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Speaking of the Economy
Older couple reviewing retirement plans
Speaking of the Economy
Sept. 7, 2022

Differences in Financial Decisions Around Aging

Audiences: General Public, Policymakers

Does everyone have the same set of choices when it comes to retirement and other financial decisions pertaining to aging, and is there anything we can do about disparities in access to those choices? Charles Gerena posed these questions to the three panelists from the District Dialogues event in August 2022 titled "The Economics of an Aging America."



Michael Grimm: I was really interested in the longevity gap and what it means to have such different expectations for different groups of people and interested in the various ways that's being approached and the different things that we can do to mitigate that. It's new, so we don't really know what to expect and I don't know if there's an answer to it. My biggest question is, how long is it really going to be before everything kind of stabilizes and we reach a new equilibrium?

Lucy Joseph: What choices are you making as a younger person that are going to affect you as an older person and in that continuum of aging, right? It's all one big development cycle and being more educated on the choices that you should be making earlier in life and, also, the disparity between those who are fortunate to either make good choices [or] fall into a good situation in terms of generational wealth building or have a pension. If you're not in those situations, you have to be making very significant decisions early on.

Charles Gerena: I'm Charles Gerena, online editor in the Research department at the Richmond Fed.

The voices you just heard were Michael Grimm of the Brunswick County Planning Commission and Lucy Joseph, regulatory affairs manager for Altria Group.

For this episode of Speaking of the Economy, I ventured outside of the podcast studio to talk to Michael, Lucy and others who attended the latest session of our District Dialogues event series. The topic of the discussion, conducted in person and online on August 9, 2022, was the economics of aging in America.

Three panelists explored this topic from different perspectives, and we'll hear more from them in just a bit. John Bailey Jones is vice president of microeconomic analysis in the Research department. Among his research pursuits, he has studied the medical spending of the elderly and the financial decisions that people make as they get older. Genevieve Waterman is director of economic security at the National Council on Aging. She is a gerontologist with experience in the field of aging and disability policy. Gigi Amateau is an assistant professor of gerontology at Virginia Commonwealth University. She is a health and human services professional with research interests in social connection, trauma-informed approaches, and the direct care workforce.

As I listened to these experts on aging, there was one word I kept hearing: "choices."

We make a variety of financial decisions that can affect our quality of life during retirement. These decisions don't come up when you reach a milestone age like 65 or 55. We wrestle with them throughout our lifetimes, whether it's time to retire or to "un-retire" and return to the workforce when we're older, whether it's the amount of long-term health care to budget for in the future or the amount of debt to take on when we're younger.

Genevieve Waterman: When you're a teenager, you're told go to college. It will make everything better for you. You'll make more money, you'll have more stability in your job and your career, and you're able to do what you love, right? But then we saddle them with all this debt. So, those decisions that they made at 17 or 18 when their brains are not fully formed yet to make those financial decisions, how does that impact them later in life? I think that's something that we need to think about.

Gerena: That was Genevieve Waterman. She and the other panelists spoke with me after the District Dialogues event, helping me dig a little deeper into the topic of aging. We talked about two big questions surrounding the choices we make about our retirement years. First, does everyone have the same set of choices to pick from, or do some people have fewer choices than others? Second, what should we do — if anything — about these disparities from a policy standpoint?

Here's Waterman with her answer to the first question.

Waterman: Some people don't have the choice to make the decisions that they would like to make. There are systemic barriers that are in place — I'm thinking about redlining, the bias against people when it comes to employment.

It's a really good time to have a conversation around being able to make those decisions that you want to make to define aging well. What our hope is is that once we have those conversations, have more diversity and more equity in aging, that we're able to then create the system to support people, having programs, having educational content that speaks to every single person, because everyone ages differently.

Gerena: Gigi Amateau sees disparities in the options that people have for long-term care. There is a whole continuum available — including at-home care, community-based care, and residential care — if you are well resourced and live in a place where that full continuum is built out.

