A Better Old Age: How Income Can Improve Later-Life Mental Health

The elderly population is growing rapidly in the United States and in most developed countries. As it continues to do so, in both absolute and percentage terms, policymakers will continue to look for ways to promote well being in old age. A new study by Padmaja Ayyagari and David Frisvold shows that an increase in income, even later in life, can significantly improve the elderly’s cognitive functions. Legislators should bear these findings in mind as they consider changes to Social Security benefits.

Income may affect the elderly’s mental health in many ways. Individuals with higher economic stability are less prone to stress, depression, and other conditions that may promote neurocognitive decline. Also, having more money can often mean procuring better healthcare, which increases the likelihood of an early detection of severe cognitive decline. Past research has failed to separate income from other factors that may influence cognition, such as job complexity before retirement. This study contributes to the body of research by showing how an external increase in income, in the form of additional Social Security benefits, can positively affect the elderly’s cognitive functions.

The authors take advantage of a 1970s amendment to the Social Security Act to examine how income affects cognition at an older age. This amendment introduced a formula to index Social Security payments for inflation for the first time. Because of a flaw in the formula, the benefits of the population born between 1915 and 1917 increased more quickly, relative to inflation, resulting in extra Social Security income of around $1,000 per year on average for the 1915-1917 birth cohort. This is known as the “Social Security Notch.” Using data from the (AHEAD) study, the authors compare the cognitive status of the Social Security beneficiaries who were born between 1915 and 1917 to beneficiaries born in adjacent years, who had lower Social Security benefits. The AHEAD study collected survey data from these birth cohorts, performing a series of tests evaluating working memory, episodic memory, and mental status.

The results show that the cohort with increased benefits exhibited higher scores on several cognitive dimensions. The authors find that a $1,000 increase in annual Social Security income led to a 2.2 percent improvement in working memory, a 1.1 percent improvement in knowledge, language, and orientation, and a 1.4 percent improvement in overall cognition. They test several assumptions to show that “notch” and “non-notch” birth cohorts are not cognitively different for reasons other than the “notch” in Social Security Income. For example, education and height have also been shown to have an impact on cognition and income, so the researchers work to prove that the “notch” and “non-notch” birth cohorts are not significantly different on these attributes.

The authors classify the mental health status of the elderly in three categories: normal, cognitively impaired but not demented, and demented. Along these dimensions, they find clinically relevant disparities in cognition between individuals who received extra income due to the Social Security notch and those who did not. They estimate that an extra annual $1,000 resulted in a 1.9 percentage-point reduction in the likelihood of being classified as demented for otherwise similar birth cohorts. These results suggest that increased income can prevent a decline in cognition during old age.

The authors find that increased Social Security income has a larger positive impact on working memory and mental status among individuals with lower educational attainment. This same group also shows a larger drop in the rate of dementia than individuals with higher educational attainment. This is not to say that increasing Social Security income for the elderly will solve all cognitive problems. Rather, on average, for otherwise similar groups of individuals, those who receive extra Social Security income are shown to have lower rates of cognitive decline.

Though the benefits of increasing Social Security payments should be weighed against the cost of administering a more expansive Social Security program, these findings represent new evidence for the cognitive health benefits that may accompany increased Social Security benefits.

Article Source: Ayyagari, Padmaja and David Frisvold. “The Impact of Social Security Income on Cognitive Function in Older Ages.” National Bureau of Economic Research Working Paper, 2015.

Featured Photo: cc/(Beth Jusino)