Income Distribution
Sources of Income For Older Persons in 1995
Research Report
Ke Bin Wu, AARP Public Policy Institute
February 1998
Table of Contents
- Introduction
- Number of Older Persons with Each Income Source
- Number of Older Persons with Income Source Varied by Gender
- Persons Aged 65 and Over with Income Source Varied by Personal Income
- Share of Income Sources in Total Personal Income Varied by Personal Income for Persons Age 65 and Over
- Number of Older Persons with Income Source Varied by Race/Ethnic Group
- Footnotes
Introduction
Social Security, pensions, and interest from personal saving are three major income sources for older persons. They form the proverbial "three-legged stool" of retirement income. Besides these three sources, personal earnings and government transfers, such as Supplemental Security Income (SSI) and veteran benefits, are also important income sources. The March 1996 Current Population Survey (CPS) provides information about personal income by source for calendar year 1995.1
Number of Older Persons with Each Income Source
According to the March 1996 CPS estimates, nearly 29 million persons aged 65 and over (92.5 percent) had Social Security income2 in 1995. The median amount of Social Security income was $7,749. Table 1 presents the number of individuals aged 65 and over with various income sources, and the mean and the median of each income source for those having each source.
The difference between the mean and median amounts indicates the degree to which each income source is skewed in favor of those with higher incomes.
Based on the March 1996 CPS estimates, almost 10 million persons aged 65 and over (32.1 percent) had pension income in 1995. The median pension income in that group was $6,240. Many older persons were working in 1995. Nearly five million persons aged 65 and over had earnings income in 1995, and the median income from this source was $9,000, while the mean was over twice as large ($19,612) (see Table 1).
Interest income from personal savings is one of the three major income sources for older persons. According to the March 1996 CPS estimates, 66.6 percent of persons aged 65 and over had interest income in 1995. The mean income from interest was $3,144 while the median was only $793. About 19.5 percent of older persons had dividend income with a mean income from this source of $3,471 and a median of $1,200 (see Table 1).
Besides Social Security, other government transfers also are important income sources for older persons. Supplemental Security Income was received by 1.3 million individuals aged 65 and over (4.2 percent), three-fourths of whom were women (see Table 2) Median SSI benefits were $2,280 in 1995 (see Table 1).
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Number of Older Persons with Income Source Varied by Gender
Table 2 presents the number of persons aged 65 and over with each income source by gender, and the median of each income source for those having each source. Among the aged population, the number of persons with certain income sources varied substantially by gender. Similarly large percentages of both men and women received Social Security benefits and interest income. Based on the March 1996 CPS estimates, 91.4 percent of older men and 93.7 percent of older women had Social Security income in 1995. However, the amounts differ considerably. The median Social Security income was $9,409 for men, and $6,493 for women. Nearly 70 percent of older men and 65 percent of older women had interest income in 1995. The median amounts were comparable -- $800 for men and $771 for women.
About 6.1 million older men (46.5 percent) had pension income, with a median pension income of $8,280, while 3.9 million older women (21.7 percent) had pension income, with a median pension income of $4,188. Nearly 22 percent of older men had income from earnings and median earnings of $11,000, while 11.7 percent of older women had earnings income with a median of $6,600. Five and one-half percent of older women received benefits from the SSI program in 1995, while 2.4 percent of older men had SSI benefits. The median SSI benefit was comparable for men and women -- $2,412 for men and $2,220 for women.
Overall, for persons aged 65 and over, men were more likely than women to have pension income, dividend income, and earnings income, while women were more likely to have SSI and Social Security survivor benefits. There was not a large percentage difference between men and women having Social Security and interest income.
Persons Aged 65 and Over with Income Source Varied by Personal Income
Table 3 presents percentages of persons aged 65 and over by income who have each income source and the mean of each income source in 1995. Based on the March 1996 estimates, over 90 percent of older persons with personal income between $5,000 and $30,000 had Social Security income, while only 70.8 percent of older persons with personal income under $5,000 and 76.3 percent of older persons with personal income $75,000 and over had Social Security income.
