Income and Assets of Medicare Beneficiaries, 2016-2035 Gretchen Jacobson, Shannon Griffin, Tricia Neuman, and Karen Smith Many Medicare beneficiaries, including seniors and younger adults with disabilities, live on fixed incomes supplemented by the savings they accumulated during their working years. Their income and accumulation of savings is tied to many life experiences, including their education, health status, marital status, number of work years, household income, periods of unemployment, investments, years of homeownership, access to employer retirement benefits, inheritance, other financial supports, and various economic factors. As a result, the income and assets of Medicare beneficiaries vary greatly.1 This data brief updates previous work that describes the income and assets of Medicare beneficiaries now and in the future.2 It incorporates updated projections about the current and future U.S. economy, and the effects of the economic downturn and recovery on current and future beneficiaries’ income, savings, and home equity. This brief provides context for understanding the extent to which the current and future generations of beneficiaries can afford to absorb higher health care costs. In this analysis, the income of the Medicare population takes into account Social Security, pensions, earnings, and other income sources, including income from assets, rental income, and retirement account (IRA) withdrawals. Income is presented on a per person basis; for married people, income is divided equally between spouses to calculate per capita income. Projected growth in income is adjusted for inflation and all dollar amounts are in 2016 per capita dollars. Half of all Medicare beneficiaries had incomes below $26,200 in 2016, but incomes varied substantially among beneficiaries (Figure 1). One-quarter of beneficiaries had incomes below $15,250, while at the other end of the distribution, five percent had incomes exceeding $103,450, including one percent who had incomes exceeding $182,900. Incomes among beneficiaries varied across demographic characteristics (Figure 2). Median per capita income was substantially higher for white beneficiaries ($30,050) than for black beneficiaries ($17,350) or Hispanic beneficiaries ($13,650). Across all ages, median per capita income was lower for beneficiaries under the age of 65 with permanent disabilities ($17,950) than among seniors. Among seniors, median income declines with age. More than half of all beneficiaries ages 85 and older lived on an income of less than $20,400 in 2016. Married individuals had higher median per capita incomes ($30,750 per person) than divorced, widowed or single beneficiaries ($22,150, $23,700, and $15,350, respectively). As might be expected, median income varied by years of education and was more than three- times higher among beneficiaries with college degrees ($44,700) than among those with less than a high school education ($14,300) in 2016 (Table 1). Between 2010 and 2016, the median income of Medicare beneficiaries increased by nearly $5,000, rising from $21,250 in 2010 to $26,200 in 2016 (without adjusting for inflation). However, median incomes increased more for white beneficiaries ($6,200) than black ($2,600) or Hispanic ($2,200) beneficiaries. Additionally, incomes grew more among the top five percent ($20,000) than among the bottom quartile ($2,350; Figure 3). Income and Assets of Medicare Beneficiaries, 2016-2035 2 Per capita income among the Medicare Figure 4 population will be moderately higher in 2035 Growth in per capita income is projected to be than it is today, after adjusting for inflation; concentrated among beneficiaries with higher incomes Per Capita Total Income (in 2016 dollars): however, much of the growth is projected to $140,000 be in the upper incomes (Figure 4). Incomes 95 percentile th $123,800 $120,000 are projected to be 20 percent higher for $103,450 $100,000 $91,500 beneficiaries in the top five percent of the 90 percentile th $77,100 $80,000 income distribution in 2035 compared to the $55,150 current generation, an increase of about $60,000 75 percentile th $46,950 $20,350 between 2016 and 2035, after $40,000 $26,200 50th percentile (Median) $30,250 adjusting for inflation. In contrast, per capita $20,000 25 percentile th income for beneficiaries in the bottom $15,250 $17,300 $0 quartile of the income distribution are 2016 2020 2025 Year 2030 2035 projected to be about 13 percent higher in NOTE: All incomes are adjusted to 2016 dollars. SOURCE: Urban Institute / Kaiser Family Foundation analysis of DYNASIM data, 2017. 