The Pension Pool
I
BEHIND the rising demand for old-age pensions is the widespread conviction that honest old age should be a period of respectable ease, shielded from worry and shame. Nearly all of us agree with that; but few agree on how many indigent and dependent old persons there are or how the burden of their distress should be carried by the younger and more affluent.
Obviously the lot of aged persons of small means has been worsened greatly by a depression that destroyed many savings accounts, reduced the incomes from their investments, threw many of them out of jobs forever, and cut down the earnings of their children. These temporary ills give melancholy point to the long-range progressive aging of our population, described by Stuart Chase in the February Atlantic. Since 1850, the proportion of ‘old folks’ in our population has more than doubled. Dr. Louis I. Dublin in his pamphlet, Longevity in Retrospect and in Prospect, shows that persons aged 65 or over were 2.6 per cent of the total population in 1850 and 5.9 per cent in 1935; he calculates they will be 6.3 per cent next year and 14.4 per cent in 1980.
Nevertheless the cloud has its brighter side. Not all old persons are indigent or idle. Although employment of men aged 65 or older has shown a steady decline from 73.8 per cent in 1890 to 58.3 per cent in 1930, the drop has never been precipitous. Probably half of our old men are gainfully employed today. Also, old persons of both sexes own considerable productive property. In Massachusetts, whose Commission on Pensions interviewed many thousands of old persons on their financial circumstances, it was estimated in 1923 that 40 per cent of the oldsters possessed $5000 or more in property, that 55.4 per cent either possessed $5000 in property or had incomes of $1000 or more, and that, of the latter, 38.4 per cent were wholly self-supporting. Altogether, 84.4 per cent of the Bay State’s old men were not being supported either by public funds or by organized private charity.
These figures, and comparable ones gathered by the National Civic Federation in the states of New York, New Jersey, Pennsylvania, and Connecticut., are now too ancient to be accepted without reservations, as they go back to the middle ‘twenties. We shall not have a closer line on the situation until returns of the 1940 census have been compiled. Estimates of the Social Security Board in its Bulletin of March 1938 (Economic Status of the Aged, by Marjorie Shearon) place the number of those of 65 and older who support themselves from current earnings at only 1,000,000, or about 12.8 per cent, while those with property sufficient for self-support numbered only 1,172,000, or 15 per cent. These figures might be loss disturbing if they fully disclosed marital relationships.
Unmistakably, there has been a change in our social attitude toward the aged. As ‘old folks’ become more numerous, they lose in esteem. Disregarding utility, we value scarce things, among them old prints, books, and pictures which are treasured, not always because they are genuinely good, but because only a few copies still exist. In ancient Rome, whose tombstones reveal a normal Roman life span of only twenty to thirty years, elders were greatly esteemed, perhaps beyond their worth. No doubt Cato the Elder seemed wiser than he was; destroying Carthage, which was the burthen of his senile advice, seems less sensible today than the alternative of letting Carthage live and driving a profitable trade with her daring mariners. ‘Old men for counsel; young men for war’ — so runs the ancient saw; but when old men are so plentiful that there is not room for all of them in the council chamber, and when the young grow weary of wars coined by their elders, authority tends to pass to younger persons — a fact evident today in states as in homes and industries. Of our thirty-two Presidents, the first sixteen averaged 58.6 years of age at inauguration; the last sixteen, 51.6 years. The head of one of America’s greatest corporations is less than 40 years of age.
Mechanical and scientific advances seem to hasten the obsolescence of human beings along with machines and methods. Old folks used to be depositories of ruleof-thumb experience not available in books; now more precise authorities are available. A good many old-time skills are no longer needed; new skills arise, but they are for the younger generation. And our industrious elders of today, instead of being praised for continuing work, are being told it is their duty to quit and make room for younger persons on the payrolls.
This pressure is only one phase of current muddled thinking on the economic problems of the aged. Old folks are being observed and described as if they were about to overwhelm civilization. That is absurd; not only are the majority of old folks independent, but the more effective elements of the population are not being reduced.
