June 2015 • No.

415

Intra-Family Cash Transfers in Older American Households By Sudipto Banerjee, Ph.D., Employee Benefit Research Institute A T

A

G L A N C E

 This study reports the frequency and extent of intra-family cash transfers: both transfers from older households to their children and grandchildren, and vice versa. It also shows how these transfers are correlated with income levels and compares the asset and income levels of households that make such transfers and those that don’t.  The results show that a very small portion of older households receive transfers from their younger generations, while a much larger section of older households transfer money to their younger generations. The amounts transferred by older households are much higher than what they receive. These transfers are highly correlated with income. The average annual transfer amounts are large enough to be considered as a major spending item in a household budget.  From 1998 through 2010, there has been an increasing trend of transfers going from older households (those where at least one member of the household is ages 50 and above) to their family members.  Very few older households (4 percent to 5 percent) receive cash transfers from their families, compared with those who transfer money (38 percent to 45 percent) to their younger family members.  Among those ages 50 and above, relatively younger households are more likely to transfer money to their families and relatively older households are more likely to receive such transfers.  The amount transferred from older Americans to their children and grandchildren generally goes down with age. During a two-year period between 2008 and 2010, the average amounts transferred by households who had at least one member between ages 50‒64 and ages 85 or above were $8,350 and $4,787 respectively.  The average transfer amounts from younger family members to older households are much smaller. During the same two-year period, households who had at least one member ages 85 or above received the highest average transfers among all age groups and the average amount was $359.  Higher-income households are more likely to transfer money to their family members.  Households in the top income quartile transfer much larger amounts to their family members than those in the lower quartiles.  Older households that transfer money to their families have much higher income and assets compared with those that do not make such transfers.

A monthly research report from the EBRI Education and Research Fund © 2015 Employee Benefit Research Institute

Sudipto Banerjee is a research associate at the Employee Benefit Research Institute (EBRI). This Issue Brief was written with assistance from the Institute’s research and editorial staffs. Any views expressed in this report are those of the author, and should not be ascribed to the officers, trustees, or other sponsors of EBRI, Employee Benefit Research Institute-Education and Research Fund (EBRI-ERF), or their staffs. Neither EBRI nor EBRI-ERF lobbies or takes positions on specific policy proposals. EBRI invites comment on this research.

Copyright Information: This report is copyrighted by the Employee Benefit Research Institute (EBRI). It may be used without permission but citation of the source is required.

Recommended Citation: Sudipto Banerjee, “Intra-Family Cash Transfers in Older American Households,” EBRI Issue Brief, no. 415, (Employee Benefit Research Institute, June 2015). Report availability: This report is available on the Internet at www.ebri.org

Table of Contents Introduction .......................................................................................................................................................... 4  Data ..................................................................................................................................................................... 4  Cash Transfer Rates From Older Households to their Families ................................................................................... 4  Cash Transfer Rates From Families to Older Households ........................................................................................... 5  Average Cash Transfers From Older Households to Their Families ............................................................................. 7  Average Cash Transfers From Families to Older Households ..................................................................................... 7  The Relationship Between Transfers and Household Income ................................................................................... 10  Income and Asset Differences of Those Who Transfer and Those Who Don’t ........................................................... 13  Comparing Transfers With Other Major Household Expenditure Items ..................................................................... 13  Conclusion .......................................................................................................................................................... 16  References .......................................................................................................................................................... 16 

Figures Figure 1, Percentage of Older Households (Ages 50 and Above) That Made Transfers in Past Two Years to Their Children/Grandchildren, 1998–2010 .......................................................................................................... 5 Figure 2, Percentage of Older Households (Ages 50 and Above) That Made Transfers in Past Two Years to Their Children/Grandchildren, by Age Group, 1998–2010 .................................................................................... 6 Figure 3, Percentage of Older Households (Ages 50 and Above) That Received Transfers in Past Two Years From Their Children/Grandchildren, 1998–2010 .......................................................................................................... 6 Figure 4, Percentage of Older Households (Ages 50 and Above) That Received Transfers in Past Two Years From Their Children/Grandchildren, by Age Group, 1998–2010 .................................................................................... 8 Figure 5, Average Transfer Amounts (in 2014 $s) in Past Two Years From Older Households (Ages 50 and Above) to Their Children/Grandchildren, by Age Group, 1998–2010 ........................................................................................ 8

ebri.org Issue Brief • June 2015 • No. 415

2

Figure 6, Average Transfer Amounts (in 2014 $s and Conditional on a Non-Zero Transfer) in Past Two Years From Older Households (Ages 50 and Above) to their Children/Grandchildren, by Age Group, 1998–2010 ....................... 9 Figure 7, Average Transfer Amounts (in 2014 $s) Received by Older Households (Ages 50 and Above) in Past Two Years From Their Children/Grandchildren, by Age Group, 1998–2010 .......................................................... 9 Figure 8, Average Transfer Amounts (in 2014 $s and Conditional on a Non-Zero Transfer) Received by Older Households (50 and Above) in Past Two Years From their Children/Grandchildren, by Age Group, 1998–2010 ........................................................................................................................................... 11 Figure 9, Percentage of Older Households (Ages 50 and Above) That Made Transfers in Past Two Years to Their Children/Grandchildren, 1998–2010, by Income Quartiles and Age Group ................................................. 11 Figure 10, Percentage of Older Households (Ages 50 and Above) That Received Transfers in Past Two Years From Their Children/Grandchildren, 1998–2010, by Income Quartiles (of Recipients) and Age Group ................... 12 Figure 11, Average Transfer Amounts (in 2014 $s and Conditional on a Non-Zero Transfer) in Past Two Years From Older Households (Ages 50 and Above) to Their Children/Grandchildren, by Age Group and Income Quartile, 1998–2010 ........................................................................................................................................... 12 Figure 12, Median Non-Housing Assets (in 2014 $s) for Households That Did and Did Not Make Any Transfers to Children/Grandchildren, 1998–2010 ........................................................................................................ 14 Figure 13, Median Total Household Assets (in 2014 $s) for Households That Did and Did Not Make Any Transfers to Children/Grandchildren, 1998–2010 ........................................................................................................ 14 Figure 14, Median Income (in 2014 $s) for Households That Did and Did Not Make Any Transfers to Children/ Grandchildren, 1998–2010 ..................................................................................................................... 15 Figure 15, Comparing the 2009 Average Household Expenditure Items From Consumption and Activities Mail Survey (CAMS) With the Annualized Transfers Between 2008 and 2010 ............................................................... 15

