Social Security and living with Grandma

The New York Times summarizes some interesting research on the living arrangements of older Americans. Traditionally, as individuals grew older – and particularly when one spouse died – the surviving spouse would move in with one of their children. Economists Robert F. Schoeni of the University of Michigan and Kathleen McGarry of Dartmouth analyzed the living arrangements of older Americans using Census data. They showed that the decline in older parents living with their children began in 1940, the year that Social Security first began paying out benefits. This indicates that older parents did not desire to live with their children – or the children did not desire to live with their parents -- but were forced to by need. As Social Security alleviated that need, older parents continued to live independently.

Now, some pretty random thoughts: While there's certainly some merit to this, independent living does not come without a cost. Using a standard method for calculating economies of scale in household size, adding an additional adult to a household consisting of two parents and two children increases total household costs by less than half as much as it would cost that person to live alone. In the early years of Social Security this increased cost might have been acceptable to bear, in part because early benefits were so generous relative to contributions, but I'm not sure the question is so clear cut today. I think of this because when I discuss reducing future Social Security benefits to restore solvency I'm sometimes questioned by someone asking whether I would like to have my retired parents living with me. The answer to that question depends, at least in part, on how I would have to pay for them to be with me versus living independently.