RPA 1 –Exam Questions and Answers

Describe the basic economic problems facing the aged. (Text, pp. 3-8) - Answer- (a) The desire of aged individuals to maintain, to a high degree, their preretirement standard of living in their retirement years (b) The declining employment opportunities available to the aged (c) The relatively low individual savings of the aged because of higher income taxes, increased consumption patterns, inflation pressures in the recent past and other factors (d) The improvement in longevity experienced during the 20th century. - "Three-Legged" stool of social security, employer-sponsored retirement plan, and personal savings. - Often one or two of these legs are missing or woefully inadequate and exacerbated by the restructuring of employer-provided retirement income program. - The shift from DB to DC plans transfers much of the cost and risk of longevity, decision-making requirements from Employer to ee - Longevity is a source of economic insecurity that individuals may outlive their financial capabilities Is the assumption that the financial needs of an individual decrease after retirement valid? Explain. (Text, pp. 3-4) - Answer- This assumption is somewhat valid. The retired individual often does not have dependent children, and a home and its furnishings generally have been acquired by retirement age. The actual decline in the financial needs of a retiree, though, has probably been overstated. An individual's expectations and preferences discourage significant change in one's standard of living upon retirement and, increasingly, retirees remain fairly active, particularly in terms of civic, social, travel and other recreational activities. Also, urbanization, geographic mobility, demographics and changing culture minimize the prospect of retired parents moving in with their children. "Three-Legged" stool - Answer- social security employer-sponsored retirement plan personal savings Standard of living after retirement - Answer- - the assumption is the financial needs decrease after retirement and to some extend it is valid - Actually, the reduction of financial needs is probably overstated - Another issue is LTC: tried to address it under PPACA in 2010 under the community living assistance services and supports (CLASS Act) but was shot down. HIPAA in 1997 made employer paid LTC tax excludable tax deductible for employer and tax-free for employees. Increasing longevity - Answer- - The increase in longevity is a recent and quite dramatic development - Went 47 years old to 78.8 in 2015 - changing demography of aging adults: a generation ago, 68% were 65 to 74, 25% were 75 to 84, and 5 % were 85 or older; 2010 - 13.6% are over 85, 32.4% are 75 to 84 and 53.4% are 65 to 74 Explain why there is such a low labor force participation rate among the elderly. (Text, pp. 4-5) - Answer- (a) Many older workers want to retire and do so voluntarily. (b) Many individuals are physically unable to perform work duties as efficiently as they could at younger ages. (c) Industrial and technological advances operate to the disadvantage of older persons. (d) Though created to alleviate the financial risk associated with excessive longevity, the Old-Age, Survivors and Disability Insurance (OASDI) program and private retirement plans have tended to institutionalize the age of 65 as the "normal retirement age." Note that 1986 amendments to the Age Discrimination in Employment Act (ADEA) banned mandatory retirement (at any age) for most employees. Employment opportunities - Answer- - men working from age 65-69 is 36.5% and over 75 is 10.4% - women working from age 65-69 is 27% and over 75 is 5.3% - a large number if older workers voluntarily retire maybe because of financially stable or health reasons - Automation and mass-production assembly lines require a physical dexterity and mental alertness and employers felt that younger workers are better at this. - Old Age, Survivors, Disability and Health Insurance (OASDHI) - Social Security - Age Discrimination in Employment Act (ADEA) in 1986 banned a mandatory requirement at any age for most employers - 1983 amendments to the Social Security Act raising the normal to age 67 by 2027 - Self employed individuals have greater control on the timing of retirements since they will normally work part time Reasons for growth of private pensions - Answer- - offers substantial advantages to both employees and employers Increased productivity Tax considerations