People’s personal circumstances vary enormously. Someone with a defined-benefit pension may have little personal savings; someone with substantial savings and a retirement account may lack a pension. Some wealth is not easily converted into cash: home equity, for example. To tap it, people have to sell their homes or (more likely) borrow against it. In their study, Poterba, Venti and Wise find most elderly households treat their home equity as “precautionary savings” used “only when they experience a shock such as the death of a spouse or a period of substantial medical outlays.”
Even wealthy retirees face uncertainty: They don’t know how long they’ll live and how quickly to spend their savings. Still, two conclusions leap from the table. First, a substantial part of the elderly population — between 30 percent and 40 percent — is well-off by any definition. Second, reliance on Social Security declines noticeably as income and wealth increase.
What this suggests is that some cuts in Social Security benefits or increases in Medicare fees, even for those already on the programs, would not impose undue hardship. In any deficit deal, the elderly should be part of the bargain. All the adjustment should not be heaped on the working-age population.
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