2035 (an increase of just over $2,000, after adjusting for inflation) and among beneficiaries in the middle of the income distribution, incomes are projected to be just 15 percent ($4,050) higher in 2035 than in 2016, after adjusting for inflation. In 2035, twenty-five percent of beneficiaries are projected to have incomes below $17,300 and about half will have incomes below $30,250. Ten percent of beneficiaries are projected to have incomes above $91,500 and five percent are projected to have incomes above $123,800 in 2035, after adjusting for inflation. In this analysis, the total savings of the Medicare population includes retirement account holdings (such as IRAs or 401Ks) and other financial assets, including savings accounts, bonds and stocks. Savings are presented on a per person basis; for married people, savings are divided equally between spouses to calculate per capita savings. Projected growth in savings is adjusted for inflation and all dollar amounts are in 2016 dollars. Figure 5 Half of all Medicare beneficiaries had savings below In 2016, nearly all beneficiaries (92%) had $74,450 per person in 2016 some savings, but eight percent had no 1% had savings above $4,008,150 savings or were in debt (i.e., negative savings), 5% had savings above $1,367,000 with median debt of $950. Half of all beneficiaries had savings below $74,450, with substantial variation in savings across beneficiaries (Figure 5). One-quarter of 50% had savings below $74,450 beneficiaries had savings below $14,550, including beneficiaries who had no savings or were in debt. At the other end of the 25% had savings below $14,550 distribution, five percent had more than $1.3 8% had $0 in savings million in savings, including one percent who or were in debt had more than $4 million in savings in 2016. SOURCE: Urban Institute / Kaiser Family Foundation analysis of DYNASIM data, 2017. Income and Assets of Medicare Beneficiaries, 2016-2035 3 Like income, savings among beneficiaries Figure 6 varied greatly across demographic Median per capita savings among Medicare beneficiaries characteristics (Figure 6). While nearly all varies by beneficiary characteristics in 2016 Race/ethnicity Age Marital Status beneficiaries (92%) had some savings, rates of $108,250 $109,750 savings were lower among some groups, $99,700 particularly black beneficiaries (81%), $74,450 $76,800 Hispanic beneficiaries (76%), beneficiaries $54,450 $60,650 under the age of 65 with disabilities (87%), $33,300 $39,200 $25,750 and beneficiaries who were divorced or single $16,000 $12,250 (88% and 80%, respectively). Median per Widowed Under 65 65-74 75-84 85 or older Total White Single Black Married Divorced Hispanic capita savings among white beneficiaries ($108,250) was nearly seven times higher % with savings 92% 96% 81% 76% 87% 94% 91% 90% 95% 88% 92% 80% Median than median per capita savings among black among those $92,100 with savings $118,950 $27,300 $27,400 $45,750 $125,050 $97,000 $52,700 $112,900 $75,450 $75,550 $49,300 beneficiaries ($16,000) and nearly nine times NOTE: Total household savings for couples is split equally between husbands and wives to estimate savings for married beneficiaries. SOURCE: Urban Institute / Kaiser Family Foundation analysis of DYNASIM data, 2017. higher than median per capita savings among Hispanic beneficiaries ($12,250). Median per capita savings among beneficiaries under the age of 65 and disabled ($33,300) was lower than for seniors of any age group; among seniors, those ages 85 and older had relatively low savings, with more than half having less than $39,200 in savings in 2016. Median savings also differed by marital status and was higher among married beneficiaries ($99,700) than among divorced, widowed, or single beneficiaries ($54,450, $60,650, and $25,750, respectively). Median per capita savings was higher among beneficiaries with more years of education; the median savings of college-educated beneficiaries ($258,650) was more than 22-times higher than the median savings among beneficiaries with less than a high- school education ($11,450; Table 1). Between 2010 and 2016, the