As our population approaches numerical stability and the percentage of elders increases, the number of children under 20 decreases in approximately the same proportion. This decline in children results from a decreasing birth rate rather than from an increasing mortality rate; fewer children are born, but more survive to enter adulthood, while the number of ‘in-betweens,’ from 20 to 65 years of age, shows no decline. Apparently nature preserves a delicate balance of forces in this respect as in so many others. In any society which avoids child labor, those from 20 to 65 of necessity support those not gainfully employed at either end of the life span. Essential muscle-straining, bone-weary work, for both men and women, is done between 20 and 44; but even this category shows no long-range loss, being 25.1 per cent of the whole population in 1850, 38.6 in 1935, and forecast at 35.7 in 1980. Every social system has its own device for accomplishing the required transfer of income from earners to non-earners; our time-honored way is compounded of capitalism and the family.
II
Apparently it costs no more to maintain an old person than a child. The Federal Government matches its allowance on income tax of $400 per child up to age 18 with a median payment of practically the same sum to its more than two million pensioners. Administrations change, but not that official estimate of the cost of bedrock subsistence for children who have no votes and old persons who have votes but not many years left in which to use them.
The child is at once the symbol of domestic unity and the promise of a bright future. He belongs equally to both parents, whereas his grandfather or grandmother is only an ‘in-law’ to one member of the conjugal partnership. The child grows more enchanting day by day; one plays with him from infancy, relives youth with him, centres hope and faith in his expanding being, while his possibly dependent grandmother and grandfather, slipping a little day by day, have no such comparable charms. Perhaps, when America reaches the present age of China, ancestor worship will have become a comfort to our old folks; but during the intervening thirty or forty centuries a little money at regular intervals would be helpful.
This conviction is now practically unanimous among old persons in straitened circumstances, even though they may not be entirely bereft of resources. They have seen public money used to support sturdy bachelors and aliens in the prime of life, and to finance destruction of crops and domestic animals. They are encouraged because old-age assistance has been started, and outraged because old-age assistance goes chiefly to the utterly destitute. Perceiving division of the national income to be a political affair, for better or worse, they are organizing to secure assistance without accepting pauper status. Votes, at least, do not weaken with the years. The feeblest voter is sure of a free ride to the polling place, and the ballot is practically the only advantage which second childhood enjoys over first childhood. So far, old voters have never cast their ballots solidly for a narrow interest of their own and probably never will, but there were enough voters of 65 and older — 7,750,000 — in 1935 to swing a national election.
If the issue were clean-cut, that political strength would be increased by the votes of relatives who now contribute with difficulty to the support of their parents. In every Congressional district, and that is where the issue will be fought out piecemeal, there are enough ‘old folk’ votes to pry the most sluggish representative off the fence, or the most conservative representative out of office. Even in conservative New England, spry young politicians are taking formal notice of the special needs of their elderly constituents. Consequently, it is time to take this question out of the hands of the quacks, examine it closely, and arrive at a program which combines the maximum of feasible justice with the minimum of tax expense.
III
Proceeding by estimate, occasionally by guess, we arrive at a broad but rather shallow pool which represents pensions in the United States. Into it flow dollars from many sources. Elderly persons float down these streams along with the dollars, and remain in the pool the rest of their lives, drawing sustenance from incoming funds. Some of them may have independent means in addition to their pensions; but those whose whole support comes from their own properties or independently managed funds, or from the gifts of children and near relatives, are not counted here. Some pensioners may be drawing two pensions with propriety — as, for instance, a war pension and an industrial pension. Such count double here. Statistically, there appear to be approximately 2,700,000 persons, 65 years of age or older, in the pension pool, sustained by close to 3,000,000 pensions or their equivalent. The dollars for their support, whole or partial, flow in from three primary watersheds — or dollarsheds — taxes, profits, savings.
From taxes, by far the largest area supplying the pension pool, flowed federal and state dollars totaling nearly $1,070,000,000 in 1938; forecast at $62,000,000 more in 1939, and $117,000,000 more in 1940. The 1938 allowance gave approximately 2,700,000 government pensioners $395 apiece on the average. A fraction of these pensioners, perhaps 150,000, had contributed to building up their pensions by saving during their active lives; for example, more than 50,000 federal civil servants, many schoolteachers, police and firemen, and other federal, state, and municipal employees. The largest but least well sustained group from this source consists of the 1,700,000 persons with slightly less than an average of $240 a year from the going federal-state old-age assistance plan to which the Federal Government and the states contribute almost equal sums. Elders entering the pool from California are lucky, with $387.96 a year; from that, payments scale down to Mississippians with $57.48 a year. Veterans’ Pensions and Benefits — the military and naval section—pay $572,000,000 to roughly 850,000 persons, averaging $675 a year.
