related programs. Government programs that provide

income to retirees, disabled workers, and their dependents. These

programs include: Social Security, railroad retirement. Federal civilian

retirement, military retirement. State and local government retirement,

workers' compensation. State temporary disability payments, and

black lung payments. Participation in these programs requires a

previous work history.

Medical payments. Benefits from three Government medical

programs: Medicare, Medicaid, and Civilian Health and Medical Pran

of the Uniformed Services (GHAMPUS). Medicare is paid to vendors

of medical services on behalf of elderly and disabled Social Security

recipients. Medicaid is paid to vendors of medical care on behalf of

certain groups of needy people. CHAMPÚS payments are for medical

treatment at civilian facilities of dependents of active military

personnel and retired military personnel and their dependents.

Income maintenance. Government programs targeted at low-income

people. These programs do not require a work history for eligibility.

Supplemental Security Income (SSI) provides income to needy

disabled, blind, and elderly people. The Food Stamp Program

provides coupons to use when purchasing food. Other income

maintenance programs include: Aid to Families with Dependent

Children (AFDC); Special Supplemental Food Program for Women,

Infants, and Children (WIC); general assistance; refugee assistance;

and foster home care payments.

Veterans' benefits. Benefits received from veterans' programs,

mostly from veterans' compensation and veterans' pensions.

Veterans' compensation provides income for veterans with a serviceconnected disability and for their survivors. Recipients need not have

a low income to be eligible. Veterans' pensions are for disabled war

Vi
veterans whose disability is not service-connected, elderly war

veterans, and survivors of war veterans. Recipients of veterans'

pensions must meet low-income requirements.

• Private transfer payments. Transfer payments from a source other than

the Government. Includes private retirement benefits, income from

relatives or friends, charity, alimony, and child support.

Private retirement. Company or union pensions; other private

payments for retirement, disability, or survivors; and income from

paid-up life insurance policies or annuities.

Local area personal income

Income received by all the residents of a county or county-equivalent area. It is

calculated as the total income received by local people from wages and

salaries, other labor income, self-employment, property income, and transfer

payments, minus personal contributions for social insurance.

Metro areas

Defined by the U.S. Office of Management and Budget as geographic areas

with a large population nucleus, plus adjacent communities that are

economically and socially integrated with that nucleus. Metro areas generally

have a central city or urban core of at least 50,000 residents and a total

population of 100,000 or more.

Nonmetro areas

Territories outside metro areas. Nonmetro data are commonly used to

represent rural areas and small towns.

Poor

Belonging to a family with an income below the poverty threshold. In the

computer data file used to determiné poverty status in this report, each person

is assigned a variable recording the total income of his or her family for each

month and a variable recording the poverty level for his or her family each

month. Family membership can change from month to month. The poverty

level varies with the size of family, age of family head, and number of children.

The poverty level for the entire 12-month period is the sum of the 12 monthly

poverty levels. If the sum of the 12 income amounts is less than the 12-month

poverty level, the person is considered to be poor. This procedure differs from

that used to derive the official poverty statistics from the Current Population

Survey. The official procedure fixes family composition as of the March

interview, adds family members' income during the previous calendar year, and

compares the sum to an annual poverty threshold.

Retirement counties

Nonmetro counties that experienced, between 1970 and 1980, net inmigration

of people age 60 and over equal to 15 percent or more of the people of that

age in the county in 1980.

Vlj
The Role of the Elderly's Income

in Rural Development

Robert A. Hoppe*

Introduction

Some rural development specialists have

suggested that property income {dividends,

interest, and rent) and Government transfer

payments (such as Social Security) can be

developed as an economic base for local economies (4, 5, 19, 34, 40, 41, 42, 45, 47, 48),'

They often note that retirees, or the elderly,

receive a disproportionate amount of these sources

of unearned income (see Glossary for definitions).^ Thus, efforts of local areas to attract

retirees or to provide places for the local elderly to

shop can ensure a relatively stable source of

income for local businesses. Glen C. Pulver

summarized this development strategy and the

reasoning behind it:

Less well recognized is the large share

of personal income controlled primarily

by people of retirement age. In 1983,

14.2 percent of personal income came

from transfer payments, most of which

are social security, medicare, and medicaid payments. Another 17.7 percent

came from dividends, interest, and rent.

This property income also goes in substantial measure to the elderly population...Recent research has shown that

the elderly population are not only an

important source of income and thus

local retail sales and service revenue

and bank deposits but they also produce

high employment multipliers...^34).

Rural development specialists investigating the

income of the elderly emphasize the growing

* The author is a senior economist with the Agriculture and

Rural Economy Division, Economic Research Service, U.S.

Department of Agriculture.

^ Italicized numbers in parentheses refer to sources cited in

the References section.

^ For a detailed discussion of the importance of unearned

income in rural areas, see Bentley (8). The word "unearned" i

not derogatory; it identifies income from sources other than

employment.

importance of unearned income (especially

transfers) to nonmetro areas. Figure 1 shows data

from the U.S. Department of Commerce's Bureau

of Economic Analysis (BEA) often used to point

out the large share of income from unearned

sources. Much more income came from unearned

sources in 1988 than in 1969, although the

growth in unearned income's share of total income

has leveled off. Development specialists generally

state that a large share of unearned income goes

to retirees or the elderly and suggest ways that

local areas can capture this income. The research

may also include examples of multiplier effects on

local economies.

Elderly migrants apparently have contributed to

nonmetro economic growth. Per capita income is

generally lower in nonmetro than metro counties

(22, 23), However, the gap in per capita income

between metro areas as a whole and various types

Figure 1

Unearned income has become a large share

of total personal Income in the United States

Percent of personal income

50

40 -

30

20

10

U.S. total

J I \ L-J I \ I \ l_l I L I I I I

1969 71 73 75 77 79 81 83 85

Note: Unearned income consists of transfer payments and property Income.

Soitfce: BEA (58).

88
of nonmetro counties declined only in nonmetro

retirement counties (see Glossary), those

experiencing substantial inmigration of people at

least 60 years of age (17, 18), Both population

and employment growth during the 1980's were

higher in retirement counties than in other types of

nonmetro counties r/4A^

The income of the elderly can also contribute to

the economies of counties that have not attracted

elderly migrants. All counties have a native elderly

population in place. In nonmetro counties that

have experienced substantial outmigration of

younger people, the native elderly form a large

portion of the population and can make an

important contribution to the local economy.

Reeder and Glasgow (36) identified 376 nonmetro

counties that did not experience heavy inmigration

of older people, but that had at least a sixth of

their populations represented by the elderly.

Retaining the elderly (and their income) may be

critical to these local economies.

The potential role of the efderjy's income as a

development tool, however, should not be

overemphasized. For example, the proportion of

the elderly population that migrates to retirement

areas is small. Older people generally stay where

they spent most of their adult lives (49), The

elderly are actually less likely to migrate than other

people. For example, only 0.9 percent of the

population at least 65 years of age moved to

another State between 1986 and 1987, compared

with 3.1 percent of those under 65 years (54).

Elderly recipients of transfer and property income

are less constrained by the location of a job than

are people depending on earned income (30), But,

although these sources of unearned income make

it possible for older people to migrate (to

retirement areas, for example), the overwhelming

majority do not do so.

This report examines the elderly's sources of

income that could form an economic base for rural

development. This report does not analyze levels

and sources of income of the elderly by race,

Hispanic origin, sex, labor force participation, or

other detailed characteristics. Such an analysis

would be useful for a complete assessment of the

social and economic status of the elderly, but is

beyond the scope of this report. For a discussion

of the economic and social status of the rural

elderly, see Glasgow (13).

^ The economic base of individual retirement counties,

however, may include more than retirees. Not all of the growth

in these counties can be attributed to inmigration of retirees.

Advantages and disadvantages of development

strategies based on the income of the elderly

should be weighed carefully. To realistically

assess the rural development potential of the

elderly's property and transfer income, we need to

fill some gaps in our information about the income

of the elderly. This report helps fill these gaps by

exploring four questions:

• What are the sources of income among the

U.S. elderly? Changes in legislation that affect

a specific source of income could affect the

elderly and, hence, nonmetro areas trying to

attract the elderly.

