Discussion: Policy Making and the Challenges faced by Global Aging Policy

Discussion: Policy Making and the Challenges faced by Global Aging Policy ORDER NOW FOR CUSTOMIZED AND ORIGINAL ESSAY PAPERS ON Discussion: Policy Making and the Challenges faced by Global Aging Policy 7.1: Policy Making and Stakeholders- 500 words After completing the readings, consider a scenario where your state legislature is going to use the policy process to address the increase in elder abuse in senior living. The state legislature and the nursing home industry have opposing opinions on how this issue should be addressed. State legislatures want to mandate that each person working in a senior living community receive 100 hours per year of training and education on the topic of abuse. The nursing home industry reports that this requirement would cost too much and that they cannot afford it. Discussion: Policy Making and the Challenges faced by Global Aging Policy Describe the key players responsible for making this policy and why they would be involved. Describe the stakeholders in this scenario as well as the role that those stakeholders play in influencing public policy. Analyze where the state legislature and the nursing home industry should seek evidence-based research to support their respective positions. 7.2: Global Aging Policy- 500 words As you may conclude after completing this week’s readings, creating global aging policies can be challenging because how people regard aging adults varies from culture to culture and country to country. In this discussion, you will explore some of these challenges further. Where would you choose to dedicate resources in policy formation to address problems faced by aging adults? Would you focus on local, state, federal, or global policies? Why would you choose to focus at this level? Journal Entry 7.1: Policy Agenda Setting: The Right Stuff Journal writing provides a non-threatening way to explore different thoughts, ideas, and topics without being concerned about audience presentation. The process of writing can facilitate reflection and allow you to express your feelings regarding your educational experiences, as well as clarify your thinking. Write about the following in your journal: Discussion: Policy Making and the Challenges faced by Global Aging Policy Every year, legislatures create a policy agenda that is based on congressional understanding of the needs of a specific population or group. Often, policy issues are pushed to the top after “being in the right place at the right time.” If you wanted to gain support for funding Alzheimer’s research, how might you go about gaining support from your federal, state, or local legislator? Why? 600 words ebscohost__1_.pdf ebscohost.pdf contentserver__1_.pdf piis0029655414000578.pdf Copyright © 2007. Springer Publishing Company. All rights reserved. May not be reproduced in any form without permission from the publisher, except fair uses permitted under U.S. or applicable copyright law. PART IV Public Policy EBSCO Publishing : eBook Collection (EBSCOhost) – printed on 2/17/2019 3:02 PM via REGIS COLLEGE AN: 246064 ; Wilmoth, Janet M., Ferraro, Kenneth F..; Gerontology : Perspectives and Issues, Third Edition Account: s8895265 Copyright © 2007. Springer Publishing Company. All rights reserved. May not be reproduced in any form without permission from the publisher, except fair uses permitted under U.S. or applicable copyright law. This page intentionally left blank EBSCO Publishing : eBook Collection (EBSCOhost) – printed on 2/17/2019 3:02 PM via REGIS COLLEGE AN: 246064 ; Wilmoth, Janet M., Ferraro, Kenneth F..; Gerontology : Perspectives and Issues, Third Edition Account: s8895265 Copyright © 2007. Springer Publishing Company. All rights reserved. May not be reproduced in any form without permission from the publisher, except fair uses permitted under U.S. or applicable copyright law. CHAPTER 13 Retirement and Financial Security An Economist Thinks Out Loud Timothy M. Smeeding At its heart, this chapter is about how economists think about the process of aging and retirement at both an individual and a societal level. I begin with some of the substantive topics and policy arenas where economists have been writing and researching lately—especially those best suited for a broad audience, and the places (online) to find the most objective continuing research on these topics. Then I move to a discussion of economics, including economic models and their strengths and limitations for analyzing the aging processes. The overall goal is to provide some of the tools and insights that economists bring to the analysis of individual and population aging. The role of the government in providing financial security is addressed in the final part of the chapter. I conclude with some of the cutting-edge research topics that will need to be considered as we continue to address the economics of an aging society. The reader should know that I am but one economist, and many others might view retirement security slightly differently than I do. But most will agree with how I go about setting up the questions that must be addressed by almost any type of retirement security policy. 