Pension income is most frequent in the middle-income range, but average amounts of pension income increase steadily as one moves up the income scale. In 1995, 65-70 percent of older persons with personal income between $20,000 and $50,000 had pension income, with an average pension payment of over $10,700 for those between $20,000 and $30,000 and an average of $17,000 for those between $30,000 and $50,000. Only 3.7 percent of older persons with personal income under $5,000 had pensions, with an average $1,708 of pension income.
Older persons with higher income were more likely to have asset income and to have higher asset income on average. In 1995, 90 percent or more of older persons with personal income above $30,000 had asset income with the average amount increasing from nearly $9,000 for those between $30,000 and $50,000 income to more than $34,000 for those with income above $75,000 (Table 3).
Among the older population, persons with higher income were more likely to have income from earnings and to have higher average earnings. In 1995, 40.5 percent of older persons with personal income between $30,000 and $50,000 had earnings income, with an average of $21,212. Nearly two-thirds of older persons with income $75,000 and over had earnings, with a mean of $93,434. Only 3.9 percent of older persons with personal income under $5,000 had income from earnings, averaging $1,039.
Older persons with low income were more likely to receive government welfare payments. In 1995, 10.3 percent of older persons with personal income between $5,000 and $10,000 had public welfare benefits, with an average of $2,737 of payments, while 0.3 percent of older persons with personal income between
$50,000 and $75,000 had public welfare income, with an average of $412 of benefits.
Share of Income Sources in Total Personal Income Varied by Personal Income for Persons Age 65 and Over
For the older population, the distribution of income shares varied by personal income level. Table 4 presents amounts of income by source as a percent of total personal income (in the aggregate) for each personal income level.
In 1995, over 80 percent of income came from Social Security payments for older persons with personal income under $10,000. The share of Social Security income in total personal income declined directly as income increased. It was lower than 10 percent of income for those with income of $75,000 and over.
Compared with Social Security income, the shares of savings and asset income tend to be distributed in the opposite way -- the shares of these sources in total person income increased directly as personal income increased.
Pensions tend to be more important for those in the middle-income range. About 25 to 30 percent of personal income for older persons with personal income between $20,000 and $75,000 was from pensions.
Overall, for older persons with low personal income, their income depends on Social Security income supplemented by income from savings and public welfare assistance such as SSI. For the middle income older persons, Social Security income, pensions, personal savings and earnings are the major sources of personal
income. For older persons with high income, earnings, personal savings, pensions, and Social Security constitute most of their personal income.
Number of Older Persons with Income Source Varied by Race/Ethnic Group
Among the aged population, the number of persons with each income source varied by race/ethnicity (see Figure 1). According to the March 1996 CPS estimates, about 93 percent of whites and 86 percent of blacks and Hispanics had income from Social Security. About 33 percent of whites, 24.1 percent of blacks, and 20.4 percent of Hispanics had pension income.
Among the aged population, 69.7 percent of whites had interest income in 1995, while only 33.1 percent of blacks and 31.9 percent of Hispanics had interest income. Nearly 21 percent of whites had dividend income, while only 5.5 percent of blacks and 4.6 percent of Hispanics had such income. Only 3.1 percent of whites had income from the SSI program, while 12.4 percent of blacks and 18.2 percent of Hispanics received SSI payments.
In short, for the older population, there were not large percentage differences among race/ethnic groups in Social Security and earnings income, but blacks and Hispanics were less likely to have pension and interest income, and were more likely to have SSI income.
1 The March Current Population Survey consists of about 60,000 households. The survey does not represent the institutionalized population or thoes under age 15. The March 1996 survey refers to 1995 income levels.
2 Estimation based on the CPS in subjext to both sample and non-sample error.
Written by Ke Bin Wu, Economics Team, AARP Public Policy
Institute
February 1998
© 1998 AARP
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Pub ID: DD32