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

Listed author(s):
  • Alan J. Auerbach

    (University of California)

  • Kerwin K. Charles

    (University of Chicago)

  • Courtney C. Coile

    ()

    (Wellesley College)

  • William Gale

    (Brookings Institution)

  • Dana Goldman

    (University of Southern California)

  • Ronald Lee

    (University of California)

  • Charles M. Lucas

    (Osprey Point Consulting)

  • Peter R. Orszag

    (Lazard)

  • Louise M. Sheiner

    (Brookings Institution)

  • Bryan Tysinger

    (University of Southern California)

  • David N. Weil

    (Brown University)

  • Justin Wolfers

    (University of Michigan)

  • Rebeca Wong

    (University of Texas)

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 programmes and how this phenomenon interacts with possible programme reforms. We first project that life expectancy at age 50 for males in the two highest income quintiles will rise by seven to eight 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 programme benefits received by men in the highest and lowest quintiles to widen by US$130,000 (in US$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.

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File URL: http://link.springer.com/10.1057/s41288-017-0057-0
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Article provided by Palgrave Macmillan & The Geneva Association in its journal The Geneva Papers on Risk and Insurance - Issues and Practice.

Volume (Year): 42 (2017)
Issue (Month): 3 (July)
Pages: 475-499

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Handle: RePEc:pal:gpprii:v:42:y:2017:i:3:d:10.1057_s41288-017-0057-0
DOI: 10.1057/s41288-017-0057-0
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