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How the Growing Gap in Life Expectancy May Affect Retirement Benefits and Reforms

Author

Listed:
  • Alan J. Auerbach
  • Kerwin K. Charles
  • Courtney C. Coile
  • William Gale
  • Dana Goldman
  • Ronald Lee
  • Charles M. Lucas
  • Peter R. Orszag
  • Louise M. Sheiner
  • Bryan Tysinger
  • David N. Weil
  • Justin Wolfers
  • Rebeca Wong
Abstract
Older Americans have experienced dramatic gains in life expectancy in recent decades, but an emerging literature reveals that these gains are accumulating mostly to those at the top of the income distribution. We explore how growing inequality in life expectancy affects lifetime benefits from Social Security, Medicare, and other programs and how this phenomenon interacts with possible program reforms. We first project that life expectancy at age 50 for males in the two highest income quintiles will rise by 7 to 8 years between the 1930 and 1960 birth cohorts, but that the two lowest income quintiles will experience little to no increase over that time period. This divergence in life expectancy will cause the gap between average lifetime program benefits received by men in the highest and lowest quintiles to widen by $130,000 (in $2009) over this period. Finally we simulate the effect of Social Security reforms such as raising the normal retirement age and changing the benefit formula to see whether they mitigate or enhance the reduced progressivity resulting from the widening gap in life expectancy.

Suggested Citation

  • Alan J. Auerbach & Kerwin K. Charles & Courtney C. Coile & William Gale & Dana Goldman & Ronald Lee & Charles M. Lucas & Peter R. Orszag & Louise M. Sheiner & Bryan Tysinger & David N. Weil & Justin W, 2017. "How the Growing Gap in Life Expectancy May Affect Retirement Benefits and Reforms," NBER Working Papers 23329, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:23329
    Note: AG EH PE
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    References listed on IDEAS

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    Cited by:

    1. Andras Simonovits, 2018. "The best indexation of public pensions: the point system," CERS-IE WORKING PAPERS 1815, Institute of Economics, Centre for Economic and Regional Studies.
    2. Haan, Peter & Kemptner, Daniel & Lüthen, Holger, 2020. "The rising longevity gap by lifetime earnings – Distributional implications for the pension system," The Journal of the Economics of Ageing, Elsevier, vol. 17(C).
    3. Mauro Caselli & Paolo Falco, 2020. "As Long as They are Cheap Experimental Evidence on the Demand for Migrant Workers," Development Working Papers 466, Centro Studi Luca d'Agliano, University of Milano, revised 08 Sep 2020.
    4. Culotta, Fabrizio & Alaimo, Leonardo Salvatore & Bravo, Jorge Miguel & di Bella, Enrico & Gandullia, Luca, 2022. "Total-employed longevity gap, pension fairness and public finance: Evidence from one of the oldest regions in EU," Socio-Economic Planning Sciences, Elsevier, vol. 82(PA).
    5. Gordon, Robert J., 2018. "Declining American economic growth despite ongoing innovation," Explorations in Economic History, Elsevier, vol. 69(C), pages 1-12.
    6. Eytan Sheshinski & Frank N. Caliendo, 2021. "Social Security and the increasing longevity gap," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(1), pages 29-52, February.
    7. Andras Simonovits, 2018. "Designing pension benefits when longevities increase with wages," CERS-IE WORKING PAPERS 1804, Institute of Economics, Centre for Economic and Regional Studies.
    8. Fabrizio Culotta, 2021. "Life Expectancy Heterogeneity and Pension Fairness: An Italian North-South Divide," Risks, MDPI, vol. 9(3), pages 1-22, March.
    9. Svend E. Hougaard Jensen & Thorsteinn Sigurdur Sveinsson & Gylfi Zoega, 2021. "Longevity Adjustment of Retirement Age and Intragenerational Inequality," Economica, London School of Economics and Political Science, vol. 88(350), pages 339-363, April.
    10. Alan J. Auerbach & Laurence J. Kotlikoff & Darryl Koehler, 2023. "US Inequality and Fiscal Progressivity: An Intragenerational Accounting," Journal of Political Economy, University of Chicago Press, vol. 131(5), pages 1249-1293.
    11. Kevin Milligan & Tammy Schirle, 2021. "The evolution of longevity: Evidence from Canada," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(1), pages 164-192, February.
    12. Laun, Tobias & Markussen, Simen & Vigtel, Trond Christian & Wallenius, Johanna, 2019. "Health, longevity and retirement reform," Journal of Economic Dynamics and Control, Elsevier, vol. 103(C), pages 123-157.
    13. Kudrna, George & Tran, Chung & Woodland, Alan, 2022. "Sustainable and equitable pensions with means testing in aging economies," European Economic Review, Elsevier, vol. 141(C).
    14. Péter Hudomiet & Michael D. Hurd & Susann Rohwedder, 2019. "Trends in Health and Mortality Inequalities in the United States," Working Papers wp401, University of Michigan, Michigan Retirement Research Center.
    15. Laun, Tobias & Markussen, Simen & Vigtel, Trond Christian & Wallenius, Johanna, 2018. "Health, Longevity and Pension Reform," Working Paper Series 2018:9, Uppsala University, Department of Economics.
    16. Peter H. Lindert, 2017. "The Rise and Future of Progressive Redistribution," Commitment to Equity (CEQ) Working Paper Series 73, Tulane University, Department of Economics.
    17. Péter Hudomiet & Michael D. Hurd & Susann Rohwedder, 2020. "The Impact of Growing Health and Mortality Inequalities on Lifetime Social Security Payouts," Working Papers wp412, University of Michigan, Michigan Retirement Research Center.
    18. Hudomiet, Péter & Hurd, Michael D. & Rohwedder, Susann, 2021. "Forecasting mortality inequalities in the U.S. based on trends in midlife health," Journal of Health Economics, Elsevier, vol. 80(C).
    19. Li Tan & Cory Koedel, 2019. "The Effects of Differential Income Replacement and Mortality on U.S. Social Security Redistribution," Southern Economic Journal, John Wiley & Sons, vol. 86(2), pages 613-637, October.

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    More about this item

    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General

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