ebri.org Issue Brief • June 2015 • No. 415

3

Intra-Family Cash Transfers in Older American Households By Sudipto Banerjee, Ph.D., Employee Benefit Research Institute Introduction Most of the economic research on intergenerational transfer of wealth (Gale and Scholz, 1994; Kotlikoff, 1988; Modigliani, 1988) has been concentrated on bequests left by people at the time of their death. But transfer of cash to family members during the lifetime of a person is less studied, although it is a common occurrence—as shown in this analysis. These intra-family transfers can have different implications for retirement security of a household: First, if made as a gift, a transfer reduces the amount of assets available in retirement by those making the gift. Second, if older households face liquidity constraints, then sudden needs to transfer money would be met by accessing long-term investments, which may reduce investment returns and increase tax liability. Finally, it might be useful for the retirement-savings-adequacy models to incorporate these transfers as they might have important implications on retirement security of these households. Therefore, it is important to understand the nature of these transfers. This study reports the frequency and extent of intra-family cash transfers: both transfers from older households to their children and grandchildren, and vice versa. It also shows how these transfers are correlated with income levels and compares the asset and income levels of households that make such transfers and those that don’t. The results show that a very small portion of older households (those with at least one member ages 50 or above) receive transfers from their younger generations, while a much larger section of older households transfer money to their younger generations. The amounts transferred by older households are also much higher than what they receive. These transfers are highly correlated with income. Over time, the percentage of older households transferring money to their families has risen.

Data The data for this analysis come from the Health and Retirement Study (HRS), a study of a nationally representative sample of U.S. households with at least one member of the household ages 50 and above. It is the most comprehensive survey of older Americans in the nation and covers topics such as health, assets, income, and laborforce status in detail. It is a biennial longitudinal survey with survey waves in even-numbered years beginning in 1992. The initial sample consisted of individuals born between 1931 and 1941 and their spouses, regardless of their birth year. Newer cohorts have been added in the following years. RAND Corporation provides an easily accessible version of the core HRS survey data. For the purpose of this study, the individual and family level RAND data files have been used. The study is sponsored by the National Institute on Aging (NIA) and the Social Security Administration (SSA) and administered by the Institute for Social Research (ISR) at the University of Michigan. Data from the 1998 through 2010 surveys are used for this study. As HRS is a biennial survey, all the results (unless otherwise mentioned) are for two-year periods. All the transfer amounts are converted to constant 2014 dollars. The definition of transfers as defined in the survey instrument is as follows:

“By financial help we mean giving money, helping pay bills, or covering specific types of costs such as those for medical care OR insurance, schooling, down payment for a home, rent, etc. The financial help can be considered support, a gift or a loan.”

Cash Transfer Rates From Older Households to their Families Figure 1 shows the percentage of older households, 50 and above, that have made cash transfers to their children and grandchildren in the past two years between 1998 and 2010. It shows that, first, a significant percentage of older households make cash transfers to their families. Second, the percentage of older households making cash transfers to ebri.org Issue Brief • June 2015 • No. 415

4

their families has increased with time, from 38.6 percent in 1998 to 44.6 percent in 2010. There are also two notable drops during this period: One between 2000 and 2002, and the other between 2006 and 2008, both of which coincide with financial-market drops. Finally, the largest increase in percentage of older households transferring cash to their families is shown between 2002 and 2004. It should be noted that in 2004, HRS for the first time included part of the Baby-Boomer generation in the study (Early Baby Boomers, those born between 1948 and 1953). Therefore, part of the time trend Figure 1 captures could be a result of a cohort effect.

Figure 1 Percentage of Older Households (Age 50 and Above) Who Made Transfers in Past Two Years to Their Children/Grandchildren, 1998–2010 46% 44.6% 43.7%

44%

43.2%

42%

40.1%

41.0%

40%

38%

38.6% 37.8%

36%

34% 1998

2000

2002

2004

2006

2008

2010

Source: Employee Benefit Research Institute estimates from Health and Retirement Study (HRS).

Figure 2 breaks down Figure 1 by different age groups of the older households that made cash transfers. The entire sample (in Figure 2 and some later figures) is divided into four age groups: 50–64 (Age Group I), 65–74 (Age Group II), 75–84 (Age Group III), and 85 and above (Age Group IV). First, there is a clear trend with respect to age and cash transfers: Relatively younger households are much more likely to have made such transfers. Households in Age Group I have the highest transfer rates: In 2010, more than half (51.3 percent) of households in Age Group I made cash transfers to their families. Typically, most people in this age group are working and have higher income than the older age groups. The transfer rates go down monotonically with age. For example, in 2010, Age Groups II, III, and IV had transfer rates of 38.9 percent, 33.3 percent, and 28.4 percent, respectively. Second, within each age group, there is an increasing time trend. Age Groups II and IV had the highest increases between 1998 and 2010 in the percentage of households making cash transfers; from 30.7 percent to 38.9 percent for Age Group II, and from 19.7 percent to 28.4 percent for Age Group IV. Finally, Age Group I, which included the Early Baby Boomers in 2004, had the highest increase between 2002 and 2004.

