By Marc Cohen and Jane Tavares
Low asset levels leave most black and Hispanic elders at greater risk when facing care costs.
How much money does it take to get by later in life? This seemingly straightforward question belies simple answers.
Conversations about the ability of older people to afford retirement usually revolve around income: Are people working now? How big of a Social Security benefit are they entitled to? Do they have a pension that will generate monthly checks?
ASSET OWNERSHIP AS AN ECONOMIC CUSHION
The exclusive focus on income leaves out another critical aspect of economic well-being in older life—assets. Can retirees rely on assets such as savings, investments, and home equity to help them face unexpected expenses or other costly emergencies should they arise?
Ownership of significant assets can make all the difference for older adults, especially since one of the largest unfunded expenses facing people as they age is long-term services and supports (LTSS).
About 7 of every 10 individuals will have some need for LTSS. Half of all people turning age 65 will have a significant need and face out-of-pocket costs approaching $140,000. That’s not surprising, since median nursing home costs total $92,000 a year and home care expenses can amount to as much as $46,000 annually.
RACIAL DISPARITIES AND ASSET OWNERSHIP
During retirement years, lifelong economic disparities across racial and ethnic lines really worsen and become a dangerous chasm affecting quality of life. Compared with older white adults, black and Hispanic elders own very few assets on which they can fall back. In fact, most don’t have any at all.
A recent analysis of new data from the Health and Retirement Survey shows that 60% of minority older adults age 60 and over only have about $12,000 in median assets—including home equity—compared to $33,000 for a similar group of whites in the lower 60% of the total wealth distribution.
Take a closer look and it gets even worse: Minorities in the lowest 40% of the wealth spectrum are actually considered “underwater” when you consider income plus all net assets. Their average net wealth is negative. White counterparts in the same group have modest average net wealth of about $10,000.
The LeadingAge LTSS Center @UMass Boston has been tracking these trends since 2014. Recent data, analyzed with the support of the National Council on Aging, does not show much improvement. While Hispanic households showed a minor worsening of their situation between 2014 and 2016, black and white households simply do not show much change.
FEW ASSETS AND POORER HEALTH: A DANGEROUS COMBINATION
This situation creates one of the country’s most serious challenges when it comes to the well-being of its older citizens, and there aren’t any easy solutions.
Taken alone, these disparities are disturbing enough. However, older black and Hispanic adults are also more likely to report being in poorer health. They have higher levels of functional and cognitive impairment. They deal with a higher incidence of reported depression. All this adds up to a significantly higher risk for incurring LTSS expenses most can’t afford.
So, it is not surprising that older black adults are 1.3 times more likely than whites to access Medicaid—the social safety net—during their retirement. Hispanics are 1.08 times more likely than whites to do so.
THE CRUCIAL ROLE OF MEDICAID
Medicaid is not only a safety-net, it is a lifeline for these individuals, who have little else to fall back on. It gives them access to needed care they would not be able to pay for on their own.
At a time when there are serious discussions across many states about how to control and even reduce Medicaid costs, one must clearly understand that efforts to do so will disproportionately affect those with few available financial alternatives to protect their own well-being. Social and health support programs like Medicaid are designed to cushion the blow of lifetime disparities in income and assets that worsen during retirement.
Public policies designed to reduce these disparities have a long way to go. Assuring protection of the social safety net is the next best way to cushion the blow for this vulnerable and growing proportion of older adults.
Marc A. Cohen, PhD, is co-director of the LeadingAge LTSS Center @UMass Boston, a professor of gerontology at the University of Massachusetts Boston, and research director at Community Catalyst. His research focuses primarily on issues affecting the financing and delivery of long-term services and supports.