• What are the income levels among the U.S.

elderly? This question is particularly important

to nonmetro areas with inmigration of the

elderly. It is obviously better to attract the

more affluent elderly, who have more money

to spend. But how many are there?

• What are the sources and levels of income

among the nonmetro elderly? For nonmetro

areas that are unable to attract well-to do

elderly migrants, understanding the income of

the elderly already in residence is important.

For example, if the nonmetro elderly depend on

different Government programs than do the

elderly in general, nonmetro areas will want to

closely monitor proposed legislative changes in

these programs.

• How large a share of various sources of

income actually goes to the elderly? In

particular, how much of the property and

transfer income reported by the BEA actually

goes to the elderly? People other than the

elderly can receive property income. Programs

designed to serve the elderly, such as Social

Security, also provide benefits to disabled

workers and survivors of deceased workers. A

vague assumption that a particular source of

income goes largely to the elderly may be

misleading.

Data and Definitions

The first three questions can easily be answered,

given a suitable database, such as the Survey of

Income and Program Participation <SIPP). The

SIPP is a new survey that provides detailed data

about income recipients. A combination of SIPP

and BEA data are used to answer the fourth

question. SIPP data are used alone to examine the

elderly's share of various sources of income, while

ratios developed from SIPP data are used to
allocate BEA income between the elderly and

nonelderly.

BEA Local Area

Personal Income Series

The BEA data are frequently used to follow trends

in personal income in local areas. The BEA

provides annual estimates of personal income from

transfers, property, and earnings for each county

and equivalent area in the United States (56),

Transfers by program and earnings by industry are

given in detail each year. The BEA aggregates the

county data into income estimates for the whole

Nation, metro areas, and nonmetro areas. The

data are derived from administrative records kept

by various State and Federal agencies and from a

variety of censuses and surveys.

However, the BEA data show only the income

received by all people in a given area. The data do

not provide information about who receives the

income. For example, the BEA data provide no

demographic information about income recipients.

Therefore, the BEA data need to be supplemented

with other data in order to find how much of each

source of income goes to the elderly.

Survey of income and

Program Participation ^

The SIPP provides information about the

characteristics of people receiving various types of

income. The survey was originally designed to

provide detailed information about property and

transfer income, among other topics. The SIPP is

particularly suited for research about the elderly,

who depend heavily on these sources of income.

For more information about using the SIPP for

research on the elderly, see McMillen, Taeuber,

and Marks (33).

The SIPP is a complex longitudinal survey. The

survey collects monthly data continuously from

the same people over a period lasting 2 years and

8 months. A new sample, or panel, is introduced

each year. At any given time, two or three

different panels may be in the field simultaneously.

The households in each panel are assigned to one

of four groups to be interviewed (rotation groups).

In each interview period, or wave, all rotation

groups are administered the same questionnaire.

It takes 4 months to complete a wave, because

only one rotation group is interviewed each month.

During each interview, data for the previous 4

* The following description of the SIPP is largely based on

Hoppe (21).

months are collected. Because the SIPP is a

sample survey, it is subject to underreporting. {For

more information about underreporting, see

appendix 1.)

The Bureau of the Census, U.S. Department of

Commerce, produced an edited, 12-month

longitudinal research file that contains selected

data from waves one through four of the first

(1984) panel. An extract from that research file is

the SIPP data source used in this report. The 12

months covered vary among rotation groups and

do not form a particular fiscal or calendar year.

The four 12-month periods are June 1983 through

May 1984, July 1983 through June 1984, August

1983 through July 1984, and September 1983

through August 1984. The varying periods result

from the complex monthly interviewing scheme

described above. The research file uses the

metro-nonmetro designations used in the 1980

census.

Because the quality of estimates from the

longitudinal research file is still unknown, the data

should be considered experimental and should be

interpreted with caution. When the file was

created, the Census Bureau was trying to resolve

technical and methodological issues regarding the

data set.

Defining the Elderly

The most common definition of the elderly is all

persons 65 years of age and over, the traditional

retirement age. Otto von Bismarck, the German

Empire's "Iron Chancellor," is generally credited

with selecting 65 as the minimum retirement age

in the 1880's. But, he actually picked age 70.

Germany later lowered the minimum age to 65

during World War I. Benefits were generous, but

life was short, so Germany's retirement program

cost little (50), Because this cutoff was

established long ago by a central European empire

that no longer exists, it may not be particularly

relevant today.

Some analysts use a range of definitions. Two

Census Bureau publications (43^ 49) used four

definitions:

• The older population: age 55 (or 60) and

over,

• The elderly population: age 65 and over,

• The aged population: age 75 and over, and

• The very old population: age 85 and over.
Some characteristics vary by age among the older

population. The incidence of poverty, for example,

increases sharply with age (49),

The elderly could be defined simply as those who

have retired/Current retirement programs, both

public and private, frequently allow and encourage

workers to retire before age 65. Many people

have taken advantage of the programs' early

retirement provisions in recent years.

One common practice is to define the retired as

those people above an arbitrary age, such as 55,

who are not in the labor force (37). This

procedure, however, excludes those at least 65

years of age who continue to work. Abouti?

percent of men and 8 percent of women who

were 65 years of age or over were still in the

labor force in 1989 reOA Excluding these

workers from my analysis is undesirable, because

I wish to examine the sources of income of all

the elderly, however defined, including the

working elderly.

This report conforms to tradition and simply

defines the elderly as the population at least 65

years of age, as of the last month on the

longitudinal research file. With this definition,

the results can be compared with most other

statistics and studies, which define the elderly

the same way.

When income levels and poverty status of the

elderly population are examined, the elderly

population is divided into two groups: the

seniors (65 through 74 years of age) and the

aged (at least 75 years of age). Dividing the

elderly into two age groups helps show how

advancing age affects income levels and the

incidence of poverty.

Unit of Observation

The unit of observation throughout most of this

report is the household. When income levels of

the elderly are examined, however, the person is

the unit of observation. (This exception is

discussed later.)

The aggregate income of the elderly is derived by

summing all the income assigned to people living

in a household where the householder is at least

65 years of age. This approach includes the

income of nonelderly spouses of elderly

householders and of younger relatives living in the

same household. Using the household as the unit

of observation recognizes that income is available

to the elderly from younger household members,

particularly younger spouses.

Significance Testing

Any differences in SIPP-based estimates discussed

in the text are significant at the 90-percent level or

more, unless stated otherwise. Information about

a particular source of income is not presented for

metro and nonmetro areas, unless at least

200,000 elderly households received that type of

income in each area. Information from the

longitudinal research file is of questionable

reliability when based on fewer than 200,000

householdsY//A

No significance tests were performed for BEAbased estimates. Statisticalsignificance tests

were not needed, because BEA unearned income

data are based largely on administrative records

and not a sample survey. Similarly, significance

tests were not applied to comparisons between

BEA- and SIPP-based estimates orto estimates

based on BEA data allocated between the elderly

and nonelderly by SIPP data.

The Elderiy's Sources of Income

The percentage distribution of income by source

was similar in metro and nonmetro areas (table 1).

In other words, the metro and nonmetro elderly

generally received about the same share of their

income from each source. As expected, however,

income per household was higher in metro than

nonmetro areas. Most of the amounts per

household from each source were higher in metro

than nonmetro areas, although the differences

were not always significant.

The elderly received a large portion of their income

from Government transfer programs. These

programs provided 53 percent of the elderly's

income in nonmetro areas and 46 percent in metro

areas. In other words, the elderly depended

heavily on Government transfer programs, but the

dependence was heavier in nonmetro than metro

areas.

Social Security is particularly important to the

nonmetro elderly. Social Security alone provided

40 percent of the elderly's income in nonmetro

areas, compared with 35 percent in metro areas.

The nonmetro elderly received an average of

$5,870 per household from Social Security during

the 12-month period, $2,278 more than the

amount from property, the next largest source of

income.