On the edge of the tax watershed flows a pension stream, one shore of which is government land, while the other lies in the profit or business area. This is the new Railroad Retirement Fund, which government administers and backs, but for which operating companies and employees supply funds. As yet its statistics are a bit scanty; but on the basis of the preceding corporate plan the prospect. is that complete registrations will show 50,000 to 60,000 retired railroad men sharing $50,000,000 to $75,000,000 a year. The government appropriated $73,000,000 for this purpose in 1938, but forecast $75,000,000 for 1939 and $87,000,000 for 1940 in the budget for the current fiscal year. In 1937, under the superseded plan, railroaders drew $37,000,000 in pensions.
Ferried across this stream of mixed waters, we are out of government territory, and in the realm of private and corporate affairs. Here individuals, groups, and corporations assist old folks as a matter of friendship, justice, or the conviction that such assistance is good business — a pension system allows old hands to be dropped decently and younger men to advance at an age when their abilities are at peak. In this region function an undetermined number of pension payers; at one extreme are quiet old ladies who send regular checks to their less fortunate friends, and at the other commercial and industrial corporations which pay pensions to employees without disclosing the facts for publication. It is estimated that $75,000,000 to $150,000,000 a year comes from these sources and flows to 75,000 to 150,000 pensioners. In my calculations I have taken the lower figures, merely for the sake of conservatism; actually the sum may be much larger.
There are a large number of wellknown corporate plans under which retiring employees receive pensions, usually calculated with reference to length of service and wages or salaries earned during a fixed period before retirement. These have been rather accurately estimated as providing $50,000,000 in annual pensions for 55,000 recipients. Note that these payments average nearly $1000 per year per pensioner.
Even more accurately known are a lesser number of insured and trusteed corporate retirement and pension plans. The six leading companies writing this kind of insurance report approximately 11,000 pensioners, drawing between $10,000,000 and $11,000,000 a year. One company reports its average industrial pension as $1014 a year. Insured pensions take uncertainty out of the pension equation for both parties. Many industrial and private pension plans fail to make sufficient allowance for the progressive aging of the population and other actuarial factors, and so recurrently find pension costs becoming burdensome. A depression hits uninsured industrial plans doubly hard; sustaining profits fall while retirements increase in number.
Now we come to the savings watershed, in part personal, in part institutional. Here function many endowed institutions, resting on gifts originating in savings; in addition, many of these institutions collect funds from the public. The very nature of their work inclines them to assist retired staff members, either through pensions or in sustained homes. Here are twenty religious denominations paying $8,000,000 in pensions to superannuated clergymen, a sum generally considered insufficient, as also are the existing provisions for retired college teachers. Colleges paid in 1934 discoverable pensions in excess of $2,500,000. Probably the actuality was considerably larger then, and has grown since, because a single partially endowed fund recently paid more than $1,000,000 in one year to 2119 pensioners from 841 institutions. Other college plans number more than 500.
In this section are also great service institutions not run for profit — socialservice organizations, hospitals, museums, art galleries, and the like. No one knows what the total of these organization disbursements are, but since 200 of them pay pensions and five of the largest, including the Y. M. C. A. and the Y. W. C. A., dispense for that purpose a total of $5,000,000 a year, it is concluded that this entire group, the country over, releases at least $50,000,000 a year in pensions, probably more. Some of these institutions occupy a borderland where contributory personal savings form part of the income base of pensions. But the more than $5,000,000 paid in pensions by seventy-one labor unions comes from dues, which are savings in a sense, while the $100,000,000 collected annually on annuities is solely the result of savings.