Cash Transfer Rates From Families to Older Households Figure 3 shows the percentage of older households, ages 50 and above, that received cash transfers from their family members in the two-year periods between 1998 and 2010. There are a couple of important observations.

ebri.org Issue Brief • June 2015 • No. 415

5

Figure 2 Percentage of Older Households (Ages 50 and Above) That Made Transfers in Past Two Years to Their Children/Grandchildren, by Age Group, 1998–2010 60%

50%

40%

30%

20%

10%

0% 50–64 65–74 75–84 85+

1998 46.4% 30.7% 28.8% 19.7%

2000 47.3% 34.3% 30.9% 25.5%

2002 45.1% 33.6% 28.5% 23.8%

2004 51.2% 35.4% 30.0% 24.8%

2006 50.0% 37.1% 31.7% 27.3%

2008 48.4% 37.1% 30.0% 26.9%

2010 51.3% 38.9% 33.3% 28.4%

Source: Employee Benefit Research Institute estimates from Health and Retirement Study (HRS).

Figure 3 Percentage of Older Households (Ages 50 and Above) That Received Transfers in Past Two Years From Their Children/Grandchildren, 1998–2010 6%

5% 5.0% 4.8% 4%

4.3% 4.5%

3.8%

4.2%

4.0%

3%

2%

1%

0% 1998

2000

2002

2004

2006

2008

2010

Source: Employee Benefit Research Institute estimates from Health and Retirement Study (HRS).

ebri.org Issue Brief • June 2015 • No. 415

6

First, a very small number of older households receive cash transfers from their families, compared with how many (in Figure 1) make cash transfers to their families. Between 2000 and 2010, only between 4 and 5 percent of older households received cash transfers (it should be noted that all transfers are self-reported by the older households, so to the extent they are unwilling to reveal to the interviewer that they received help from their children or grandchildren, there could be some underreporting of these transfers). Second, unlike Figure 1, there is no clear time trend in the percentage of older households receiving cash transfers from their families. In 1998, only 3.8 percent of older households reported receiving cash transfers, increasing slightly to 4.2 percent in 2010. But there is one similarity with Figure 1: There are two notable drops in Figure 1, first between 2000 and 2002 and then between 2006 and 2008. In Figure 3, there are also two notable increases, exactly during those same two periods. This means that both types of intra-family transfers are correlated with financial market movements. Figure 4 breaks down Figure 3 by age group of the older-recipient households. Here also there is an age pattern, which is just the opposite of Figure 2. Older households are more likely to receive transfers from their families. For example, in 2010, 3.8 percent of households in Age Group I received cash transfers, compared with 5.7 percent among those in Age Group IV. Also, there is no clear time trend within the age groups. Between 2006 and 2008, the youngest age group (those between ages 50 and 64) experienced the highest increase in cash transfer receipts (1.1 percentage points).

Average Cash Transfers From Older Households to Their Families Figure 5 shows the average transfer amounts, in 2014 dollars, from older households to their younger family members. It is important to note that the reported averages are for two-year periods. From 2004 onwards, Age Group I stands out from the rest (it should be noted again that in 2004 the Early Baby Boomers were included in the sample for the first time). In 2010, the average transfer amount for Age Group I was $8,350 during the preceding two-year period, while the average transfer amount for all other groups was somewhere near $5,000 ($5,300, $4,891, and $4,787 for Age Groups II, III, and IV respectively). Also, from 2004 onward there has been a general pattern between age and average transfer amount: Older households are more likely to transfer less, on average. One exception has been the oldest cohort, Age Group IV, between 2006 and 2008. These averages are high enough to be considered a major expenditure category for older households. A formal comparison between different major expenditure categories and cash transfers has been provided at the end of the report, but suffice it to say that cash transfer to families is an important discretionary spending item in the budgets of older households. Figure 6 also shows the average transfer amounts, but with one difference: Here the average cash transfers are calculated only for those who reported a non-zero transfer. First, the average conditional transfers are much higher. This is intuitive, as all the zeros are removed from the calculation. So, for older households that actually transfer money to their families, the average is more than $10,000 during a two-year period for each age group, and sometimes significantly higher. Also, in recent years the difference between age groups has been relatively small. For example, in 2010, the average transfer amounts were $16,272, $13,639, $14,704, and $16,835 for Age Groups I, II, III, and IV respectively.

Average Cash Transfers From Families to Older Households Figure 7 shows the two-year average transfer amounts from families to older households. The averages are shown by the age group of the recipients. First, it can be noted that in comparison with the amounts transferred from the older households to their younger families (Figure 5), the amounts transferred are very small. For example, in 2010, the oldest age group transferred $4,787 on average in the preceding two-year period and received $359 on average during the same period. For the youngest age group, those between ages 50 and 64, the respective transfer amounts were $8,350 and $126 during the same period. Second, there is a relationship between

ebri.org Issue Brief • June 2015 • No. 415

7

Figure 4 Percentage of Older Households (Ages 50 and Above) That Received Transfers in Past Two Years From Their Children/Grandchildren, by Age Group, 1998–2010 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 50–64 65–74 75–84 85+

1998 3.5% 3.9% 4.7% 6.0%

2000 3.4% 4.5% 5.0% 6.3%

2002 4.3% 5.0% 5.4% 7.3%

2004 4.0% 4.9% 5.9% 8.0%

2006 3.8% 4.6% 5.9% 5.6%

2008 4.9% 4.8% 6.1% 5.9%

2010 3.8% 4.2% 5.9% 5.7%

Source: Employee Benefit Research Institute estimates from Health and Retirement Study (HRS).