Property contributed about a quarter of the

elderly's income in both metro and nonmetro

areas. Most of the elderly's property inconie came
Table 1-Elderly households'income by source, 1983-84

All U.S. elderly Metro elderly Nonmetro elderly

households households households

Income source

Per Distri- Per Distri- Per Distrihouse- bution house- bution house- bution

hold hold hold

Dollars Percent Dollars Percent Dollars Percent

Total income^ 17,524 100.0 18,676 100.0 14,835* 100.0

Earnings 3,495 19.9 3,913 21.0 2,518» 17.0

Unearned income 14,005 79.9 14,764 79.1 12,233« 82.5

Total transfers 9,633 55.0 10,058 53.9 8,641* 58.2

Government transfer payments^ 8,391 47.9 8,617 46.1 7,865* 53.0**

Retirement and related programs^ 7,932 45.3 8,202 43.9 7,300* 49.2

Social Security 6,281 35.8 6,457 34.6 5,870* 39.6**

Federal civilian retirement 632 3.6 676 3.6 528 3.6

State and local government

retirement 549 3.1 599 3.2 430 2.9

Income maintenance* 256 1.5 235 1.3 304 2.0**

Supplemental Security Income 190 1.1 173 .9 230 1.6**

Food stamps and Special

Supplemental Food Program

for Women, Infants, and

Children (WICI 37 .2 31 .2 51 .3

Veterans' benefits 181 1.0 157 .8 237 1.6

Private transfer payments* 1,242 7.1 1,441 7.7 776* 5.2*

Private retirement' 1,208 6.9 1,408 7.5 742* 5.0*

Property income 4,372 24.9 4,706 25.2 3,592 24.2

Interest 2,881 16.4 3,080 16.5 2,416 16.3

Dividends 804 4.6 941 5.0 484** 3.3

Net income from rentals 295 1.7 265 1.4 366 2.5

Other property income^ 392 2.2 420 2.2 326 2.2

Note: Items may not add to totals due to rounding and because some income sources were not given a separate iine in

the table. The U.S. totals include a few cases that could not be assigned a metro or nonmetro residence.

* Significantly different from the metro estimate at the 95-percent level.

**Significantly different from the metro estimate at the 90-percent level.

^Includes miscellaneous items not shown separately.

^Includes unemployment insurance not shown separately.

^Includes railroad retirement, military retirement, workers' compensation, State temporary disability payments, and black

lung payments not shown separately.

'^Includes general assistance, refugee assistance, foster home care payments, Aid to Families with Dependent Children,

and other income maintenance not shown separately.

^Includes money from relatives or friends, charity, alimony, and child support not shown separately.

^Company or union pensions; other payments for retirement, disability, or survivors; and paid-up life insurance or

annuities.

^Income from estates or trusts, royalties, and other investments.

Source: SIPP (55),
from Interest. Their largest source of interest was

savings institutions: banks, savings and loan

associations, and credit unions (table 2). The

eiderly's preference for interest from savings

institutions is understandable, because these

institutions are well known and provide regular

interest payments. The safety of deposits in these

institutions may also be attractive to the elderly.

In most savings institutions, up to $100,000 of

each depositor's accounts is insured by Federal

agencies.

About a fifth of the income of the elderly in both

metro and nonmetro areas came from earnings

(table 1 ). Some elderly work part- or full-time.

Some of the earnings represent pay for work done

early in the year by people who retired later in the

year. Younger household members, such as

younger spouses of elderly householders, also may

have worked.

Private retirement was a relatively minor

component of the eiderly's income in both metro

and nonmetro areas. Four factors help explain

why private retirement provides such a small

portion. First, not all workers in the private sector

are covered by private pensionsV Second, private

pension plans are often integrated with Social

Security76, 25, 3//. That is. Social Security

benefits are included in the formula when private

pension benefits are calculated/which reduces

costs that employers pay. Private pensions alone,

therefore, are generally not intended to provide all/

or even most, of retirees' income. Third, unlike

Social Security, few private pension plans

automatically adjust retirees' benefits for inflation

(29). Over time. Inflation can erode the value of

private pension benefits, making them a smaller

share of the eiderly's income. Finally, some

pension plans allow new retirees to receive all or

part of their pension benefits in one lump sum

instead of monthly payments Y3/A This reduces

the income paid by the pensions during retirement.

Income Levels Among the Elderly

The lower household income among the nonmetro

elderly is reflected in their higher poverty rate.

Approximately 17.9 percent of the nonmetro

Table 2--Elderly households' property income by detailed source, 1983-84

All U.S. elderly Metro elderly Nonmetro elderly

households households households

Property income source

Per Distri- Per Distri- Per Distrihousehold bution household bution household bution

Dollars Percent Dollars Percertt Dollars Percent

Total property income 4,372 100.0 4,706 100.0 3,592 100.0

Interest 2,881 65.9 3,080 65.4 2,416 67.3

From banks, savings and loan

associations, and credit unions^ 2,217 50.7 2,443 51.9 1,689*• 47.0

From mortgages 170 3.9 187 4.0 132 3.7

From other sources^ 494 11.3 451 9.6 596 16.6

Dividends 804 18.4 941 20.0 484* • 13.5

Net income from rentals 295 6.7 265 5.6 366 10.2

Other property income^ 392 9.0 420 8.9 326 9.1

Royalties and other investments 282 6.5 288 6.1 271 7.5

Note: Items may not add to totals due to rounding. The U.S. totals include a few cases that could not be assigned a

metro or nonmetro residence.

** Significantly different from the metro estimate at the 90-percent level.

/"Includes interest from savings accounts, money market deposit accounts, certificates of deposit, and Interest-bearing

checking accounts.

^Includes interest from money market mutual funds, U.S. Govemment securities, municipal and corporate bonds, and

any other interest income not specified elsewhere.

^Includes income from estates or trusts not shown separately.

Source: SIPP/55y.
elderly were poor (table 3). ' The poverty rate for

the metro elderly was about half as high, at 8.5

percent.

Among the nonmetro elderly, the incidence of

poverty increases with age. In nonmetro areas,

the aged (age 75 or more) were more likely to be

poor than were the seniors (age 65-74). The aged

^ Note that the person is the unit of observation in this

section. Poverty status is provided only for persons on the

longitudinal research file. Each person is assigned a variable

recording the total income of his or her family for each month

and a variable recording the poverty level for his or her family

each month. (Family membership can change from month to

month.) The poverty level for the entire 12-month period is

calculated by adding the 12 monthly poverty levels. If the sum

of the 12 income amounts is less than the 12-month poverty

level, the person is considered poor (21). See the definition of

poor in the Glossary for more information.

were also more likely to be poor in nonmetro areas

than in metro areas. About a quarter of the

nonmetro aged were poor, compared with only

about a tenth of the nonmetro seniors or the

metro aged. The nonmetro aged may have

outlived their assets, or they simply may have

never earned as much income as the nonmetro

seniors or the metro aged.

Poverty statistics may seem irrelevant for rural

development schemes involving the income of the

elderly, because no retirement county deliberately

tries to attract the elderly poor. However, these

statistics do show that many of the nonmetro

elderly in residence are poor. For some rural

areas, finding ways to provide the local elderly

poor with medical facilities, transportation, mealson-wheels, and other services may be a more

pressing issue than devising ways to attract

additional elderly. Development plans based on

Table 3"Family income compared to the poverty level, 1983-84

Metro Nonmetro

Item Nonelderly

Elderly

Total Seniors^

Nonelderly

Aged^

Elderly

Total Seniors^ Aged^

Total population 151,838 18,552 11,257

Thousands

7,295 50,106 7,765 4,811 2,954

Number of people whose

ratio of family income to

the poverty level was:

Less than 1 {the poor) 18,344 1,583 808 775 7,335 1,387 641 746

1 to 1.999 27,857 5,223- 2,625 2,598 13,162 2,488 1,342 1,146

2 to 2.999 33,537 4,606 3,008 1,598 11,629 1,768 1,293 475

3 to 3.999 26,833 2,916 1,943 973 7,691 980 704 276

4 or more 45,267 4,224 2,873 1,351 10,289 1,142 831 311

Share of the population whose

ratio of family income to Percent

the poverty level was:

Less than 1 (the poor) 12.1 8.5 7.2 10.6 14.6* 17.9* 13.3** 25.3*

1 to 1.999 18.3 28.2 23.3 35.6 26.3* 32.0 27.9 38.8

2 to 2.999 22.1 24.8 26.7 21.9 23.2 22.8 26.9 16.1

3 to 3>999 17.7 15.7 17.3 13.3 15.3* 12.6 14.6 9.3

4 or more 29.8 22.8 25.5 18.5 20.5* 14.7* 17.3* 10.5**

Note: Items may not add to totals due to rounding.