267 EBSCO Publishing : eBook Collection (EBSCOhost) – printed on 2/17/2019 3:02 PM via REGIS COLLEGE AN: 246064 ; Wilmoth, Janet M., Ferraro, Kenneth F..; Gerontology : Perspectives and Issues, Third Edition Account: s8895265 Copyright © 2007. Springer Publishing Company. All rights reserved. Discussion: Policy Making and the Challenges faced by Global Aging Policy May not be reproduced in any form without permission from the publisher, except fair uses permitted under U.S. or applicable copyright law. 268 GERONTOLOGY CUTTING-EDGE TOPICS IN THE ECONOMICS OF AGING AND RELATED POLICY ARENAS Old-fashioned economists begin with the notion that aging and security are purely an economic or financial issue. Of course, most readers of this book understand that while economics per se is important for an understanding of well-being in old age, demography, family structure, health status, and policy toward each of these are also important. Indeed the best empirical work demands databases that include each of these aspects of life. And so the best analyses of retirement and financial security are those that combine economic status (income, consumption, wealth) with health and family status. The Health and Retirement Study at the University of Michigan (http://hrsonline.isr.umich.edu) is a good place to begin to find these elements. Another self-serving suggestion is my recent textbook, The Economics of an Aging Society (Clark, Burkhauser, Moon, Quinn, & Smeeding, 2004), where we address each of these aging topics as well as health care finance. The Congressional Budget Office (CBO; see www.cbo.gov) and the National Academy of Social Insurance (NASI; see www.nasi.org) are good general and reliable sources for analyses of topics related to aging society, especially those involving social security reform, private pension insurance, and Medicare. Increasingly the United States shares the issues related to older societies with other rich countries, and so cross-national comparative research will yield insights into the ways that different societies provide economic security and assistance for aging members. Thus, resources such as the Luxembourg Income Study (LIS; www.lisproject.org) and the Organization for Economic Cooperation and Development (OECD; www.oecd.org), especially the Social Affairs Division (OECD, 2006), will allow one to compare aging issues and their policy solutions across countries. Over the next few years, a number of topics are going to be important, such as increased labor force participation and more market work at older ages (in my opinion, the best way to increase security in advanced old age); the security of retirement assets; the willingness of the population to save; long-term care finance; and employer pension participation and portfolio choice. Tomorrow’s elders will also be different from today’s in good ways (e.g., more highly educated elders, more women with work-related benefits and good earnings histories, and increasingly beneficial health care procedures and products) and not-so-good ones (e.g., rising health care costs, longer life expectancy in old age with the potential for increased disability, and asset insecurity). Growing wealth inequality will increasingly be a topic of study, along with the continuing EBSCO Publishing : eBook Collection (EBSCOhost) – printed on 2/17/2019 3:02 PM via REGIS COLLEGE AN: 246064 ; Wilmoth, Janet M., Ferraro, Kenneth F..; Gerontology : Perspectives and Issues, Third Edition Account: s8895265 Copyright © 2007. Springer Publishing Company. Discussion: Policy Making and the Challenges faced by Global Aging Policy All rights reserved. May not be reproduced in any form without permission from the publisher, except fair uses permitted under U.S. or applicable copyright law. Retirement and Financial Security 269 impoverishment of very elderly women and minorities. Finally, the rising budgetary and personal costs of health care and who will bear these costs is also a continuing priority. The field of economics provides a number of constructs that will help us understand the challenges that aging individuals and aging societies face. BASIC ECONOMICS AND RETIREMENT SAVING ECONOMICS All societies and the individuals in those societies face the same basic economic question of what goods and services to produce, how to produce them, and for whom (Haveman & Knopf, 1981). All societies make choices in answering these questions by means of a market-based socioeconomic system in which the basic decisions are made by individual producers and consumers. These producers and consumers are all striving to achieve their own personal retirement and financial security goals, and in so doing, they respond as best they can to the incentives that penalize or reward their activities. In a market system, the primary incentives are expressed in prices that are generated in markets. These prices guide human behavior, as households and individuals decide how much of their services to sell in the labor market to producers and how to use the proceeds of this labor (their incomes) to consume, save, and provide for their old age. When people save, they postpone consumption today in return for greater consumption tomorrow. Compensation for this postponement is called interest (or investment) income. Of course, everyone must consume some amount of goods and services from their incomes to survive. The amount consumed today versus tomorrow is also determined by both prices and individual preferences. These prices include both the dollar amounts spent to consume goods and services today, and the return to saving, which is also a price. Economists call this price the interest rate. Preferences relate to an individual’s desire to consume now or wait until later. If the interest rate is high enough or if individuals believe they will need more income later to support future consumption (e.g., in retirement), they may postpone current consumption now to have more later, or they may decide to keep working to supplement their retirement savings. These private retirement plans must also take into account public sector provision of the same needs for economic security in old age. So while I ignore public policy initially, I return later to consider social versus own provision of incomes, consumption, and key goods like health