Figure 5 Average Transfer Amounts (in 2014 $s) in Past Two Years From Older Households (Ages 50 and Above) to Their Children/Grandchildren, by Age Group, 1998–2010 $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $50–64 65–74 75–84 85+

1998 $6,093 $4,584 $4,270 $4,304

2000 $5,882 $5,127 $5,585 $6,290

2002 $5,736 $4,977 $4,832 $5,549

2004 $7,582 $4,560 $4,193 $3,328

2006 $6,936 $5,076 $4,647 $4,075

2008 $6,890 $5,024 $3,984 $4,558

2010 $8,350 $5,300 $4,891 $4,787

Source: Employee Benefit Research Institute estimates from Health and Retirement Study (HRS).

ebri.org Issue Brief • June 2015 • No. 415

8

Figure 6 Average Transfer Amounts (in 2014 $s and Conditional on a Non-Zero Transfer) in Past Two Years From Older Households (Ages 50 and Above) to Their Children/Grandchildren, by Age Group, 1998–2010 $30,000

$25,000

$20,000

$15,000

$10,000

$5,000

$50–64 65–74 75–84 85+

1998 $13,124 $14,954 $14,859 $21,865

2000 $12,445 $14,949 $18,046 $24,621

2002 $12,731 $14,819 $16,927 $23,360

2004 $14,809 $12,874 $13,955 $13,405

2006 $13,860 $13,702 $14,667 $14,917

2008 $14,230 $13,545 $13,267 $16,926

2010 $16,272 $13,639 $14,704 $16,835

Source: Employee Benefit Research Institute estimates from Health and Retirement Study (HRS).

Figure 7 Average Transfer Amounts (in 2014 $s) Received by Older Households (Ages 50 and Above) in Past Two Years From Their Children/Grandchildren, by Age Group, 1998–2010 $800

$700

$600

$500

$400

$300

$200

$100

$50–64 65–74 75–84 85+

1998 $217 $265 $323 $491

2000 $173 $277 $321 $427

2002 $313 $319 $389 $582

2004 $178 $298 $301 $722

2006 $161 $231 $279 $324

2008 $187 $244 $357 $389

2010 $126 $198 $349 $359

Source: Employee Benefit Research Institute estimates from Health and Retirement Study (HRS).

ebri.org Issue Brief • June 2015 • No. 415

9

age of the recipients and the transfer amounts: Older households receive higher transfer amounts. This holds true for all the years analyzed, even though the differences were small in some years. Again, using the data from 2010 as an example, in the two-year period preceding the 2010 survey, Age Group I received $126 on average, which went up to $349 for Age Group III and then increased only marginally to $359 for Age Group IV. Finally, the average transfer amounts went down during the period analyzed for all age groups except Age Group III (75–84). For Age Group I, the average fell from $217 in 1998 to $126 in 2010. For the oldest cohort, Age Group IV, the average transfer amount dropped from $491 to $359 during the same period. As in Figure 6, Figure 8 shows the conditional transfer amounts (conditional on receiving a non-zero transfer) from younger families to older households. Here also it can be noted that the averages are much higher than in Figure 7. For example, in Figure 7, the unconditional averages for the oldest group (85 and above) in the sample were $491 in 1998 and $359 in 2010. In Figure 8, for the same periods the conditional averages were $8,205 and $6,303. The trend with respect to increasing transfers with age is present here for most years (with the exception of 2004 and 2006). Also, the time trend of decreasing transfer amounts is more pronounced in Figure 8. Here, all age groups experienced significant drops in average transfer amount during the 1998–2010 period. Age Group I experienced the highest drop, from $6,137 in 1998 to $3,293 in 2010. Other age groups also experienced significant drops.

The Relationship Between Transfers and Household Income This section shows how intra-family transfers are correlated with the income of the older households. First, Figure 9 shows the percentage of older households that transferred money to their families by income quartiles within each age group, and looking at any age group it is obvious that transfers are strongly correlated with income. In fact, the relationship is almost linear. For example, in the youngest age group (50–64) in 2010, 31.2 percent of those in the bottom-income quartile made a transfer, which monotonically increased to 70.0 percent for the top-income quartile. Among the oldest (85 and above), only 12.2 percent in the bottom-income quartile made a transfer in the two years preceding the 2010 survey, while 43.1 percent in the top-income quartile did so. The income trends were similar for the two other age groups in between. But even among the high earners, the transfer rates go down with age. For example, among the top-income quartiles in each age group, the transfer rates were 70.0 percent, 56.1 percent, 51.3 percent, and 43.1 percent in 2010 for Age Groups I, II, III, and IV, respectively. Figure 10 shows transfers from younger families to older households, by income quartile within each age group. As can be expected, the results are exactly opposite to Figure 9: There is a negative correlation between income and the probability of receiving transfers from family members. This is true for all the age groups. In Age Group I, 7.1 percent in the bottom-income quartile received transfers from their family members in 2010 while only 1.1 percent in the topincome quartile did so. Among the oldest, 9.0 percent in the bottom-income quartile and 2.2 percent in the top-income quartile received such transfers in 2010. Figure 11 shows the conditional (on a non-zero transfer) average transfer amounts for different income quartiles within each age group for the transfers going from older households to their younger family members. Again, as in Figure 9, there is a positive relationship between income and average transfer amounts. Within each age group, the average transfer amounts generally rise with income, and there is a striking difference in the average transfer amounts of the top-income quartile and those of the rest. The 2010 numbers are as follows: Among the youngest group (50–64), the conditional average for the bottom three quartiles are $7,419, $7,411, and $13,616, respectively in 2010, which then more than doubles to $27,378 for the top-income quartile. For Age Group II, again the amount nearly doubles in 2010 from the third-income quartile ($10,990) to the top-income quartile ($21,072). For Age Group III, the average transfer amount more than doubles between the third- and top-income quartile ($9,436 to $22,864). And finally for the oldest age group, the average transfer amounts for the four income quartiles from bottom to top are $6,574, $13,474, $13,547, and $24,601.

ebri.org Issue Brief • June 2015 • No. 415

10

Figure 8 Average Transfer Amounts (in 2014 $s and Conditional on a Non-Zero Transfer) Received by Older Households (Ages 50 and Above) in Past Two Years From Their Children/Grandchildren, by Age Group, 1998–2010 $10,000 $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $50–64 65–74 75–84 85+

1998 $6,137 $6,845 $6,818 $8,205

2000 $5,079 $6,153 $6,451 $6,770

2002 $7,317 $6,352 $7,187 $7,945

2004 $4,468 $6,097 $5,132 $9,020

2006 $4,263 $5,071 $4,705 $5,770

2008 $3,857 $5,049 $5,840 $6,601

2010 $3,293 $4,705 $5,875 $6,303

Source: Employee Benefit Research Institute estimates from Health and Retirement Study (HRS).