* Significantly different from the metro percentage at the 95-percent level.

** Significantly different from the metro percentage at the 90-percent level.

^Seniors are 65 to 74 years of age.

^The aged are 75 years old and over.

Source: S\P? (55),
the spending of the local elderly may not yield

many results in these areas.

Areas trying to attract the elderly obviously will

direct their appeals to people with incomes well

above the poverty level. Some areas may try to

target the "comfortably retired," defined here as

those whose income is at least twice the poverty

level (27). The comfortably retired elderly are a

large market, approximately 15.6 million people11.7 million in metro areas and 3.9 million in

nonmetro areas (table 3).

Although many of the comfortably retired have

high incomes, people whose income is at least

double the poverty level are not necessarily

affluent. Twice the poverty level equaled only

$9,550 for one elderly person living alone and

$12,038 for an elderly couple in 1983 (table 4).

In comparison, the median income on the

longitudinal research file was $10,352 for all

unrelated individuals and $25,037 for all families.

In addition, as the comfortably retired advance in

age, their income levels may come to resemble

those of the aged. The future aged, however,

may not become as poor as those currently in that

age group, because real wage levels have

gradually risen over time. As a result, Social

Security and pension benefits, which are

determined (in part) by wage levels, should be

higher for the more recent retirees.

More selective areas may want to attract elderly

with higher incomes to reduce future poverty

problems among the aged. Appealing to higher

income elderly, however, reduces the potential

Table 4--Multiples of the poverty level for elderly

individuals and elderly couples, 1983

Income level

One person,

65 years

and over

Couple,

householder

65 years

and over

Poverty level

Two times poverty level

Three times poverty level

Four times poverty level

Dollars

A,llh 6,019

9,550 12,038

14,325 18,057

19,100 24,076

Source: (53).

market. For example, areas directing their

marketing efforts to people whose income is at

least four times the poverty level would have a

market of only 5.4 million people (table 3).

While attracting the more affluent elderly may help

lessen an area's future poverty problems, such

targeting efforts will not help in escaping other

problems, not all of which are financial:

Longer life expectancy means that more

elderly Americans will be disabled and

that individuals may spend more of their

lives suffering from chronic medical

problems. Medical advances are extending life faster than they are slowing

the onset of chronic conditions...r/Ä.

As more people grow older/ the incidence of health

problems will increase, a fact that even retirement

areas for the more affluent will have to face.

But, local areas do not bear all the costs of the

elderly's health care. Government and private

health insurance pay the most of the elderly's

medical expenses (28h For example. Medicare,

Medicaid; and private insurance covered about 69

percent of the elderly's health care expenditures in

1984 (62h Local taxes generated by retirement

income may help offset local public costs (28),

And, providing health care for the elderly may

generate business opportunities and jobs.

Note that the effective market for retirement

counties is much smaller at all income levels than

table 3 suggests, because relatively few elderly

move. Between 1975 and 1980, slightly more

than 4 percent of the elderly moved to different

States 143^. Migrating elderly, however, are likely

to have a higher socioecönomic status than elderly

who do not mig rate. Elderly who migrate to other

States or counties have higher family incomes and

more education than elderly who do not move

(10). '

In addition, some elderly migrate away from

traditional retirement areas. For example, there

were substantial flows of the elderly from Florida

to States that send migrants to Florida. Many of

these migrants probably moved to Florida early in

their retirement, but later returned to their States

of origin to be near family members when a

spouse died or when health or financial problems

began (9),

Nevertheless, the amount of income migrating

retirees bring to an area can be substantial.

Between 1985 and 1990, migrating retirees age
60 and over will have brought an estimated $1.7

billion of income to Florida from New York alone

(28). The potential economic gain has led States

...to compete for out-of-state retirees.

This growing competition could change

the size and direction of elderly migration before the turn of the century. The

Sunbelt states are pursuing retirees with

the same gusto that they once pursued

industry...r25A

In the ensuing competition, not all rural areas will

be able to attract affluent retirees, just as some

rural communities failed to attract industry in the

past. State planners need to recognize that

competing for elderly migrants has become more

difficult for rural areas (40).

The Elderly's Share of Income

It is difficult to make any generalizations about the

share of property and transfer income that the

elderly receive without examining each source of

income separately. One cannot assume that the

elderly receive most of the property and transfer

income. As mentioned earlier, people other than

the elderly receive property income. Programs

that largely serve the elderly also provide benefits

to the disabled and to survivors of deceased

workers. On the other hand, the elderly receive

benefits from programs that are not specifically

designed to serve the elderly. For example, both

poor elderly and poor nonelderly may receive food

stamps.

This section examines what portion of various

income sources actually goes to the elderly. It

first reviews the SIPP data to find the elderly's

share of selected sources of income. Knowing

how much of the unearned income reported by the

BEA goes to the elderly would be also useful,

because BEA data are often used to indicate the

elderly's importance to local economies. In

estimating the portion of BEA unearned income

that goes to the elderly, SIPP data are used to

allocate BEA unearned income between the elderly

and nonelderly.

SIPP Income

Table 5 presents SIPP estimates of total household

income from various sources, the amount going to

elderly households, and the percentage share

going to eJderly households. This information is

presented for all U.S. households, nonmetro

households, and metro households.

Earnings

As one would expect, elderly households received

a small portion (3.5 percent) of total earned

income in both metro and nonmetro areas. The

elderly received a much higher share of unearned

income than earnings.

Retirement and Related Programs

The elderly received about two-thirds of the

benefits from retirement and related programs in

both metro and nonmetro areas. The share of

benefits going to the elderly, however, varied

among programs. Social Security distributed the

largest share to the elderly, about three-quarters of

its benefits in both metro and nonmetro areas.

The remaining benefits supported the disabled and

their dependents, survivors of deceased workers,

and people who retired before age 65.

Among retirement and related programs, military

retirement paid the smallest portion of benefits to

the elderly. At the national level, only 23 percent

of military retirement benefits went to the elderly.

(Military retirement was not shown in the table

because it had too few nonmetro recipient

households to provide reliable results. The

program did have a sufficient number of

recipient households at the national level,

however.)

Retirement from the military can come fairly early

in life:

...An average retiree is a master sergeant

with 23 years of service. Under the 1987

military pay schedule, his annual retirement pay would be $12,000. Typically,

he receives retirement pay for an average

of 35 years starting in his early forties (3).

In selecting a place to live, the relatively young

military retirees may find job availability more

important than amenities (such as scenery, a

pleasant climate, or cultural activities) or a low

cost of living.

Income Maintenance

The larger share of income maintenance going to

the elderly in nonmetro areas reflects the

nonmetro elderly's higher poverty rate. The

nonmetro elderly also received a larger share of

Supplemental Security Income, which makes up

the bulk of the elderly's income maintenance, than

did the metro elderly. Note that the percentage of

the elderly's income from income maintenance

was also higher in nonmetro areas (table 1 ).
Table 5--Elderly households' share of income by source, 1983-84

Item

Total U.S. Metro Nonmetro

All

households

Elderly

households

All

households

Elderly

households

All

households

Elderly

households

Amount Share Amount Share Amount Share

1,000 households Percent Í,000 households Percent 1,000 households Percent

Total households 86,856 17,939 20.7 64,934 12,560 19.3 21,916 5,379 24.5*

Mlihon dollars— Percent Million dollars-— Percent '—Million dollars-— Percent

Total income^ 2,335,149 314,376 13.5 1,818,064 234,575 12.9 516,964 79,801 15.4*

Earnings 1,807,132 62,693 3.5 1,423,318 49,147 3.5 383,716 13,546 3.5

Unearned Income 527,577 251,247 47.6 396,601 185,444 46.8 130,967 65,803 50.2

Total transfers 329,958 172,815 52.4 245,876 126,334 51 A 84,073 46.481 55.3*

Government transfer payments^ 271,364 150,537 55.5 199,335 108,229 54.3 72,020 42,308 SS.7**