To sum up, this survey of the existing pension pool indicates that taxes provide approximately $1,070,000,000 to 2,700,000 pensioners, averaging $395; taxes and profits jointly provide approximately $50,000,000 to 50,000 pensioners, averaging $1000; profits provide approximately $130,000,000 to 191,000 pensioners, averaging $685 (insured corporate plans averaging $1000); gifts and savings provide approximately $65,000,000 to 76,500 pensioners, averaging $849; the grand total being $1,313,400,000 to 3,024,780 pensioners, averaging $434.
IV
Now that the contents of the pension pool are roughly measured, let us see how many more dollars and pensioners must be added to it in order to meet reasonable need on a bearable basis. At the outset we must discard as extravaganza the more extreme plans, such as those which contemplate payments of $200 a month to all persons 60 years of age and over. For purposes of calculation, I take a more sober schedule, which would apply only to those 65 years of age or over, paying $40 a month to single persons and $60 a month to married couples.
In 1935 there were 1,400,000 married couples composed of husbands and wives aged 65 or older. If all applied and qualified at $60 a month, they would draw $1,008,000,000 a year. There were 1,000,000 men of 65 and past whose wives were under 65; in the autumnal period of life wives average more than five years younger than their husbands. In addition there were 1,012,500 males listed as widowed and 337,500 listed as single men — presumably die-hard bachelors. Single women numbered 400,000, while widows, 2,200,000, formed the most numerous of all categories. These five groups, totaling 4,950,000, at $40 per month each would call for $2,376,000,000 a year. Adding the $60 a month for married persons brings the gross overall cost of this relatively modest plan to $3,384,000,000 as of 1935 and $3,544,900,000 as of 1940.
This gross overall cost, however, is not the true cost. There are offsets to be credited against it, and futurities to be added to it. In order to get nearer the truth it is necessary to analyze the contents of the American pension pool further and consider findings in the light of population trends.
The United States has a long and copious pension experience. Our population includes more than 3,000,000 pensioners of one sort or another, most of whom are presumably more than 65 years of age. That is wholly true of the largest pension category, 1,737,781 persons who received old-age assistance of roughly $358,400,000 in the fiscal year ending June 30, 1938, half of which was provided by the Federal Government and the remainder by the cooperating states. Federal funds come under the Social Security Act, but are not to be confused with annuity payments based on collections from employers and employees, which payments are not scheduled to start until 1940. Thereafter, funds from those savings and contributions will increase year by year.
Another large block of 65-ers is represented in the war-pension roll, — listed as Veterans’ Pensions and Benefits in the budget, — which carried 841,457 names in 1937. One can have few doubts that the relicts of 221 Mexican War veterans who were then drawing pensions are past 65; and it is a fair guess that nearly all of the 83,612 Civil War pensioners, both veterans and relicts, are in the same category. Perhaps not; in 1938 the roll of the War of 1812 was finally closed by the death of Mrs. C. P. King of Buffalo, New York, at the age of 89. Mrs. King was born thirty-four years after that war ended. On a similar time schedule, the last surviving widow of a Mexican War veteran will pass away about 1971, the last Civil War widow about 1988, the last surviving Spanish War widow about 2021, and the last World War widow about 2049 A.D., 110 years hence. In 1937 only 7739 Civil War veterans were alive, but pensioned dependents — mostly widows — on the Civil War roll numbered 76,131.
It is the custom to scoff at these hardy widows; they are suspected of entering matrimony to assure steady income, and the best that is usually said of them is that, while they escaped the horrors of war, they could not escape the veterans. A more generous view is that a veteran needing care, and lacking money to hire a practical nurse, married one who was content to take a deferred but dependable reward for the rest of her lifetime. But, whatever may be the situation regarding widows, one may safely assert that our classification of 65 or older now holds nearly all surviving veterans of the Indian wars, about half the veterans of the Spanish-American War, and at least one quarter of those retired from the military and naval peacetime establishment. Presumably between 200,000 and 250,000 persons of 65 or older are already receiving military and naval pensions.