Figure 9 Percentage of Older Households (Ages 50 and Above) That Made Transfers in Past Two Years to Their Children/Grandchildren, 1998–2010, by Income Quartiles and Age Group 80% 70% 60% 50% 40% 30% 20% 10% 0%

1998 2000 2002 2004 2006 2008 2010

1 26.8% 27.0% 25.8% 30.1% 29.8% 28.3% 31.2%

2

3 50–64 41.4% 51.4% 43.8% 52.9% 40.7% 48.9% 46.0% 57.5% 42.8% 60.0% 44.0% 53.6% 43.4% 58.7%

4

1

65.8% 64.7% 64.3% 69.9% 64.1% 66.4% 70.0%

13.4% 16.6% 16.0% 19.7% 20.0% 17.7% 21.1%

2

3 65–74 24.2% 35.2% 29.3% 39.8% 30.1% 38.8% 30.6% 38.5% 32.9% 42.0% 33.6% 43.9% 34.6% 43.0%

4

1

48.4% 50.2% 48.4% 52.3% 51.3% 53.2% 56.1%

11.8% 11.0% 10.5% 12.4% 15.4% 14.8% 14.9%

2

3 75–84 25.8% 33.2% 27.8% 35.1% 22.7% 33.8% 26.9% 32.6% 28.6% 33.9% 26.6% 33.7% 28.8% 37.5%

4

1

43.6% 49.1% 46.9% 47.8% 48.8% 44.4% 51.3%

6.1% 10.9% 5.6% 11.6% 14.4% 12.6% 12.2%

2

3 85+ 12.9% 20.4% 17.5% 27.1% 19.5% 30.2% 19.1% 27.8% 18.3% 31.9% 19.7% 33.3% 25.1% 33.6%

4 39.0% 45.7% 39.7% 41.1% 44.3% 42.1% 43.1%

Source: Employee Benefit Research Institite estimates from Health and Retirement Study (HRS).

ebri.org Issue Brief • June 2015 • No. 415

11

Figure 10 Percentage of Older Households (Ages 50 and Above) That Received Transfers in Past Two Years From Their Children/Grandchildren, 1998–2010, by Income Quartiles (of Recipients) and Age Group 16% 14% 12% 10% 8% 6% 4% 2% 0%

1998 2000 2002 2004 2006 2008 2010

1 8.2% 6.6% 9.3% 9.3% 8.2% 9.9% 7.1%

2

3 50–64 4.0% 1.2% 4.4% 1.7% 5.0% 1.6% 3.3% 2.5% 4.1% 2.6% 4.7% 3.4% 5.2% 2.3%

4

1

0.8% 1.1% 1.2% 1.1% 1.0% 1.8% 1.1%

7.7% 9.1% 9.6% 8.8% 9.5% 9.0% 8.5%

2

3 65–74 3.7% 2.7% 5.1% 2.8% 4.7% 4.1% 6.9% 2.4% 4.9% 2.9% 4.9% 3.0% 4.5% 2.5%

4

1

1.7% 1.4% 2.0% 1.6% 1.4% 2.5% 1.4%

8.8% 9.4% 8.9% 9.8% 11.8% 9.0% 9.0%

2

3 75–84 6.3% 2.5% 5.8% 3.5% 7.4% 3.9% 6.6% 4.2% 6.1% 5.1% 8.1% 4.2% 7.6% 4.6%

4

1

1.6% 1.3% 1.5% 3.0% 0.7% 3.3% 2.7%

9.6% 9.0% 11.1% 13.6% 9.0% 9.4% 9.0%

2

3 85+ 8.6% 4.8% 8.1% 4.7% 9.6% 4.3% 8.7% 4.7% 7.6% 4.5% 7.6% 4.8% 8.5% 3.0%

4 0.9% 3.6% 4.6% 5.0% 1.6% 1.7% 2.2%

Source: Employee Benefit Research Institute estimates from Health and Retirement Study (HRS).

Figure 11 Average Transfer Amounts (in 2014 $s and Conditional on a Non-Zero Transfer) in Past Two Years From Older Households (Ages 50 and Above) to Their Children/Grandchildren, by Age Group and Income Quartile, 1998–2010 $45,000 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $-

1

2

3

4

1

2

1998

$9,651

$6,892

$10,015

$20,980

$7,912

$8,520

2000

$6,638

$7,356

$10,408

$19,877

$11,335

$9,905

$10,928

$22,037

$5,870

$12,785

$15,070

$25,779

2002

$8,396

$7,545

$9,064

$20,479

$7,717

$8,863

$14,786

$20,705

$9,921

$14,389

$12,550

$22,883

2004

$8,240

$9,761

$10,760

$24,090

$7,906

$9,306

$9,347

$19,297

$9,024

$11,871

$12,174

$17,598

$8,281

2006

$7,952

$10,146

$9,891

$22,191

$8,941

$10,926

$10,419

$19,584

$15,100

$9,043

$11,429

$20,037

$13,713

2008

$9,813

$7,886

$12,978

$21,154

$5,815

$8,022

$9,984

$22,600

$7,216

$7,204

$11,737

$19,935

2010

$7,419

$7,411

$13,616

$27,378

$8,564

$7,784

$10,990

$21,072

$8,837

$9,849

$9,436

$22,864

50–64

3

4

1

2

$13,331

$21,048

$5,689

$12,779

65–74

3

4

1

2

3

4

$12,019

$20,684

$6,510

$7,286

$13,734

$32,917

$5,074

$14,660

$13,913

$38,852

$14,122

$23,528

$9,549

$35,851

$18,340

$9,951

$14,901

$10,278

$13,572

$18,180

$15,637

$11,479

$20,622

$16,933

$6,574

$13,474

$13,547

$24,601

85+

75–84

Source: Employee Benefit Research Institute estimates from Health and Retirement Study (HRS).