Retirement and related

programs^ 213,262 142,291 66.7 156,103 103,026 66.0 57.152 39,265 68.7

Social Security 148,949 112,677 75.6 108,038 81,101 75.1 40.911 31.577 77.2

Federal civilian retirement 19,239 11,332 58.9 14,197 8,495 59.8 5,042 2,837 56.3

State and local government

retirement 16,706 9,841 58.9 12,872 7,529 58.5 3.833 2,312 60.3

Income maintenance* 33,414 4,585 13.7 25,759 2.950 11.5 7,653 1.635 21.4*

Supplemental Security Income BJll 3,414 39.1 6,412 2,175 33.9 2.315 1,239 53.5*

Food stamps and Special

Supplemental Food Program

for Women, Infants, and

Children (WIC) 10,215 671 6.6 7.087 394 5.6 3.126 277 8,9

Veterans'benefits 10,342 3,250 31.4 7,002 1,976 28.2 3,339 1,274 38.1

Private transfer payments^ 58,594 22,278 38.0 46,541 18,105 38.9 1 2,053 4,173 34.6

Private retirement^ 39,388 21,675 55.0 30,968 17,685 57.1 8,419 3.990 47.4

Property income 197,618 78,432 39.7 150,725 59,110 39.2 46.893 19,322 41.2

Interest 113,394 51,687 45.6 87,586 38,689 44.2 25,808 12,998 50.4

Dividends 37,949 14,419 38.0 29,388 11,816 40,2 8,561 2,603 30.4

Net income from rentals 24,521 5,296 21.6 19,749 3,328 16.9 4,772 1,968 41.2*

Other property income^ 21,755 7,030 32.3 14,002 5,277 Zl.l 7,753 1,753 22.6

Note: Items may not add to totals due to rounding and because some income sources were not given a separate line in the table. The

U.S. totals include a few cases that could not be assigned a metro or nonmetro residence.

'Significantly different from the metro percentage at the 95-percent level.

**Significantly different from the metro percentage at the 90-percent leveL

^Includes miscellaneous items not shown separately.

^Includes unemployment insurance not shown separately.

^Includes railroad retirement, military retirement, workers' compensation, State temporary disability, and black lung payments not

shown separately.

^Includes general assistance, refugee assistance, foster home care payments. Aid to Families with Dependent Children, and other

income maintenance not shown separately,

^Includes money from relatives or friends, charity, alimony, and child support not shown separately.

^Company or union pensions; other payments for retirement, disability, or survivors; and paid-up life insurance or annuities.

^Income from estates or trusts, royalties, and other investments.

Source: SIPP/55;.

10
Prívate Retirement

The share of private retirement income going to

the elderly seems low in both metro and nonmetro

areas (table 5). This may reflect a trend toward

lower retirement ages among private pension

plans. That is, the share going to those at least

age 65 would decrease if the share going to

younger retirees increases. A Bureau of Labor

Statistics survey found that many plans reduced

the normal retirement age to under 65 between

1974 and 1983 (7), Of the 187 plans examined,

148 required no minimum age, age 62, or an

earlier age in 1983, compared with 102 of the

same 187 plans in 1974. Although the plans

examined did not form a representative sample,

the plans covered a large number of workers and

illustrate changing retirement provisions.

Property Income

The elderly received about the same share of total

property income in metro (39 percent) and

nonmetro (41 percent) areas. However, the

nonmetro elderly received a significantly larger

share of rental income than did the metro elderly.

Total Unearned Income

The elderly controlled about 52 percent of all

transfers and 40 percent of all property income, or

about 48 percent of total unearned income, as

recorded by the SIPP. The elderly's share of total

unearned income was slightly above the national

average in nonmetro areas and slightly below the

national average in metro areas. However, the

metro-nonmetro difference was not statistically

significant.

BEA Property and Transfer Income

One cannot assume that the elderly's 48-percent

share of property and transfer income derived from

the SIPP also applies to the BEA data, because

income is defined differently in the two data

sources. For example, BEA data include Medicare

and Medicaid, imputed rent and imputed interest,

and Government and business payments to

nonprofit institutions. All these items are excluded

from income in the SIPP. BEA data, on the other

hand, exclude income from private pensions (24},

which the SIPP includes. Therefore, an estimate

of the elderly's unearned income needs to be

developed specifically for the BEA data.

To estimate what share of BEA unearned income

went to the elderly, I first calculated the elderly's

percentage shares of various sources of unearned income from SIPP data. The appropriate

percentage shares were then applied to the

corresponding dollar amounts in the BEA data to

estimate the elderly's dollar amounts. Due to a

lack of income data, data other than income

receipts were used in a few cases to allocate the

BEA income. For a more detailed explanation of

the methods used to allocate BEA transfer and

property income between the elderly and

nonelderly, see appendix 2.

Three BEA items-payments to nonprofit

institutions, imputed interest, and imputed rentwere not allocated between the elderly and

nonelderly because these items are not

"spendable." They provide neither cash for people

to spend nor in-kind goods or services, such as

medical care, that people would otherwise have to

buy or do without. Government and business

payments to nonprofit institutions were not

allocated because the payments go to

organizations, not directly to people. The other

two items, imputed interest and imputed rent, are

necessary to estimate total personal income. This

imputed income, however, is not accessible to

consumers for spending. For example, most

imputed interest consists of income withheld by

life insurance companies and private pension funds

in people's accounts. This income remains with

the insurance company or pension fund and is not

immediately available for spending. (See appendix

2 for more details.)

Table 6 summarizes the results of the allocation

procedure and compares them with the results

from the SIPP. The elderly receive about 53

percent of transfers and 32 percent of property

income, or about 42 percent of all unearned

income recorded by BEA. Note that the elderly's

shares of property income and total unearned

Table 6»Elderly households' share of unearned

income in 1983-84

Unearned income

From BEA,

allocated

withSIPP^

From

SIPP2

Percent

Total unearned income

Transfer payments

Property income

41.7 47.6

52.7 52.4

31.8 39.7

^From appendix table 2.

^From table 5.

11
income are substantially lower in the BEA data

(column 1) than in the SIPP data (column 2),

largely because of the exclusion of imputed

interest, which makes up 29 percent of BEA

property income.

The elderly can have an important effect on local

economies, but the effects may be smaller than

previously assumed, BEA data are often used to

suggest the amount of income controlled by the

elderly.® But the allocation procedure shows that

using the unearned income reported by the BEA as

an indicator of the elderly's income can be

misleading.

Transfer payments and property income, as

recorded by the BEA, are a large source of income,

amounting to $1 trillion in the 1983-84 period

examined here. But, the elderly control only about

two-fifths of that amount; the elderly do not

control the other three-fifths. Therefore, efforts to

attract the migrating elderly or to provide places

where the local elderly can buy goods and services

will not necessarily capture much of the local

unearned income that the BEA records. Even in

retirement counties, a substantial share of BEA

unearned income is likely to go to the nonelderly.

Implications

Property and transfer income has grown rapidly in

recent years and now forms a large share of total

income, particularly in nonmetro areas (fig. 1). . Although the elderly formed only 21 percent of all

households, the elderly received nearly half of the

income from these sources, as recorded in the

1983-84 SIPP data (table 5). The elderly's

unearned income obviously can affect nonmetro

areas that attract migrating elderly. The elderly's

income also can benefit nonmetro areas where the

elderly form a large share of the population

because of outmigration of younger people. The

importance of these sources of income would have

been greater if retirees younger than age 65 were

considered.'

Attracting elderly migrants apparently has

contributed to rural economic growth in the recent

^ For example, see Putver i34} or Summers and Hirsch! (48¡,

^ However, the size of the population retiring before age 65

should not be exaggerated. For example, men at least 60 years

of age in 1989 who were not in the labor force equaled 12.4

million, which is only 2.1 percent higher than the total number

of men over age 65 i60¡. Relatively few men under age 60

appear to consider themselves retired. In the fourth quarter of

1989, only 3.3 percent of men reporting retirement as a reason

for not being in the labor force were younger than age 60 (61).

past. The per capita income gap between metro

and nonmetro counties declined only in nonmetro

retirement counties that experienced a substantial

influx of people at least 60 years old. The

potential for attracting the elderly as a

development strategy, however, is limited by the

number of elderly of adequate means who are

willing to move to rural retirement areas.