insurance (for acute health care and for chronic or long-term care). EBSCO Publishing : eBook Collection (EBSCOhost) – printed on 2/17/2019 3:02 PM via REGIS COLLEGE AN: 246064 ; Wilmoth, Janet M., Ferraro, Kenneth F..; Gerontology : Perspectives and Issues, Third Edition Account: s8895265 Copyright © 2007. Springer Publishing Company. All rights reserved. May not be reproduced in any form without permission from the publisher, except fair uses permitted under U.S. or applicable copyright law. 270 GERONTOLOGY Stocks and Flows: Income and Net Worth Economic status is measured by both stocks and flows. Flows are amounts received (amounts earned by or transferred to a household or person) and amounts paid for expenditures or for services received over a given period. Discussion: Policy Making and the Challenges faced by Global Aging Policy The earnings of a household plus its return on investments, including pensions, are called its market income (MI). MI is used to pay for consumed goods and services (C) and to either save (S) if consumption is less than income, or to borrow (B), if we consume more than we earn over a given period. Thus: C + S = MI if C < MI C – B = MI if C > MI Market income is also used to pay taxes (T) to governments. These taxes may be on income earnings (e.g., payroll taxes), property (e.g., homes), or expenditures (e.g., sales taxes). Some taxes paid by citizens are returned to them in the form of government transfers (R), which I discuss in a later section. Transfers are payments received as entitlements or in discretionary benefits from other individuals or from governments. For instance, social security benefits are transfers, as are some parts of Medicare, as well as transfers targeted on those least able to care for themselves: Medicaid, SSI, and food stamps. A household’s disposable, or spendable, income (DI) is its market income, net of taxes, after adding back transfers received. Thus: DI = MI – T + R Each of these items is a flow. Flows are always defined over a period such as a year, month or week. Stocks are defined as an amount available at a point in time. Persons hold assets such as savings, investments, homes, other buildings, businesses, and vehicles. These assets are defined as a person’s (or household’s) wealth (W). At any point in time, persons may also have a set of liabilities that are owed to other persons, such as home mortgages, car loans, credit card debt, or school loans. These are called debts (D). A person’s net worth (NW) is defined as wealth minus debts at any point in time: NW = W – D Stocks change from one period to another. The change in a stock is a flow. People who are net savers during a given period add to their net EBSCO Publishing : eBook Collection (EBSCOhost) – printed on 2/17/2019 3:02 PM via REGIS COLLEGE AN: 246064 ; Wilmoth, Janet M., Ferraro, Kenneth F..; Gerontology : Perspectives and Issues, Third Edition Account: s8895265 Copyright © 2007. Springer Publishing Company. All rights reserved. May not be reproduced in any form without permission from the publisher, except fair uses permitted under U.S. or applicable copyright law. Retirement and Financial Security 271 worth by either increasing wealth (W) or paying off debts (D); if they draw down their assets, they reduce net worth by decreasing W or increasing D. For instance, the idea of taking a second mortgage on an existing home and spending the money on a trip to Europe or to help grandchildren pay for college will reduce W and increase D. A reverse annuity mortgage will transfer the ownership of a stock (i.e., a house) to a financial institution such as a bank, in return for a steady flow of income over a given period. Thus, one can convert stocks to flows. Those looking forward to enjoying retirement can add to their net worth by saving some of their income. Over time, the process of reducing consumption and adding to savings builds up a stock of wealth that can be used to sustain consumption in retirement or when disabled or out of work. Persons may add to retirement savings through savings plans, pension funds, or other financial vehicles. They may also build up equity in their homes. Persons may also dissave (or reduce net worth) by cashing in pension funds in emergencies or running down their wealth by consuming more than they are earning. Discussion: Policy Making and the Challenges faced by Global Aging Policy Law of Compound Interest Why is it that financial planners especially urge young people to save for retirement? How much difference does it make if we start saving for retirement when we are young instead of when we are older? A short foray into financial home economics will underscore the power of compound interest and the importance of starting early and then maintaining savings for retirement. Let us assume you are going to retire at age 65 and want to know the value of saving $1,000 for retirement (until age 65) in any given year. Next, assume there are two types of investments: one yielding a “safe” 5%, the other a “risky” 10%. Usually riskier investments have higher interest rates as a reward for those who take these risks (noting that they can lose as well as gain), but for now I will abstract from these risks. Suppose you invested $1,000 at age 45 and left it for 20 years. During that period, the initial value (IV) of the investment grows according to the law of compound interest. The future value (FV) will equal (1 + i) where i is the interest rate, compounded over the n years of the investment. Thus: FV = IV (1 + i)n At the end of one year with an initial investment (IV) of $1,000 and an interest rate of 5% (i = .05), the (FV) of the asset rises to $1,050 since $50 in interest is added to the initial investment. If i = .1, the value rises to $1,100, and $100 of it will be interest. The power of compound interest EBSCO Publishing : eBook Collection (EBSCOhost) – printed on 2/17/2019 3:02 PM via REGIS COLLEGE AN: 246064 ; Wilmoth, Janet M., Ferraro, Kenneth F..; Gerontology : Perspectives and Issues, Third Edition Account: s8895265 Copyright © 2007. Springer Publishing Company. All rights reserved. May not be reproduced in any form without permission from the publisher, except fair uses permitted under U.S. or applicable copyright law. 272 GERONTOLOGY takes hold if the amount left at the end of the first period, the $1,050 (or $1,100), stays invested at the same interest rate over a long number of years. This process is called compounding because not only does the initial $1,000 grow, but also the interest each year is added to savings, and eventually earns interest as well. If a person aged 45 puts aside $1,000 for 20 years at 5%, it will be worth $2,653 at age 65. If the interest rate were 10%, the amount would $6,727. Age 45 is, unfortunately, when many people begin to save for retirement. But instead of starting at age 45, what if one put away $1,000 for retirement at age 25 and left it there for 40 years? Even at 5%, the $1,000 would be worth $7,040 at age 65. If the return were a riskier 10%, the $1,000 would grow to $45,259. Thus, beginning to save for retirement at age 25 yields a substantially larger amount than waiting until age 45 to save.Discussion: Policy Making and the Challenges faced by Global Aging Policy Table 13.1 presents a larger series of returns on an initial investment with constant returns of 5% and 10% over a number of years. Consistent annual investments, even if small, mount up substantially over time. Risky Investments and Postponing Retirement Of course, people would prefer a constant and safe 10% return instead of a more modest 5% return. Unfortunately, this is not the way that investment works. Few investments can guarantee a constant 10% return, especially over a 40-year period. However, over a long period of time, a TABLE 13.1 Future Value and Compound Interest for $1000 Invested Once and Left to Grow in an Interest-Bearing Account Years 1 10 20 30 40 Age 65 55 45 35 25 FV at i = .05 FV at i = .10 1 $1,050 = 1,000 (1 + .05) $1,629 = 1,000 (1 + .05)10 $2,653 = 1,000 (1 + .05)20 $4,322 = 1,000 (1 + .05)30 $7,040 = 1,000 (1 + .05)40 $1,100 = 1,000 (1 + .10)1 $2,593 = 1,000 (1 + .10)10 $6,727 = 1,000 (1 + .10)20 $17,449 = 1,000 (1 + .10)30 $45,259 = 1,000 (1 + .10)40 Notes: FV = IV (1 + i)n where: FV = future value of investment, assuming money is not withdrawn until age 65. IV = initial value of investment made in a given year. n = number of years for investment. i = interest rate on investment. Age = age at which you begin to invest for retirement, assuming money is not withdrawn until age 65. EBSCO Publishing : eBook Collection (EBSCOhost) – printed on 2/17/2019 3:02 PM via REGIS COLLEGE AN: 246064 ; Wilmoth, Janet M., Ferraro, Kenneth F..; Gerontology : Perspectives and Issues, Third Edition Account: s8895265 Copyright © 2007. Springer Publishing Company. All rights reserved. May not be reproduced in any form without permission from the publisher, except fair uses permitted under U.S. or applicable copyright law. Retirement and Financial Security 273 risky investment, even with ups and downs at any point over the period, usually produces a higher return than a safe, fixed investment. For instance, longer-term certificates of deposit or government bonds may yield a safe 3 to 5% return. One can even buy inflation-protected bonds that pay a small return of 1 to 2% but also are adjusted for inflation so the value of the investment is protected against price changes. Corporate stocks and bonds are much riskier because they vary with the profitability of the company and the general health of the economy. They sometimes pay 10%, but other times more, and sometimes less. Over the past 50 years, however, stocks and bonds have averaged about a 7% return. Assuming that the $1,000 is invested for 40 years at 7%, this investment will yield $12,974, nearly twice the $7,040 return on the 5% investment (and any change in prices experienced over the period may be subtracted from both investments, thus making the 7 and 5% returns more like a 4 and a 2% real return with long-term inflation at 3%). While it may take a strong stomach to withstand the ups and downs of the stock market over a 40-year period, history has shown that those who do so are likely to be rewarded for taking such risks—not at a peak return in all periods, but at a higher return than the low-risk investments. The final basic point to be made is that with investments like these, there is a reward to delaying retirement (or withdrawal of funds). In the example on the final line of Table 13.1, the hypothetical individual has saved a single one-time investment of $1,000 for 40 years, depositing the initial amount at age 25 and realizing his investment at age 65, and has $7,040 for his efforts. Now suppose this person decided to work another five years, until age 70, and to leave his retirement savings intact for the five years at the assumed rate of interest. The reward for waiting is an extra $1,945. At a 10% interest rate; the difference is $17,631. Thus, postponing retirement by five years may pay handsome dividends to those who hold their accumulated savings and instead choose to work to support their consumption over this period. Of course, compound interest works the other way as well. Stopping work and retiring early at age 60 reduces the value of the $1,000 put away at age 25 to $28,102 at the 10% interest rate, $17,157 less than if it were left … Get a 10 % discount on an order above $ 100 Use the following coupon code : NURSING10