ebri.org Issue Brief • June 2015 • No. 415

12

Income and Asset Differences of Those Who Transfer and Those Who Don’t This section shows how older households that transfer money to their younger family members differ financially from those that don’t. Figure 12 shows the median non-housing assets (in 2014 dollars) of the older households that did and did not transfer money to their younger family members, and the differences are very large: Clearly, those that transferred money to their families had much higher non-housing or financial assets. In 2006, before the financial crisis hit, among the youngest households ( 50–64), those that made a transfer had median non-housing assets of $124,020, compared with $40,658 for those who did not make a transfer. For the same year (2006), among the oldest households (85 and above), the respective median asset levels were $210,015 and $27,203. Figure 13 shows the similar differences in median total assets of the older households that did and did not transfer money to their younger family members. As with the non-housing assets shown in Figure 12, there are large differences in total assets as well between the two groups. In 2010, Age Group I had the highest transfer rate (as seen in Figure 2) and also the highest difference (in percentage terms) in total assets of those that did and did not transfer money to their families. In 2010, median total assets of those that made a transfer were $163,500, compared with $48,688 for those that did not. Among the oldest, in 2010, the respective total asset medians were $288,850 and $108,564. Figure 14 shows the income differences of the two groups. Much like Figures 12 and 13, Figure 14 tells the same story: Those that transfer money to their younger families were more likely to have higher income. This is true for all age groups. In 2010, among the youngest households, the median household incomes were $81,209 and $38,368, respectively, for those that did and did not transfer money to their families. Among the oldest households in 2010, the respective median incomes were $34,182 and $20,967. To summarize the results from Figures 12, 13 and 14, it is clear that households that transfer money to their families are in much better financial health—which, of course, makes them more likely to be able to afford these transfers.

Comparing Transfers With Other Major Household Expenditure Items Expenditures are one of the biggest concerns of retirement planning. Existing research provides estimates for different categories of expenditure (Banerjee, 2014), but none of the estimates include income transfers, since they are not seen as an “expenditure” category. Rather, transfers are a form of discretionary spending that, as shown above, is highly correlated with income and asset levels. But parts of other major expenditure categories could also be discretionary in nature and correlated with income or assets, such as expenses on travel and entertainment, choice of long-term care facilities, etc. Keeping this in mind, Figure 15 shows how transfers compare with other major spending categories. In particular, the average annual amount transferred between the 2008 and 2010 surveys are compared with the 2009 average-household expenditure on different categories reported from the Consumption and Activities Mail Survey (CAMS). As the results show, for every age group the average transfer amounts are larger than at least one major spending category: clothing. For Age Group I, the average transfer amount is also higher than the “other” expenditure category, which includes all the miscellaneous items in a household budget. And, for the oldest age group, transfers are higher than transportation, clothing and entertainment. Therefore, transfers are actually a significant expense when compared with other items in a household budget, even though they are not traditionally thought of as a budget item. But as the results in this analysis show, much of the transfers take place in high-income, high-asset households that are generally better prepared for retirement. Whether these transfers would have any significant effect on their retirement readiness is a matter of further investigation, but for the low- or middle-income households such transfers could be a threat to their retirement security.

ebri.org Issue Brief • June 2015 • No. 415

13

Figure 12 Median Non-Housing Assets (in 2014 $s) for Households That Did and Did Not Make Any Transfers to Children/Grandchildren, 1998–2010 $250,000

$200,000

$150,000

$100,000

$50,000

$-

1998 2000 2002 2004 2006 2008 2010

No Transfer 50–64 $39,150 $41,100 $46,200 $32,500 $40,658 $27,500 $7,957

Transfer $123,250 $146,453 $145,200 $116,250 $124,020 $103,400 $54,173

No Transfer 65–74 $52,780 $54,800 $52,536 $47,500 $47,970 $37,950 $32,918

Transfer $190,313 $195,225 $199,320 $159,688 $190,710 $181,500 $180,940

No Transfer 75–84 $31,900 $33,942 $43,560 $46,875 $51,480 $45,320 $34,880

Transfer

No Transfer

Transfer 85+

$181,540 $199,335 $231,000 $188,750 $237,510 $194,700 $174,400

$13,775 $13,837 $16,896 $16,250 $27,203 $20,350 $20,710

$210,613 $154,810 $186,780 $131,938 $210,015 $179,300 $142,245

Source: Employee Benefit Research Institute estimates from Health and Retirement Study (HRS).

Figure 13 Median Total Household Assets (in 2014 $s) for Households That Did and Did Not Make Any Transfers to Children/Grandchildren, 1998–2010 $500,000 $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $-

1998 2000 2002 2004 2006 2008 2010

No Transfer 50–64 $129,050 $136,726 $148,764 $126,250 $164,034 $120,560 $48,688

Transfer $252,300 $267,150 $296,340 $280,375 $323,505 $290,840 $163,500

No Transfer 65–74 $168,200 $164,811 $167,640 $163,125 $197,145 $164,670 $144,752

Transfer $349,450 $367,503 $384,120 $341,917 $386,100 $381,700 $368,693

No Transfer 75–84 $124,652 $126,373 $158,136 $177,500 $207,090 $188,870 $152,600

Transfer

No Transfer

Transfer 85+

$305,950 $360,242 $427,680 $382,625 $454,779 $385,000 $364,605

$69,963 $73,980 $77,880 $84,625 $119,925 $103,400 $108,564

$315,593 $276,055 $324,720 $272,500 $415,935 $352,000 $288,850

Source: Employee Benefit Research Institute estimates from Health and Retirement Study (HRS).

ebri.org Issue Brief • June 2015 • No. 415

14

Figure 14 Median Income (in 2014 $s) for Households That Did and Did Not Make Any Transfers to Children/Grandchildren, 1998–2010 $100,000 $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $-

