Older Americans stand to lose during the 1980s half the income gains they made in the 1970s, according to a study released yesterday by the National Retired Teachers Association and the American Association of Retired Persons.
The $150,000 study, entitled "Inflation and the Elderly," was done by Data Resources Inc., a Massachusetts economic research firm. Martin Duffy, the project director, said DRI acted completed independently and used only government data.
The study has a dual purpose, said NRTA-AARP Director Cy Brickfield: to turn public opinion away from the popular notion that the elderly are living quite well despite inflation and to provide data for future government action such as an attempt to cap Social Security cost-of-living benefits.
Brickfield admitted that "for the most part, the elderly were able to keep pace with inflation during most of the past decade." DRI found that the average income of those over 65 climbed from a low of 48 percent of that of younger persons in 1966 to 57 percent today.
Despite the gains, average elderly income did not regain the 61 percent of younger person's income it had reached in 1950, the researchers said. In the decade 1967-77, average elderly income rose by 7.7 percent annually, while the consumer price index rose just 6.1 percent, it added.
This phenomenon was due to unique circumstances, including substantial increases in Social Security benefits between 1968 and 1971 and the inadvertent double indexing of benefits from 1972 to 1978 because of a technical oversight in the Social Security law.
But inflation, factored by DRI at 11 percent in the 1980s, will cut back the income gains of the 1970s by half -- to 52 percent in 1990 -- unless structural changes like tax incentives are made in the system, the study concluded.
NRTA-AARP supports removal of the earnings test to encourage older persons to work more. At present, Social Security benefits are reduced one dollar for every two dollars over $5,000 a person aged 65-72 earns a year.
On the expense side, elderly consumers spend larger portions of their budgets for food at home, medical care, heating fuel and utilities. For instance, the elderly this year will spend 19 percent of their income on average to feed themselves, while people under 55 will spend 14 percent, DRI estimated. Health care was estimated at 8 percent and 4 percent, respectively.
During the 1970s, the price of these core necessities rose more than did transportation, shelter, clothing and entertainment on which people under 65 spend proportionally more than older people. Food at home went up 105 percent during the '70s, and health care increased 99 percent, while clothing rose a mere 44 percent and nonnecessities 77 percent.
Certain groups like the NRTA and AARP have recommended a special consumer price index for senior citizens. DRI'S hypothetical CPI for the elderly rose 91.2 percent during the past decade, while its CPI for persons under 55 rose 87.9 percent.
DRI says creation of a special index by the Bureau of Labor Statistics could open a "Pandora's box of controversy" . . . with possible demands for indexes for different regions of urban areas or by sex.
Critics of the CPI maintain that it overstates the rate of inflation for the elderly -- as well as many other Americans -- because it counts housing costs as though everyone bought a house every month. Very few elderly persons purchase homes, because 60 percent of them own their own homes.
But DRI contends that, even when the cost of buying a home is excluded, the cost of running a household -- such as property taxes -- still have risen faster than the CPI and therefore do affect the elderly.
For psychological reasons, the elderly are not inclined to tap accumulated equity in their homes to pay their bills or better their standards of living, the researchers said. They either want to save something to pass on to their children or to pay for a catastrophic illness.
Their other principal sources of accumulated wealth -- savings and investments in stocks, bonds and annuities -- have been "seriously impacted" by inflation since 1967, the report adds.
"Personal net worth per household has not advanced since 1965 depsite significant new savings, averaging about 6 percent a year, since that time," DRI said.