Gigi Amateau: When I look at the national picture of folks who are really struggling and not having those choices, it often will fall along racial lines, black and brown people not having had opportunities for wealth building. There are policies and precedents that, from history or from the past like redlining and others, that still can be felt today. And it has a significant impact on opportunity to build wealth, opportunity to own homes, and opportunity to really prepare for old age and retirement.

Gerena: John Bailey Jones points to several factors that might explain why some people have more choices when it comes to decisions like when to retire from the workforce.

John Bailey Jones: A lot of it corresponds to occupation and income and lifetime earnings. The people that are usually at the higher end of the spectrum ended up having more choices. Part of it is that their skills age a little more gently. They're also a little more flexible, so they could port from one industry to another. If you're a welder and you cease being a welder, what are your options then? But if you're a manager, it's probably a bit easier to shift to managing in another role.

Gerena: Indeed, a person nearing retirement shouldn't feel pressured to continue working for financial reasons. At the same time, some people choose to retire and continue to participate in the workforce only partially.

Jones: It works both ways. First of all, you may not be able to retire early, even if you are at a point in your life where the job is no longer fulfilling — physically or emotionally or mentally. There's that issue. On the flip side, the ability to work longer is a form of insurance. Right now, we've had a lull in the housing market. You could imagine that if the price of houses falls unexpectedly, maybe your response is to work a couple more years.

Gerena: Jones believes there are policy avenues for encouraging people to extend their careers, such as adjusting how and when people claim their Social Security benefits or requiring accommodations for older workers. How public pension systems are structured is another. Jones argues that differences in pension systems across countries can account for some of the differences in the share of people who continue to work at older ages.

Jones: This is one of the reasons why I'm relatively sanguine that we could, say, reform Social Security to encourage longer careers … there's evidence it has happened in other countries. There's differences in the health systems and so forth in these countries, but there's huge differences that can be very clearly related to systematic differences in the public pension systems using basic undergraduate economic logic. I think that's important to realize — older people do respond to incentives.

Gerena: From a policy standpoint, Waterman has seen improvements in federal funding towards things like Medicaid accessibility and long-term services. While she believes more support is needed, she is optimistic that policymakers will work past the current state of partisan politics.

Waterman: There are many people in favor of it. I think as Congress itself ages, you're going to see that there are more advocates in our area to be able to push. As you saw, even with the Inflation Reduction Act, you're seeing that prescription drug costs are being reduced. So, there's a lot of areas where we're making improvements … even though it's piecemeal right now.

Gerena: Amateau also sees opportunities for the federal government to play a leadership role. In particular, she believes the job of caring for the elderly needs more support.

Amateau: We have considered care work as "women's work" and that has been fairly devalued, historically. So, for me, the conversation really needs to change at a federal level. We begin to look at policies that don't really treat care as women's work or as work that is not contributing to the economy. But really, it's human work. And that might look like sweeping change to FMLA or putting a stake in the ground around a care policy. I think that applies for children as well as older adults.

The issue around elder care and the responsibility of care without supports, it is the same as in child care. What have we just been through with COVID, right? On either end of the age spectrum, families involved in care were largely left on their own. And a lot of that burden fell to women, with Zoom schools or childcare not being open but having this pressure to get back to work or having a work and care in the same space.

So I think it goes all the way back to the beginning of thinking about economic models. Those are cool questions. Can we open that up a bit so that we have ways to value childcare as an economic service? Let's model it.

Gerena: Jones and other researchers are doing just that — using the lens of economics to look at the tough decisions that we all have to make about aging. I encourage you to find out more about this research by listening to an interview I did with Jones for the podcast in April 2021. You can also find papers about the economic factors that shape the decisions of older households that were presented at a conference in November 2021.

For now, we'll say a virtual thank you to the panelists and attendees who took the time to share their thoughts with me. You can watch the entire District Dialogues event on our YouTube channel.

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