1998 2000 2002 2004 2006 2008 2010

No Transfer 50–64 $48,862 $50,797 $50,648 $49,218 $54,273 $50,600 $38,368

Transfer

No Transfer 65–74 $35,983 $35,072 $35,750 $35,718 $37,220 $35,430 $35,551

$84,463 $86,790 $86,476 $88,039 $87,899 $87,122 $81,209

Transfer

No Transfer 75–84 $26,378 $26,196 $27,298 $27,573 $28,894 $28,868 $27,664

$56,989 $56,192 $56,654 $59,614 $57,524 $60,557 $58,075

Transfer

No Transfer

Transfer 85+

$42,972 $43,418 $46,182 $43,130 $46,229 $44,068 $44,636

$17,470 $17,805 $17,646 $19,200 $20,674 $19,862 $20,967

$38,979 $34,313 $34,354 $34,398 $33,853 $36,573 $34,182

Source: Employee Benefit Research Institute estimates from Health and Retirement Study (HRS).

Figure 15 Comparing the 2009 Average Household Expenditure Items From Consumption and Activities Mail Survey (CAMS) With the Annualized Transfers Between 2008 and 2010 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000

65–74

75–84

Transport

Other

Transfers

Food

Health

Clothing

Entertainment

Transfers

Transport

Other

Health

Food

Entertainment

Clothing

Transport

Other

Transfers

Food

Health

Clothing

50–64

Entertainment

Transfers

Transport

Other

Health

Food

Entertainment

Clothing

$-

85+

Source: Employee Benefit Research Institute estimates from Health and Retirement Study (HRS).

ebri.org Issue Brief • June 2015 • No. 415

15

Conclusion This study reports the frequency and average amounts of intra-family cash transfers and examines both transfers from older households to their younger family members and transfers from younger family members to these older households. Intergenerational transfers are common for a large section of the population and such transfers may have important implications for the retirement preparedness of many households, but not much is known about such transfers. This study tries to address this issue and shed light on the nature and extent of these transfers. More work is needed to fully understand how this affects the retirement preparedness of older Americans. The main findings of the study are as follows:  This study reports the frequency and extent of intra-family cash transfers: both transfers from older households to their children and grandchildren, and vice versa. It also shows how these transfers are correlated with income levels and compares the asset and income levels of households that make such transfers and those that don’t.  The results show that a very small portion of older households receive transfers from their younger generations, while a much larger section of older households transfer money to their younger generations. The amounts transferred by older households are much higher than what they receive. These transfers are highly correlated with income. The average annual transfer amounts are large enough to be considered as a major spending item in a household budget.  From 1998 through 2010, there has been an increasing trend of transfers going from older households (those where at least one member of the household is ages 50 and above) to their family members.  Very few older households (4 percent to 5 percent) receive cash transfers from their families, compared with those who transfer money (38 percent to 45 percent) to their younger family members.  Among those ages 50 and above, relatively younger households are more likely to transfer money to their families and relatively older households are more likely to receive such transfers.  The amount transferred from older Americans to their children and grandchildren generally goes down with age. During a two-year period between 2008 and 2010, the average amounts transferred by households who had at least one member between ages 50‒64 and ages 85 or above were $8,350 and $4,787 respectively.  The average transfer amounts from younger family members to older households are much smaller. During the same two-year period, households who had at least one member ages 85 or above received the highest average transfers among all age groups and the average amount was $359.  Higher-income households are more likely to transfer money to their family members.  Households in the top income quartile transfer much larger amounts to their family members than those in the lower quartiles. Older households that transfer money to their families have much higher income and assets compared with those that do not make such transfers.

References Banerjee, Sudipto. “How Does Household Expenditure Change With Age for Older Americans?” EBRI Note, Vol. 35, no. 9, (Employee Benefit Research Institute, September 2014). Gale, William G., John Karl Scholz. “ Intergenerational Transfers and the Accumulation of Wealth.” The Journal of Economic Perspectives. Vol. 8, no. 4 (Autumn 1994). Kotlikoff, Laurence. “Intergenerational Transfers and Savings.” The Journal of Economic Perspectives. Vol. 2, no. 2 (Spring 1988). Modigliani, Franco. “The Role of Intergenerational Transfers and Life Cycle Saving in the Accumulation of Wealth.” The Journal of Economic Perspectives. Vol. 2, no. 2 (Spring 1988).

ebri.org Issue Brief • June 2015 • No. 415

16

Where the world turns for the facts on U.S. employee benefits. Retirement and health benefits are at the heart of workers’, employers’, and our nation’s economic security. Founded in 1978, EBRI is the most authoritative and objective source of information on these critical, complex issues. EBRI focuses solely on employee benefits research — no lobbying or advocacy.

EBRI stands alone in employee benefits research as an independent, nonprofit, and nonpartisan organization. It analyzes and reports research data without spin or underlying agenda. All findings, whether on financial data, options, or trends, are revealing and reliable — the reason EBRI information is the gold standard for private analysts and decision makers, government policymakers, the media, and the public.

EBRI explores the breadth of employee benefits and related issues.

EBRI studies the world of health and retirement benefits — issues such as 401(k)s, IRAs, retirement income adequacy, consumer-driven benefits, Social Security, tax treatment of both retirement and health benefits, cost management, worker and employer attitudes, policy reform proposals, and pension assets and funding. There is widespread recognition that if employee benefits data exist, EBRI knows it.

EBRI delivers a steady stream of invaluable research and analysis. ƒ

ƒ ƒ ƒ ƒ ƒ

EBRI publications include in-depth coverage of key issues and trends; summaries of research findings and policy developments; timely factsheets on hot topics; regular updates on legislative and regulatory developments; comprehensive reference resources on benefit programs and workforce issues; and major surveys of public attitudes. EBRI meetings present and explore issues with thought leaders from all sectors. EBRI regularly provides congressional testimony, and briefs policymakers, member organizations, and the media on employer benefits. EBRI issues press releases on newsworthy developments, and is among the most widely quoted sources on employee benefits by all media. EBRI directs members and other constituencies to the information they need and undertakes new research on an ongoing basis. EBRI maintains and analyzes the most comprehensive database of 401(k)-type programs in the world. Its computer simulation analyses on Social Security reform and retirement income adequacy are unique.

