Financial adequacy in retirement largely depends on Social Security, pensions, and savings-commonly referred to as the "three-legged stool" of retirement income. Correspondingly, the elderly who receive all of their income from Social Security benefits are recognized as being economically vulnerable. Income of the Population 55 or Older, 2004 reports that 21 percent of beneficiary aged units 65 or older received all of their income from Social Security. Other publications using the same data source as Income of the Population 55 or Older, 2004 have produced different statistics that appear contradictory. The primary purpose of this article is to explain how the choice of the unit of observation plays a role in our perception of the relative importance of Social Security benefits for the elderly.
The unit of observation may be a person, family, marital unit, or other grouping of persons. The unit of observation is important because it performs two functions. First, it is the unit that gets counted and is the base for computing percentages. For example, consider two families-a poor family of two persons and a nonpoor family of six persons. Half of the families (one of two) are poor, but only 25 percent of the persons (two of eight) are poor. Second, the unit of observation may also dictate the boundaries for the income being considered. A married person may have no personal income while his or her spouse does. Many would assume that spouses share income, making statistics based only on personal income undesirable when the objective is to consider the resources available. Others may want to know what income each person contributes to their unit, which would make statistics based on personal income preferred.
Data and Concepts
The Social Security Administration (SSA) has been producing two series of publications on the income of the elderly and near-elderly- Income of the Population 55 or Older, since 1976, and the Income of the Aged Chartbook, since 1990. Both series are derived from the Annual Social and Economic Supplement, also known as the March Supplement, to the Current Population Survey (CPS), conducted every March by the U.S. Census Bureau.1 For comparability with data in Income of the Population 55 or Older, 2004 (SSA 2006), this article uses data on 2004 income from the March 2005 Supplement to the CPS.2
Research about the income of the elderly often asks one of two types of questions: what income do elderly persons provide for themselves and those they live with, and what income is available as a resource for the elderly? Different units of observation can be useful for answering one question or the other but also can be misleading if an unsuitable unit is chosen.
Statistics for persons are based solely on the income and demographic attributes (age, sex, race, or Hispanic origin) of each person; no spousal or other family income is included. Statistics on person income provide information on the resources an aged person contributes to his or her living unit. These statistics do not necessarily answer questions on the resources available to an aged person.3
Statistics for the family income of persons are also based on the demographic attributes (age, sex, race, or Hispanic origin) of each person. Total income from all family members (related through blood, marriage, or adoption) is treated as another attribute of the person. If any person in the family has income from a specific source, the aged person is considered to be in a recipient family. These statistics are designed to answer questions on the resources available to an aged person.
Statistics for aged units treat each marital unit (married couple or nonmarried individual) as one unit.4 A nonmarried individual has only his or her own income and demographic attributes. In SSA's two data series (cited earlier), aged units classified as "65 or older" are defined as follows:
* nonmarried persons 65 or older, or
* married couples in which either
- the husband is 65 or older, or
- the husband is younger than 55 and the wife is 65 or older. …