median savings of Medicare beneficiaries increased by about $25,050 (without adjusting for inflation). Similar to income, the top five percent of beneficiaries saw larger gains in savings (about $328,200) than beneficiaries in the bottom quartile ($5,950) between 2010 and 2016. Median savings among the Medicare population in 2035 is projected to be somewhat higher than among the current generation of beneficiaries, after adjusting for inflation, with much of the growth in savings expected to be realized among a relatively small share of beneficiaries (Figure 7). Among beneficiaries in the top five percent of the savings distribution, savings are projected to be 30% greater (approximately $406,500) for the next generation of beneficiaries, compared to the current generation of beneficiaries, after adjusting for inflation. Income and Assets of Medicare Beneficiaries, 2016-2035 4 In contrast, among beneficiaries in the middle of the savings distribution, savings are projected to be over $41,000 higher in 2035 than in 2016, after adjusting for inflation. This difference indicates a widening gap in savings between beneficiaries in the top five percent and middle of the distribution. In 2035, 25 percent of beneficiaries are projected to have savings below $27,300, including 6 percent who are projected to have no savings or be in debt, and about half of beneficiaries are projected to have savings below $115,850 in 2035. At the other end of the spectrum, 10 percent of beneficiaries are projected to have savings above $1 million and 5 percent are projected to have savings above $1.7 million in 2035, after adjusting for inflation. As with income and savings, home equity Figure 8 values are divided equally between spouses to Half of all Medicare beneficiaries had home equity calculate per capita home equity. Projected below $70,950 per person in 2016 growth in home equity values is adjusted for 1% had home equity above $873,150 inflation and all dollar amounts are in 2016 5% had home equity above $466,600 per capita dollars. The home equity values shown account for any decrease in home equity values that occurred as a result of the 50% had home equity below $70,950 mortgage crisis; it has been estimated that more than 1.5 million Americans over age 50 lost their homes between 2007 and 2011.3 25% had home equity below $7,350 24% had $0 in home equity Most Medicare beneficiaries (76%) had some SOURCE: Urban Institute / Kaiser Family Foundation analysis of DYNASIM data, 2017. home equity in 2016, with substantial Figure 9 variation in the value of their home equity. Median per capita home equity among Medicare Half of all beneficiaries had less than $70,950, beneficiaries varies by beneficiary characteristics in 2016 and one-quarter had less than $7,350 in home Race/ethnicity Age Marital Status equity, including 24 percent who had no $126,000 home equity at all in 2016 (Figure 8). At the $91,100 $86,800 $86,950 $85,150 other end of the distribution, five percent had $70,950 $75,900 more than $466,000 in home equity, including one percent who had more than $15,950 $14,200 $28,850 $10,650 $873,000 in home equity in 2016. $0 Widowed Under 65 65-74 75-84 Total 85 or older White Single Married Black Divorced Hispanic The share of beneficiaries with home equity % with home equity 76% 83% 58% 53% 56% 81% 80% 78% 87% 58% 83% 30% and the value of home equity differed across Median among $109,600 $119,250 $59,800 $67,850 $54,800 $120,150 $117,650 $115,850 $93,450 $113,850 $158,050 $119,050 homeowners demographic characteristics in 2016 (Figure NOTE: Total household home equity for couples is split equally between spouses to estimate home equity for married beneficiaries. SOURCE: Urban Institute / Kaiser Family Foundation analysis of DYNASIM data, 2017. 