EBRI makes information freely available to all.

EBRI assumes a public service responsibility to make its findings completely accessible at www.ebri.org — so that all decisions that relate to employee benefits, whether made in Congress or board rooms or families’ homes, are based on the highest quality, most dependable information. EBRI’s Web site posts all research findings, publications, and news alerts. EBRI also extends its education and public service role to improving Americans’ financial knowledge through its award-winning public service campaign ChoosetoSave® and the companion site www.choosetosave.org

EBRI is supported by organizations from all industries and sectors that appreciate the value of unbiased, reliable information on employee benefits. Visit www.ebri.org/about/join/ for more.

th

1100 13 Street NW · Suite 878 Washington, DC 20005 (202) 659-0670 www.ebri.org www.choosetosave.org

CHECK OUT EBRI’S WEBSITE! EBRI’s website is easy to use and packed with useful information! Look for these special features: •

EBRI’s entire library of research publications starts at the main Web page. Click on EBRI Issue Briefs and EBRI Notes for our in-depth and nonpartisan periodicals.

•

Visit EBRI’s blog.

•

EBRI’s reliable health and retirement surveys are just a click away through the topic boxes at the top of the page.

•

Need a number? Check out the EBRI Databook on Employee Benefits.

•

Instantly get e-mail notifications of the latest EBRI data, surveys, publications, and meetings and seminars by clicking on the “Notify Me” or “RSS” buttons at the top of our home page. There’s lots more! Visit EBRI online today: www.ebri.org

Established in 1978, the Employee Benefit Research Institute (EBRI) is the only independent nonprofit, nonpartisan organization committed exclusively to data dissemination, research, and education on economic security and employee benefits. The Institute seeks to advance the public’s, the media’s and policymakers’ knowledge and understanding of employee benefits and their importance to our nation’s economy. EBRI’s mission is to contribute to, to encourage, and to enhance the development of sound employee benefit programs and sound public policy through objective research and education. EBRI has earned widespread regard as an organization that “tells it like it is,” based on the facts. As the Bylaws state: “In all its activities, the Institute shall function strictly in an objective and unbiased manner and not as an advocate or opponent of any position.”

EBRI Employee Benefit Research Institute Issue Brief (ISSN 0887137X) is published monthly by the Employee Benefit Research Institute, 1100 13th St. NW, Suite 878, Washington, DC, 20005-4051, at $300 per year or is included as part of a membership subscription. Periodicals postage rate paid in Washington, DC, and additional mailing offices. POSTMASTER: Send address changes to: EBRI Issue Brief, 1100 13th St. NW, Suite 878, Washington, DC, 20005-4051. Copyright 2015 by Employee Benefit Research Institute. All rights reserved. No. 415.

Who we are

What we do

Our publications

Orders/ Subscriptions

The Employee Benefit Research Institute (EBRI) was founded in 1978. Its mission is to contribute to, to encourage, and to enhance the development of sound employee benefit programs and sound public policy through objective research and education. EBRI is the only private, nonprofit, nonpartisan, Washington, DC-based organization committed exclusively to public policy research and education on economic security and employee benefit issues. EBRI’s membership includes a cross-section of pension funds; businesses; trade associations; labor unions; health care providers and insurers; government organizations; and service firms. EBRI’s work advances knowledge and understanding of employee benefits and their importance to the nation’s economy among policymakers, the news media, and the public. It does this by conducting and publishing policy research, analysis, and special reports on employee benefits issues; holding educational briefings for EBRI members, congressional and federal agency staff, and the news media; and sponsoring public opinion surveys on employee benefit issues. EBRI’s Education and Research Fund (EBRI-ERF) performs the charitable, educational, and scientific functions of the Institute. EBRI-ERF is a tax-exempt organization supported by contributions and grants. EBRI Issue Briefs is a monthly periodical with in-depth evaluation of employee benefit issues and trends, as well as critical analyses of employee benefit policies and proposals. EBRI Notes is a monthly periodical providing current information on a variety of employee benefit topics. EBRIef is a weekly roundup of EBRI research and insights, as well as updates on surveys, studies, litigation, legislation and regulation affecting employee benefit plans, while EBRI’s Blog supplements our regular publications, offering commentary on questions received from news reporters, policymakers, and others. The EBRI Databook on Employee Benefits is a statistical reference work on employee benefit programs and work force-related issues. Contact EBRI Publications, (202) 659-0670; fax publication orders to (202) 775-6312. Subscriptions to EBRI Issue Briefs are included as part of EBRI membership, or as part of a $199 annual subscription to EBRI Notes and EBRI Issue Briefs. Change of Address: EBRI, 1100 13th St. NW, Suite 878, Washington, DC, 20005-4051, (202) 659-0670; fax number, (202) 775-6312; e-mail: [email protected] Membership Information: Inquiries regarding EBRI membership and/or contributions to EBRI-ERF should be directed to EBRI President Dallas Salisbury at the above address, (202) 659-0670; e-mail: [email protected]

Editorial Board: Dallas L. Salisbury, publisher; Stephen Blakely, editor. Any views expressed in this publication and those of the authors should not be ascribed to the officers, trustees, members, or other sponsors of the Employee Benefit Research Institute, the EBRI Education and Research Fund, or their staffs. Nothing herein is to be construed as an attempt to aid or hinder the adoption of any pending legislation, regulation, or interpretative rule, or as legal, accounting, actuarial, or other such professional advice. www.ebri.org EBRI Issue Brief is registered in the U.S. Patent and Trademark Office. ISSN: 0887137X/90 0887137X/90 $ .50+.50

© 2015, Employee Benefit Research InstituteEducation and Research Fund. All rights reserved.