Building Lifetime Middle Class Security Donald L. Redfoot, Ph.D. AARP Public Policy Institute

1. Building Lifetime Middle Class Security Donald L. Redfoot, Ph.D. AARP Public Policy Institute Presentation to the American Academy of Actuaries July 14, 2014

2. What was the Middle Class Security Project? Initiated by CEO Barry Rand An Initiative of AARP’s Public Policy Institute Analyzed the interplay of economic forces causing distress among the middle class from the perspective of consumers over the course of their lives Grounded in a belief that all people should be able to realize a portion of the “American Dream”

3. Nine Reports Building Lifetime Middle-Class Security Donald L. Redfoot, AARP Public Policy InstituteSusan C. Reinhard, SVP and Director, AARP Public Policy InstituteDebra Whitman, EVP for Policy, Strategy and International Affairs, AARP What Are the Retirement Prospects of Middle-Class Americans? Barbara Butrica, Urban InstituteMikki Waid, AARP Public Policy Institute Assets and Debt across Generations: The Middle-Class Balance Sheet 1989–2010 Lori A. Trawinski, AARP Public Policy Institute Tracking the Decline: Middle-Class Security in the 2000s Tatjana Meschede, IASP Research Director, Brandeis UniversityLaura Sullivan, IASP Research Associate, Brandeis UniversityDonald L. Redfoot, AARP Public Policy InstituteEnid Kassner, AARP Public Policy Institute

4. Nine Reports Continued The Elusive Middle in America—What Has Happened to Middle-Class Income? Gary Koenig, AARP Public Policy Institute In the Red: Older Americans and Credit Card Debt Amy Traub, Dēmos The Effects of Rising Health Care Costs on Middle-Class Economic Security Harriet Komisar, Georgetown University The Loss of Housing Affordability Threatens Financial Stability for Older Middle-Class Adults Rodney Harrell, AARP Public Policy InstituteShannon Guzman, AARP Public Policy Institute How Older Americans Are Dealing with New Economic Realities TresaUndem, Lake Research Partners See also: Video Portraits of Middle-Class Americans atwww.aarp.org/security

5. Who is Middle Class? Middle class not synonymous with “middle income.” However, researchers often use income as an indicator of middle class status, which also includes: Achievement – homeownership, education, healthcare, and a bit left over for savings and extras Security – maintaining middle class status through hard times Aspirations – doing better in one’s own life and enabling children to do better still These fundamental aspects of middle class security have been shaken in recent years

6. Theme 1: Security Under Attack from All Sides The costs of housing, healthcare, and a college education are all increasing more rapidly than wages When rising healthcare costs depress wages, and housing takes a bigger bite out of income – it’s more difficult to save for kids’ education or for retirement We must look at the multi-dimensional picture of factors undermining middle class security

7. Tracking the Decline New Middle Class Tracking Index developed with Brandeis showing trends, 2004 to 2010 Five factors important to middle-class security: income health insurance coverage housing affordability money for extras and savings assets to cover an emergency

8. Tracking the Decline:Results Working-age middle-income – “secure” fell 38%; Proportion defined as “vulnerable” grew by 42 percent. Middle-class workers age 45–64 – 32% drop in security; Younger than 45 – overall security fell by 47% High school education or less – least secure. > High school but < College – “secure” fell 51 percent 59% of African-Americans income vulnerable in 2010, 57% of Latino families—twice the percentage of whites.

9. Rising Healthcare Costs Healthcare spending grew twice the rate of inflation, 2000-2010 Per person spending – $8,402 in 2010, nearly triple 1990 average In 2011, one in three faced financial burden from medical bills – one in five had trouble paying those bills Employers shifted costs to workers – premiums for family coverage $1,787 in 2001, more than doubled to $4,129 in 2011 47 percent ages 56–62 at risk of not being able to pay healthcare costs in retirement, including LTSS expenses

10. Theme 2: Security Takes A Lifetime to Build A secure middle class retirement takes a lifetime to build – events along the way can enable or derail security Particularly important when looking at race and gender dimensions of middle class security over a lifetime Race – affects housing, education, availability of jobs, and healthcare coverage at all stages of life Gender – Women are more likely to have interruptions to careers to care for children and aging parents

11. Percent of Married Couples Who Can Afford LTCi AND Meet Other Tests of Financial Security, 1998

12. Middle Class Balance Sheet: Assets and Debt Data from Survey of Consumer Finances, 1989-2010 Average middle class debt increased significantly since 1989 THE NEWS: Over age 50 – sharpest increase AS EXPECTED: Younger families – largest debt amounts Families age 50-64 – asset increases offset by debt increases Families age 25-49 – net worth decreased 32 percent All age groups – Net worth fell 2007-2010 due to housing market collapse, financial crisis and Great Recession

13. Housing Affordability Middle income households age 50+ paying >30 percent of income on housing – 20% in 2000, 29% in 2009 53% of foreclosures among 50+ were middle-income, 2011 African Americans and Latinos lost over half of wealth between 2005-2009, largely due to declining home values The percentage of 50+ households who own their homes free and clear declined from 40 to 36%; number with mortgages rose from 38 to 42%, 2000-2009

14. Theme 3: Security is Intergenerational Threat to one generation undermines security for all Student loan debt – tripled for households age 40-59 between 2005 and 2012 Caregivers who leave workforce lose over $300,000 in wages and retirement benefits over their lives Married households were more secure than singles, and each was less secure with children

15. What We Learned A costly illness, needs to provide family care, losing a job, mounting debts, a plunge in home values – can turn a secure retirement into a struggle. Financial stress affecting one generation has an impact on entire families and can undermine security for all. We know that older Americans dream of a better future for our country and their families. Through research, advocacy and consumer education, AARP will do what we can to make that dream a reality.

16. Visit our website at: www.aarp.org/security Follow us on Twitter: @DonRedfoot @AARPpolicy