9). Rates of home equity were lower among single beneficiaries (30%) and divorced beneficiaries (58%) than among married or widowed beneficiaries (87% and 83%, respectively). Home equity rates were also lower among Hispanic and black beneficiaries (53% and 58%, respectively) than whites (83%), and lower among beneficiaries under the age of 65 with disabilities (56%) in 2016. Income and Assets of Medicare Beneficiaries, 2016-2035 5 Among beneficiaries with home equity, median per capita home equity was $109,600 in 2016, with higher home equity values among white beneficiaries ($119,250) than among black ($59,800) or Hispanic ($67,850) beneficiaries. Median home equity among beneficiaries under age 65 with home equity ($54,800) was less than half the median home equity among seniors with home equity ($118,850). Among seniors with home equity, the value was slightly higher among 65-74 year olds ($120,150) than older groups, including beneficiaries ages 85 and older ($115,850), in 2016. Among beneficiaries with home equity, median home equity values were higher among widowed beneficiaries ($158,050) than among married, divorced, or single beneficiaries ($93,450, $113,850, and $119,050) in 2016. Among those with home equity, median home equity was also higher among beneficiaries with more years of education, and the median home equity of college- educated beneficiaries ($164,800) was more than double the median home equity of beneficiaries with less than a high-school education ($66,650) in 2016 (Table 1). Home equity values among Medicare beneficiaries in 2035, adjusted for inflation, are projected to be moderately higher than they were in 2016, with much of the growth in home equity values among people in the top decile; however, the share of beneficiaries with home equity (76%) is projected to remain flat (Figure 10). Median home equity is projected to grow by approximately $4,250, or six percent, from $70,950 in 2016 to $75,200 in 2035, after adjusting for inflation. In contrast, among beneficiaries in the top five percent of the home equity distribution, home equity is projected to be 38 percent higher among the next generation of beneficiaries than among the current generation, growing by $175,900, from $466,600 in 2016 to $642,500 in 2035, after adjusting for inflation. As a result, the distribution of home equity values is projected to widen over time. While a small share of the Medicare population lives on relatively high incomes, most are of modest means, with half of people on Medicare living on less than $26,200 and one quarter living on less than $15,250 in 2016. The typical beneficiary has some savings and home equity, but the range of asset values among beneficiaries is wide and varies greatly across demographic characteristics. Looking to the future, the income, assets and home equity values of Medicare beneficiaries overall are projected to be somewhat greater in 2035 than in 2016 after adjusting for inflation; yet, similar to what has been seen over the past six years, much of the growth is projected to be realized among those with relatively high incomes and assets. As policymakers consider options for decreasing federal Medicare spending and Income and Assets of Medicare Beneficiaries, 2016-2035 6 addressing the federal debt and deficit, these findings raise questions about the extent to which the next generation of Medicare beneficiaries will be able to bear a larger share of costs. Asset and income projections are based on the Urban Institute’s Dynamic Simulation of Income Model (DYNASIM3). DYNASIM3 is a dynamic microsimulation model that projects the population and analyzes the long-run distributional consequences of retirement and aging issues. The model starts with a representative sample of individuals and families and ages the data year by year, simulating demographic and economic events including all key components of retirement income. The model integrates many important trends and differences among groups in life course processes, including birth, death, schooling, leaving home, first marriage, remarriage, divorce, disability, work, retirement, and earnings. Projections of fertility, disability, mortality, net immigration, employment, average earnings, and price changes are aligned to be consistent with 2014 OASDI Trustees intermediate cost projections. Projections of assets are aligned to the Survey of Consumer Finance (SCF). For a fuller description of DYNASIM3, see Karen E. Smith. February 2012. “Projection Methods Used in the Dynamic Simulation of Income Model (DYNASIM3),” Program on Retirement Policy, The Urban Institute. Gretchen Jacobson, Shannon Griffin, and Tricia Neuman are with the Kaiser Family Foundation, and Karen Smith is with the Urban Institute. Income and Assets of Medicare Beneficiaries, 2016-2035 7 White 75% $30,050 $108,250 96% $118,950 $91,100 83% $119,250 67% $35,750 $172,750 97% $184,400 $102,250 83% $135,350 