Using unearned income reported by the BEA as an

indicator of the income controlled by the elderly

can be misleading. Assuming that BEA property

and transfer income goes mostly to the elderly

may overstate the potential effect of the elderly's

income. The elderly control only about 42 percent

of the total transfer and property income recorded

by the SEA (table 6). Efforts of rural areas to

attract the migrating elderly or to provide places

for the local elderly to spend their money may not

necessarily capture as much income, particularly

property income, BB BEA data suggest.

Despite their large property and transfer income,

the elderly should not be viewed solely as potential

business customers. Many elderly are poor,

particularly in nonmetro areas (table 3). For some

nonmetro areas, providing needed services-such

as medicai facilities and transportation~to the local

elderly poor may be a more pressing issue than

finding ways to attract elderly people with income

to spend. Most elderly are in good health, both

physically and financially. But, as they age, many

may become frail or outlive their assets. They,

too, may need help.

Local areas, however, do not bear all the costs of

health care for the elderly. The Government is the

largest provider for the elderly's medical expenses.

But, part of the cost of medical care for the elderly

poor is paid by State governments through

Medicaid, the medical program for the poor. The

portion of Medicaid benefits financed by State

governments ranges from 21.2 to 50 percent,

depending on the State (62h Some policymakers

fear that heavy inmigration of the elderly who later

qualify for Medicaid could strain the finances of

particular States (25). Medicaid is particularly

important in paying for nursing home care. The

program paid about 41 percent of the elderly's

nursing home costs in 1984 (62).

Careful planning in retirement counties can help

alleviate some of the problems caused by

deteriorating physical or financial health. Some

analysts have even suggested marketing remote

communities only for the younger elderly:

Policy makers and [social work] practitioners can either begin now to plan

12
for long-range needs of retirees as they

grow older; or discourage retirees from

spending the rest of their lives in a remote rural community, encouraging

instead location in the area during early

active retirement years only. Should

additional support services not be forthcoming, it might be wise to market the

community as ideal for early retirement

years, suggesting a contingency plan for

a less vigorous environment should that

be necessary in later years...^5^A

The elderly's property and transfer income can

create jobs and provide a stable source of income

for rural areas. Dependence on transfer payments,

however, also makes local economies more

sensitive to changes in Government programs.

Changes in the Social Security Program are

particularly important, given the share of the

elderly's income that it provides. Neither the local

economic effects of unearned income nor the

future of Social Security can be examined directly

from the data presented in this report.

Nevertheless, these issues should be addressed in

any discussion of the elderly's unearned income

and its Implications for rural development.

Local Economic Impact

The elderly's unearned income can benefit local

economies. For example, property and transfer

income may make local economies more stable

and less susceptible to variations in employment

by local industries:

...Unlike most labor-related industry

sources of earnings, the level of transfer payment and investment incomes

received by the residents of a region is

not directly dependent on the current

level of economic activity within the

region. Consequently, as the transfer

payment and investment incomes of

elderly retirees become increasingly

important sources of income and purchasing power within an area, they

can alter its short-run cyclical pattern

of income growth (44),

Property and transfer income also have strong

income multiplier effects in nonmetro counties,

regardless of the counties' economic specialization

(39J, Hirsch! and Summers found that Social

Security also has large employment multipliers

(Í9). They suggested two possible reasons for the

high employment multipliers. First, retired people

spend a large share of their income locally.

Second, a large retired population may be

associated with expansion in the local health

sector.

The jobs created, however, may be relatively low

paying. Much spending by elderly households is

for items purchased from retail stores and service

firms, 8 which often pay relatively low wages (40).

However, households in general spend heavily on

the same types of goods and services. The lowwage criticism of the multiplier effects, therefore,

should not be restricted to rural development

strategies based on the income of the elderly. Any

other strategy that depends on spending by

households, such as tourism development, is

subject to the same criticism.

Regardless of the wages paid by the jobs created,

some counties with a small population base may

not benefit from potential multiplier effects. For

example, Sanford's regression model to estimate

income multipliers worked best for large counties,

those having at least 1 town with a population of

2,500 or more residents:

The relatively poor performance of the

model for the small county groups may

be due to the lack of economic development in those counties. By definition,

these small counties have no urban place

of greater than 2500 residents. In such

an undeveloped area, the service sector

may likewise be undeveloped. When

services exist in close proximity, yet

outside county boundaries, county

residents may spend their money elsewhere. In this situation, the small, undeveloped community is simply unable to

capture Income.. J39), ®

Not all property income goes to elderiy people of

modest means. People of all ages in the upper

income brackets who have accumulated assets

also receive property income. Over time, a more

unequal local income distribution could develop in

nonmetro areas depending upon property income

(22),

^ Based on personal consumption expenditures data from

Lazer and Shaw (26). About 48 percent of the spending by

households with a senior householder went for food, clothing,

house furnishings and equipment, autos, gasoline, auto repair,

personal care, entertainment, alcohol, and tobacco. Only 37

percent of purchases by households with an aged householder

went for those Items. Aged households devoted more of their

expenditures to shelter, utilities, health care, and charitable

contributions.

9 The service sector in the quote includes industries producing

for the local, or residentiary, market. The remaining industries,

forming the basic sector, attract Income from outside the area

f39h

13
The Future of Social Security

About a third of the income of the elderly comes

from Social Security (table 1). The fraction is

even higher in nonmetro areas, about two-fifths.

Thus, the future of the Social Security Program is

critical to rural areas depending on retirement

income from either migrating or native elderly.

Social Security benefits come from a trust fund

buiit up through payroll taxes. Areas pursuing the

income of the elderly must be aware of the current

and future status of the trust fund.

The Social Security retirement and disability trust

fund is currently building a large surplus to help

pay the future benefits of the "baby boomers"

(16}. This surplus will be drawn down by retirees

starting in 2030 and, barring future payroll tax

increases, will turn into a deficit by 2051.

Aaron, Bosworth, and Burtless estimate that

payroll taxes need to be raised an additional 6.9

percentage points over the next 75 years to pay

for both Social Security and Medicare (V, That

rise represents a 45-percent increase in the 15,3-

percentage-point rate currently paid by employees

and employers to support Social Security and

Medicare.^*^ Without strong economic growth,

these increases would impose substantial tax

burdens on future workers and employers to

maintain the current benefit levels. (For a more

detailed discussion of the future of Social Security

and the relationship between the program and the

economy, see appendix 3.)

Beyond the Elderly

The Social Security income of the elderly appears

secure until at least 2030. Development

strategies based on the income of the elderly will

be feasible for years. Rural areas, therefore, can

devise both a shortrun development strategy

based on the elderly's income and a second

development strategy more appropriate for the

long run. The two strategies could be followed

simultaneously.

For example. Hite suggests that some rural areas

in the South could develop a service-oriented

economy centered on retirees while simultaneously

developing human capital through education (20i,

^^ Employees and employers each pay half of the Social

Security and Medicare payroll taxes. The combined tax

currently Is 15.3 percent on the first $51,300 of wages il2,

62}. An additional 2.9 percent is applied to wages between

$51,300 and $125,000.

The human capital approach will not provide

results for 15 to 20 years. In the meantime, the

retirement economy could produce jobs for

relatively low-skilled people. But, combining the

two strategies may not be easy, according to Hite:

...retirees often are not as interested in

support of public education as persons

with young families, and they often resist

higher taxes for education. Retirees vote

in greater proportion to their numbers

than other groups in the population;

hence, their political views are apt to

carry weight out of proportion to their

numbers in the population and they may

exercise an effective veto on implementation of the human capital strategy. The

more successful a state or community

becomes in attracting retirees, the greater

the risk that the political microclimate will

turn unfavorable to support for large

investments in human capital. If that

were to happen, the outcome would be a

dead-end on that state or community's

development sometime in the future (20),

Although Hite may overstate the resistance of the

elderly to educational spending, he does point to a

potential problem.

