|Title||The Effect of Income on Quality of Life and Survival Expectation Among Older Adults in America: Evidence from the Social Security Notch|
|Year of Publication||2020|
|Academic Department||Financial Planning, Housing and Consumer Economics|
|Degree||Doctor of Philosophy|
|University||University of Georgia|
|Keywords||Effect of income, Instrumental variable estimation, Older Adults, Quality of Life, Social Security Notch, Survival expectation|
The Social Security retirement income program provides financial support for older adults in America and is the primary source of income for retirees. As the inflows into the Social Security Trust Fund become smaller than outflows, it is projected that the Social Security Trust Fund will become insolvent by 2035. A potential future reduction in retirement benefits may constitute a significant risk for quality of life of older adults. Previous studies examined the relationships between income, life satisfaction, well-being, and quality of life among older adults, but the causal pathways are not yet fully explained. The purpose of this study is to identify latent dimensions of the perceived quality of life of older Americans and to estimate the causal effect of Social Security retirement income on these aspects of life quality, as well as on a 10-year survival expectation. To overcome the problem of endogeneity of income, I adopt a two-stage estimation procedure which uses the Social Security “notch” as an instrument for retirement income. The term “notch” refers to variation in Social Security benefits paid to people born between 1917 and 1921 that resulted from the Social Security administration’s unintended mistake in the formula for cost-of-living adjustment. The data is drawn upon the 1993 Asset and Health Dynamics Among the Oldest Old, a supplement to the Health and Retirement Study. I find positive and statistically significant relationship between the amount of Social Security retirement income received and the perceived quality of life as measured by items that correspond to feelings of living a fulfilled life and being in control of one’s life. At the same time, income does not appear to be a determinant of being forward-looking or hopeful among older adults in America. Similarly, I do not find convincing evidence that income significantly affects optimism regarding survival as measured by reports of one’s expected longevity. Overall, my findings suggest that a potential reduction in future Social Security benefits may inflict damage on some aspects of perceived quality of life among older adults.