Black 10% $17,350 $16,000 81% $27,300 $15,950 58% $59,800 12% $21,350 $42,900 88% $58,000 $22,100 60% $67,650 Hispanic 10% $13,650 $12,250 76% $27,400 $10,650 53% $67,850 15% $17,850 $33,350 84% $51,400 $28,150 60% $81,000 Under Age 65 17% $17,950 $33,300 87% $45,750 $14,200 56% $54,800 10% $20,750 $45,950 85% $65,450 $0 50% $73,550 Seniors 83% $28,350 $89,000 93% $106,700 $86,700 80% $118,850 90% $31,700 $129,100 94% $147,000 $84,150 79% $123,550 Age 65-74 49% $32,000 $109,750 94% $125,050 $86,800 81% $120,150 44% $33,650 $140,350 95% $157,900 $74,050 77% $112,050 Age 75-84 24% $27,000 $76,800 91% $97,000 $86,950 80% $117,650 33% $30,750 $127,650 95% $144,100 $88,050 81% $125,200 Age 85 and Older 10% $20,400 $39,200 90% $52,700 $85,150 78% $115,850 13% $29,050 $98,050 93% $116,750 $119,700 81% $167,050 Female 55% $24,400 $67,600 91% $85,050 $75,800 77% $114,750 54% $29,300 $109,850 93% $130,400 $82,300 77% $127,050 Male 45% $28,450 $83,400 93% $101,650 $65,600 76% $103,150 46% $31,400 $123,650 94% $143,100 $67,600 75% $110,650 Married 55% $30,750 $99,700 95% $112,900 $75,900 87% $93,450 54% $33,450 $135,500 95% $150,050 $78,250 87% $95,600 Divorced 14% $22,150 $54,450 88% $75,450 $28,850 58% $113,850 13% $26,650 $100,900 92% $121,450 $46,800 61% $137,300 Widowed 21% $23,700 $60,650 92% $75,550 $126,000 83% $158,050 20% $31,250 $114,000 94% $131,550 $155,550 86% $193,550 Single 10% $15,350 $25,750 80% $49,300 $0 30% $119,050 14% $20,650 $68,250 87% $100,950 $0 33% $170,950 Less than High School 17% $14,300 $11,450 79% $21,600 $22,700 61% $66,650 13% $14,250 $18,500 81% $31,400 $19,050 57% $66,400 High School Graduate 37% $22,850 $54,150 92% $64,850 $61,250 75% $95,500 33% $24,450 $72,700 93% $84,850 $56,300 73% $96,350 Some College 20% $31,150 $102,650 95% $112,550 $81,600 81% $111,600 22% $33,050 $132,850 97% $142,450 $81,300 80% $115,050 College Graduate 26% $44,700 $258,650 97% $275,350 $130,900 85% $164,800 31% $48,700 $331,750 98% $347,150 $137,550 85% $174,850 <200% FPL 31% $12,600 $13,700 81% $23,250 $9,550 53% $77,250 25% $12,850 $18,850 82% $29,150 $0 48% $76,400 200-399% FPL 28% $24,800 $66,350 95% $73,450 $67,450 80% $94,950 27% $25,500 $82,600 96% $88,200 $65,900 78% $98,000 400% FPL or more 41% $53,350 $247,300 98% $257,000 $122,600 92% $135,900 47% $57,250 $339,650 98% $350,800 $127,150 90% $147,750 Urban Institute / Kaiser Family Foundation analysis of DYNASIM data, 2017. Income and Assets of Medicare Beneficiaries, 2016-2035 8 Under Age 65 9,650 6,500 1,600 1,150 8,700 5,100 1,550 1,500 Seniors 44,350 34,600 3,850 3,950 72,800 51,700 7,650 9,000 Age 65-74 25,400 19,550 2,350 2,350 39,200 26,750 4,550 5,500 Age 75-84 13,300 10,500 1,100 1,150 25,150 18,600 2,450 2,650 Age 85 and Older 5,650 4,550 450 450 8,400 6,350 650 800 Female 29,600 22,500 3,150 2,700 43,800 30,300 5,350 5,500 Male 24,400 18,550 2,350 2,350 37,750 26,550 3,850 5,000 Married 29,600 23,100 2,250 2,700 44,950 31,900 4,000 6,050 Divorced 7,500 5,400 1,000 750 10,900 7,700 1,300 1,200 Widowed 11,800 9,300 1,050 1,000 15,550 11,400 1,500 1,750 Single 5,200 3,250 1,100 650 10,150 5,850 2,350 1,450 Less than High School 9,900 5,600 1,450 2,400 10,850 4,450 1,450 4,250 High School Graduate 20,100 15,700 2,250 1,500 27,750 19,550 3,650 3,250 Some College 10,600 8,550 1,000 600 18,500 13,600 2,250 1,650 College Graduate 13,400 11,250 750 550 24,450 19,200 1,800 1,350 <200% FPL 17,850 11,250 2,900 2,800 21,300 11,300 3,800 4,800 200-400% FPL 15,500 12,050 1,400 1,350 22,450 15,850 2,550 2,750 400% FPL or more 20,650 17,750 1,200 900 37,750 29,700 2,800 3,000 Numbers do not sum to total, because beneficiaries identified as “other” races not show n separately. Urban Institute / Kaiser Family Foundation analysis of DYNASIM data, 2017. Income and Assets of Medicare Beneficiaries, 2016-2035 9 1 Kaiser Family Foundation, “Wide Disparities in the Income and Assets of People on Medicare by Race and Ethnicity: Now and in the Future,” September 2013. 2 Kaiser Family Foundation, “Income and Assets of Medicare Beneficiaries,” September 2015, http://kff.org/medicare/issue- brief/income-and-assets-of-medicare-beneficiaries-2014-2030/. 3 Trawinski, Lori, “Nightmare on Main Street: Older Americans and the Mortgage Market Crisis,” AARP Public Policy Institute, July 2012. The Henry J. 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