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

Author

Listed:
  • 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.

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," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 42(3), pages 475-499, July.
  • 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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    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. Gordon, Robert J., 2018. "Declining American economic growth despite ongoing innovation," Explorations in Economic History, Elsevier, vol. 69(C), pages 1-12.
    5. 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.
    6. Alan J. Auerbach & Laurence J. Kotlikoff & Darryl R. Koehler, 2016. "U.S. Inequality and Fiscal Progressivity: An Intragenerational Accounting," NBER Working Papers 22032, National Bureau of Economic Research, Inc.
    7. 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.
    8. 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.
    9. George Kudrna & Chung Tran & Alan Woodland, 2018. "Sustainable and Equitable Pensions with Means Testing in Aging Economies," ANU Working Papers in Economics and Econometrics 2018-666, Australian National University, College of Business and Economics, School of Economics.
    10. 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.
    11. 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.
    12. Peter H. Lindert, 2017. "The Rise and Future of Progressive Redistribution," Commitment to Equity (CEQ) Working Paper Series 73, Tulane University, Department of Economics.
    13. 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.

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    More about this item

    Keywords

    demographic trends; inequality; government expenditures; social security;
    All these keywords.

    JEL classification:

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

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