The combined retirement-education strategy has

another potential problem, Outmigration from

nonmetro areas is highest among better educated

people (32), Unless more jobs requiring better

educated workers are created in nonmetro areas,

developing human capital could lead to higher

outmigration.

A Final Nota

The goal of this report is neither to discredit using

the income of the elderly as a development tool

nor to alarm people about the future of Social

Security. Capturing the income of the elderly in

local economies can be a viable development

option for some rural areas.

But the property and transfer income of the

elderly is not a rural development panacea in either

the short or the long run. The income of the

elderly and its relationship to the local economy is

a complex topic. Anyone devising development

strategies based on the income of the elderly must

also monitor these income sources, now and in the

future.

14
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98.

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1985), pp. 46-49.

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(39) Sanford, Scott. "Basic Income Multipliers in

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Econ., University of Wisconsin-Madison,

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17
Appendix 1 : Underreporting

The Census Bureau uses a different approach in

producing the SIPP data than the BEA uses in the

local area income series. The BEA bases estimates

of local income largely on administrative records

kept by various agencies, as well as on surveys

and censuses conducted by organizations other

than the BEA (56ß, The Census Bureau, in

contrast, bases SIPP estimates on a sample

survey.

Survey respondents may not report all their income

to the SIPP interviewer, either as an oversight or

from a desire to keep receipt of some sources of

income confidential. As a result of this

underreporting, SIPP estimates of income receipts

are smaller than BEA estimates. Appendix table 1

compares the sizes of selected income sources in

both BEA and SIPP data. However, one should

remember that both sets of numbers are estimates

based on different procedures. The BEA data also

are not error-free. For a discussion of how

different measuring procedures can result in

different income estimates, see Ryscavage r3fi>.

Underreporting is a problem for all sample surveys.

The SIPP has made some progress in reducing

underreporting for some income sources, although

underreporting continues for other sources Yf7A

Despite underreporting, the SIPP provides valuable

data. The SIPP fills a gap in our knowledge--it

provides information about the people who receive

various sources of income. The BEA data show

only the income from a given source that flows

into an area. They cannot provide information

about who receives the income. Used together,

the two data sources complement each other and

provide a better understanding of income receipts

in nonmetro areas.

Appendix table 1-Comparisons of SIPP and BEA estimates of selected income sources, 1983-84

Source of income SIPP BEA SIPP as

amount amount percentage

GfBEA

-——Million dollars — Percent

148,949 169,071 88.1

5,540 6,040 91.7

19,239 21,679 88.7

15,577 15,772 98.8

16,706 22,702 73.6

8,727 9,927 87,9

11,678 14,531 80.4

9,108 10,852 83.9

14,346 20,822 68.9

9,283 13,532 68.6

1,058 1,363 77.6

113,394 276,482 41.0

37,949 72,403 52.4

Social Security

Railroad retirement

Federal civilian retirement

Military retirement

State and local government

retirement

Supplemental Security Income

Aid to Families with

Dependent Children

Food stamps

Unemployment compensation

Veterans' compensation and pensions

Veterans' education benefits

Interest^

Dividends

^Adjusted to correspond to the 1983-84 time period used in the longitudinal research file,

is the same as that used in Coder, Burkhead, Feldman-Harkins, and McNeil (11).

^Includes only the monetary portion of interest.

Sources: SIPP (55) and BEA (58).

The adjustment procedure

18
Appendix 2:

Allocating BEA Unearned Income

SIPP data were used to estimate the elderly's

share of BEA transfer and property income. The

elderly's percentage shares of a detailed list of

transfer and property income receipts were

calculated from the SIPP 1983-84 longitudinal

research file. These percentage shares were then

applied to the corresponding items from BEA

estimates of benefits paid (app. table 2)/^ Many

of the allocation factors in appendix table 2 also

appear in table 5. Medical payments, mostly

Medicare and Medicaid insurance, were allocated

by months of coverage rather than by benefit

receipts, because the SIPP did not provide benefit

data for these programs. A few items (veterans'

life insurance benefits, other assistance to

veterans, other payments to individuals, and

business payments to individuals) were allocated

by the elderly's share of total households, for want

of a better allocation procedure.

Estimates of the elderly's share of BEA income

were prepared only as a U.S. total; metro and

nonmetro estimates were not prepared. To do so

would have attributed more precision to the

allocation procedure than was justified. Some of

the sources in appendix table 2 provided income to

relatively few households, even at the national

level. Providing metro and nonmetro estimates

would require frequent calculations of percentages

based on fewer than 200,000 elderly recipient

households. Even at the national level, fewer than

200,000 elderly households received other income

maintenance or educational assistance to veterans.

Three items-payments to nonprofit institutions,

imputed interest, and imputed rent-were not

allocated because they are not spendable. Income

from these sources does not go directly to people

to spend locally nor does it provide in-kind goods

or services that people would otherwise have to

buy or do without. Government and business

payments to nonprofit institutions go to

organizations, not directly to people. Imputed

interest and imputed rent are necessary to

'' The SIPP income data were from late 1983 and early 1984,

with 46 percent of the observations from 1983 and 54 percent

from 1984. Because the BEA data were for calendar years, the

amounts in the first column of appendix table 2 were calculated

by adding 46 percent of the item from 1983 plus 54 percent of

the corresponding item from 1984. Coder, Burkhead, FeldmanHarkins, and McNeil developed this adjustment procedure when

comparing SIPP data from the longitudinal research file with

1983 and 1984 data from the Current Population Survey (11),

estimate total personal income. This imputed

income is not accessible to consumers for

spending and should be examined in greater detail.

The definition of imputed interest is long and

detailed:

...Imputed interest represents the excess of income received by financial intermediaries from funds entrusted to

them by persons over income disbursed

by these intermediaries to persons. Part

of imputed interest reflects the value of

financial services rendered without charge

to persons by depository institutions. The

remainder is the property income held by

life insurance companies and private noninsured pension funds on the account of

persons; one example is the additions to

policyholder reserves held by life insurance

companies (56),

In 1987, approximately 61 percent of total

imputed interest income consisted of income

withheld by life insurance companies and

uninsured pension funds (57). The remaining 39

percent was the value of services, such as check

clearing, provided free of charge by depository

institutions.

Excluding imputed interest from the allocations

may seem arbitrary, because other noncash items,

such as food stamps, were allocated. However,

imputed interest differs from other types of

noncash income. Food stamps are practically the

same as cash as far as local spending for groceries

is concerned. A similar argument can be made

about the relationship between medical programs,

such as Medicare and Medicaid, and local medical

expenditures.

But, the relationship between local spending and

the large portion of imputed interest withheld by

life insurance companies and pension funds is

more tenuous. While people benefit from this

interest income, the interest is not in a form that

can be spent immediately. The withheld interest is

inaccessible to recipients and has no immediate

effect on their spending.

The other portion of imputed interest, representing

services provided free of charge by banks and

other depository institutions, is more difficult to

dismiss. One could argue that these free services

release consumers' income for other spending.

Ideally, the services should be enumerated locally

and then priced to estimate a value.

19
However, this portion of imputed interest is

actually calculated as the income depository

institutions earn on deposits minus the monetary

interest paid on those deposits (591, This residual

is not calculated at the local level. The residual is

instead allocated from the national level to each

county in proportion to the cash interest received

by people in the county (56). It is difficult to see

the connection between this residual and the

availability of money for local spending,

particularly when the residual is calculated from

national-level data.

Imputed rent is easier to define and comprehend

than is imputed interest. Imputed rent is the net

rental value of owner-occupied housing Í5fi/. Note

in appendix table 2 that imputed rent was

negative. In other words, housing expenses cost

homeowners more than they would have paid for

rent. Not all of these expenses are paid with

money; depreciation is a large expense item not

reflected by cash-flows. One could argue that a

positive imputed rent is in-kind income similar to

Medicare benefits. Negative imputed rent, however, is more like an expense. Therefore, imputed

rent was not allocated in appendix table 2.

Including imputed interest and imputed rent is

reasonable when devising an accounting system to

estimate the total personal income that accrues to

an area's residents. This imputed income,

however, is not in a form that is readily accessibie

to individuals for sperîding. Therefore^ imputed

interest and rent should be excluded from

estimâtes oflocal income available for spending

when formulating rural development schemes.