Other 65-ers and up draw pensions on federal retirement rolls — civil service, lighthouse service, Canal Zone, Alaska Railroad, federal judiciary, foreign service, District of Columbia, and others. Aged pensioners are well represented in the Railroad Retirement fund, the city and state funds for schoolteachers, and a variety of private and corporate pension plans. My estimate — for lack of data it is hardly more than a guess — is that these sources already provide pensions for about 200,000 persons of 65 years or older. When interviewing persons in this age group, the National Civic Federation found that 4.5 per cent of all questioned were drawing United States pensions. The state of Massachusetts found that 8 per cent were drawing public pensions of all kinds.
It appears, therefore, that of our 7,750,000 fellow citizens in the ‘65 or older’ age group in 1935 considerably more than 2,000,000 (or, if they are dead, their replacements) are already receiving pensions, the aggregate of which cannot be very much less than $750,000,000 a year, even though it includes the large low-cost group at present receiving a median pension of $19.48 a month.
Valid deductions can also be foreseen with respect to the following classifications of persons eligible because of old age: —
1. The gainfully employed who might prefer to keep their jobs rather than qualify for pensions. Estimated deduction, $450,000,000.
2. Those in public or charitable institutions. In 1915 a Massachusetts study of oldage needs indicated that the state was spending on institutional care of persons 65 or older about one sixth of the money which would be required to pension all likely to apply. Ten years later, in 1925, 6.3 per cent of those 65 or older were being aided by organized charity and 1.3 per cent were under custodial care in institutions. If the Massachusetts percentages hold roughly for the entire country and half of these costs are applicable to reducing old-age pensions, the deduction would be in excess of $100,000,000.
3. Those who have incomes from property or funds available for self-support or partially so. A means test presumably would eliminate all with property worth $10,000 or more, roughly 30 per cent in the four states which have been surveyed, thereby saving at least $500,000,000 after allowing for decreased dividends and increased losses in an equal amount.
4. Those whose children or relatives can support them without hardship. One of the surveys mentioned gives testimony that half of the indigent aged could then be supported by their children without difficulty. Discount that by half for interim adversity, and another $500,000,000 can be deducted.
5. Those who would not apply because of pride. No basis for estimate.
In 1915 the Massachusetts commission concluded that only one fifth of all eligibles by reason of age would apply for pensions. If this conclusion were still valid, we should have no old-age pension problem today, except as to scale of benefits, because, of the 7,750,000 persons of 65 or older, more than one fifth are already receiving pensions or other regular assistance from public funds. But the public attitude has changed since 1915, and a larger proportion would be likely to apply. Nevertheless, in view of the five major deductions indicated above, it is reasonably certain that not more than $1,500,000,000 in new money would have to be found in 1940 to pay pensions at the $40-$60 rate to needy and qualified applicants aged 65 and older. At any rate, the roll could be held within that figure and perhaps be cut to $1,000,000,000 by decreasing payments in low-cost states where $40 a month is still reckoned affluence by many inhabitants; for this purpose the established sectional wage differentials might be adopted to scale down payments from the maximum.
‘No more than a billion and a half’ would have sounded absurd ten years ago. Now it is a trifle to Dr. Townsend and others, including those hell-bent, on armaments. The difficulty is not in the size of the sum, but in how to squeeze it out of the national income with least hurt.
V
Of course, this sum would be only a beginning. Using the Dublin ratios for various ten-year periods, the comparable sums required would be $1,875,000,000 in 1950, $2,370,000,000 in 1960, $2,647,500,000 in 1970, and $3,420,000,000 in 1980. These futurities may be still further increased by future gains in the life span. Presumably annuities derived from social-security savings may offset part of the growing load, and keep the whole burden within bounds. How much dependence can be placed on this aid is altogether problematical. Basically, the fiscal problem narrows down largely to taxing away from the productive middle-age groups their prospective savings in child rearing and spreading those funds among elder persons, chiefly the economic lower third of the aged population, who even in the boom days of the ‘twenties were found to have neither property, jobs, nor children able to assist them.
To find tax revenues to finance even this modest program is difficult in the face of an unbalanced federal budget ; to go beyond that sum is hardly possible. Arguments for extravagant old-age pensions based upon the release of purchasing power through elderly spending are sheer moonshine. In the long run, production has to pay for production, and when consumption merely sustains nonproducers it is a drag on the national economy.
Constructive and conservative action is needed, for, under growing political pressure from the aged, something less sensible is likely to be legislated on impulse.