Appendix table 2"Elderly households' BEA unearned income, 1983-84

Source of unearned income

BEA Elderly's Elderly's Elderly's

unearned share Of spendable share of

income spendable amount unearned

items^ income

Mi/lion Percent MHIIon Percent

dollars dollars

954,808 NA 397.804 41.7

450,776 NA 237,627 52.7

424,979 NA 234,813 55.3

242,169 NA 162,742 67.2

169,071 75.6 127,817 75.6

6,040 68.9 4,162 68.9

21,679 58.9 12,769 58.9

15,772 22.7 3,580 22J

22,702 58.9 13,372 58.9

6,905 15.1 1,043 15.1

99,032 61.5* 60,905 61.5

40,940 NA 5,443 13.3

9,927 39.1 3,882 39.1

14,531 2.5 363 2.5

10,852 7.1 770 7.1

5,629 7.6' 428 7.6

20,822 2.9 604 2.9

16,354 NA 5,025 30.7

.13,532 34.9 4,723 34.9

1,363 0 0 0

1,417 20.7^ 293 20.7

41 20.7^ 8 20.7

5,206 0» 0 0

457 20.7' 95 20.7

12,205 NS 0 0

13,592 20.7' 2,814

(

20.7

ContinuedTotal unearned income

Total transfer payments

Government transfer payments to individuals

Retirement and related programs

Social Security

Railroad retirement

Federal civilian employee retirement

Military retirement

State and local government employee retirement

Other disability and retirement payments^

Medical payments^

Income maintenance

Supplemental Security Income

Aid to Families with Dependent Children

Food stamps

Other income maintenance^

Unemployment insurance benefits

Veterans' benefits

Pensions and compensation

Education assistance

Life insurance benefits

Other assistance

Federal education and training assistance®

Other payments to individuals^^

Government and business payments to nonprofit

institutions

Business payments to individuals^''

See footnotes at end of table.

20
Appendix table 2-Eiderly households' BEA unearned income, 1983-84-Continued

Source of unearned income

BEA Elderly's Eiderly's Elderly's

unearned share of spendable share of

income spendable amount unearned

items^ income

Million Percent Million Percent

dollars dollars

504,032 NA 160,178 31.8

72,403 38.0 27,513 38.0

420,956 NA 126,076 29.9

276,482 45.6 126,076 45.6

144,475 NS 0 0

10,673 NA 6,589 61.7

26,356 25.0 6,589 25.0

-15,683 NS 0 0

Total property income

Dividends

Interest

Monetary

Imputed

Rents and royalties

Monetary

Imputed

NA = Not applicable; item is calculated as a total of subgroups.

NS = Not spendable.

^Calculated from SIPP income data, unless noted otherwise.

^Includes temporary disability payments, black lung payments, and workers' compensation.

^Includes Medicare, Medicaid, and CHAMPÚS payments.

"^Allocated by the elderly's share of total months of Medicare and Medicaid coverage.

^Includes general assistance, emergency assistance, refugee assistance, foster home care payments, earned income tax

credits, and energy assistance.

^Allocated by elderly households' share of general assistance; Indian, Cuban, or refugee assistance; foster child care

payments; and other income maintenance receipts.

'Allocated by the number of elderly households as a percentage of total households.

^Includes Federal fellowship payments (National Science Foundation fellowships and traineeships, subsistence payments

to State maritime academy cadets, and other Federal fellowships), interest subsidies on loans for higher education, basic

educational opportunity grants, and Job Corps payments.

^The elderly are assumed not to participate heavily in the programs listed in footnote 8.

^^Includes Bureau of Indian Affairs payments, educational exchange payments, compensation to survivors of public

safety officers, compensation to victims of crime, Alaska permanent fund dividend payments, and other special payments

to individuals.

' 'Includes consumers' bad debts, personal injury payments to nonempjoyees, and other business transfer payments.

Sources: SIPP ^55; and BEA ^5».

21
Appendix 3:

The Future of Social Security

Relying on the income of the elderly would appear

to be a safe rural development strategy for the

future, if the projected growth of the elderly

population were the only important factor. The

Social Security Administration (SSA) projects the

population by age under three alternative sets of

assumptions (63),^^ According to the SSA's

intermediate projection, based on assumptions

thought most likely to occur; the population at

least 65 years of age will be 37 percent larger in

2010 than in 1986.

Whether the elderly's income offers a sound

economic base for nonmetro areas is not clear,

however. Because a third of the elderly's income

comes from Social Security alone (table 1 ), the

future ofthat program is critical. The Social

Security retirement and disability trust fund is

currently building a large surplus to help pay the

future benefits of the "baby boomers"/f6A This

surplus will be drawn down beginning in 2030 to

pay retirees. Barring future payroll tax increases,

the surplus will eventually turn into a deficit by

205Í.

Aaron, Bosworth, and Burtless estimate that

payroll taxes need to be raised an additional 6.9

percentage points over the next 75 years to pay

for both Social Security and Medicare (1). (A 2.4-

percentage-point rise is for Social Security and a

4.5-percentage-point rise is for Medicare.)

Without strong economic growth, the increase

could impose substantial tax burdens on future

employees and employers.

Part of the problem arises from the declining

number of people of working age relative to the

elderly. Under the SSA's intermediate projection,

the ratio of people age 20-64 years to people at

least age 65 years declines from about 5:1 in

1986 to 2.5:1 in 2033, where it stabilizes for

decades (63h

In the meantime, the retirement and disability trust

fund has grown more rapidly than anticipated, due

^^ The projections developed by the SSA differ from those

published by the Census Bureau. Census Bureau projections

include only the U.S. population and Armed Forces serving

abroad. The SSA projections include additional populations

covered by the Social Security Program: Puerto Rico, Guam,

American Samoa, the Virgin Islands, and other citizens living

outside the United States. The SSA assumptions also differ

from the Census Bureau's. Census Bureau projections are not

presented in this appendix because the SSA uses its own

projections to assess the future of the Social Security Program.

to a Strong economy ^46ji. There are three ways

to handle the surplus (1, 2h

• Let the funds accumulate on paper, but borrow

from them to cover deficits in the rest of the

budget;

• Stop the surplus from accumulating by cutting

the payroll tax that provides income for the

fund; or

• Allow the funds to accumulate and balance the

rest of the budget with higher taxes or

decreased spending.

Until recently, the first course of action was being

followed, using the surplus to offset budget

deficits in the rest of the Federal budget. Some

argue that when this course is followed, "...the

trust fund more accurately represents a stack of

lOUs to be presented to future generations for

payment, rather than a buildup of resources to

fund future benefits" Yí67.

Senator Daniel P. Moynihan (Democrat, NY)

recently suggested following the second option.

He proposed cutting the payroll tax and funding

the program on a pay-as-you-go basis (12). He

made this proposal to prevent using the regressive

payroll tax to fund Government operations.

Aaron, Bosworth, and Burtless argue that the third

course of action is the most desirable ///.A

financial reserve resuJts when the trust fund

surplus is allowed to grow while the rest of the

budget is balanced. The reserve then can be used

to increase national savings and capital formation.

The resulting increases in productivity would help

future workers provide benefits, goods, and

services for future retirees. In effect, the trust

fund surplus provides an opportunity to increase

the Nation's low savings rate. In late 1990, the

Federal Government enacted legislation excluding

Social Security trust fund receipts and

expenditiires from Federal budget deficit

calculations (52). In other words, the Nation will

follow the third option by trying to balance the

Federal budget without counting Social Security

payroll taxes as revenue.

Finding ways to save the surplus and invest it

productively is a difficult task with implications for

the Nation's future economic growth /35/and for

future retirees. How the trust fund surplus is

handled especially could affect the economic

future of nonmetro areas that rely on the elderly's

income. The status of the retirement and disability

surplus will not become critical until the 2030's,

when the surplus will begin to decline. Ignoring

22
trust fund problems now because they will not term projections. Although economic projections

become severe for years may be considered rather are frequently criticized as poor predictors, they

short-sighted by future workers. can still be useful in understanding the implications

of specific demographic and economic

Readers may question the conclusions presented assumptions Y/A

here because they are ultimately based on long23
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