IDEAS home Printed from https://ideas.repec.org/p/cdl/econwp/qt3rw6w0b9.html
   My bibliography  Save this paper

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

Author

Listed:
  • Auerbach, Alan J
  • Charles, Kerwin K
  • Coile, Courtney C
  • Gale, William
  • Goldman, Dana
  • Lee, Ronald
  • Lucas, Charles M
  • Orszag, Peter R
  • Sheiner, Louise M
  • Tysinger, Bryan
  • Weil, David N
  • Wolfers, Justin
  • Wong, Rebeca

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

  • Auerbach, Alan J & Charles, Kerwin K & Coile, Courtney C & Gale, William & Goldman, Dana & Lee, Ronald & Lucas, Charles M & Orszag, Peter R & Sheiner, Louise M & Tysinger, Bryan & Weil, David N & Wolf, 2017. "How the Growing Gap in Life Expectancy May Affect Retirement Benefits and Reforms," Department of Economics, Working Paper Series qt3rw6w0b9, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  • Handle: RePEc:cdl:econwp:qt3rw6w0b9
    as

    Download full text from publisher

    File URL: https://www.escholarship.org/uc/item/3rw6w0b9.pdf;origin=repeccitec
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Feldstein, Martin & Liebman, Jeffrey B. (ed.), 2002. "The Distributional Aspects of Social Security and Social Security Reform," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226241067, January.
    2. Goldring, Thomas & Lange, Fabian & Richards-Shubik, Seth, 2016. "Testing for changes in the SES-mortality gradient when the distribution of education changes too," Journal of Health Economics, Elsevier, vol. 46(C), pages 120-130.
    3. Martin Feldstein & Jeffrey B. Liebman, 2002. "The Distributional Aspects of Social Security and Social Security Reform," NBER Books, National Bureau of Economic Research, Inc, number feld02-1, May.
    4. 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.
    5. Julia Lynn Coronado & Don Fullerton & Thomas Glass, 2002. "Long-Run Effects of Social Security Reform Proposals on Lifetime Progressivity," NBER Chapters, in: The Distributional Aspects of Social Security and Social Security Reform, pages 149-206, National Bureau of Economic Research, Inc.
    6. Janet Currie & Hannes Schwandt, 2016. "Mortality Inequality: The Good News from a County-Level Approach," Journal of Economic Perspectives, American Economic Association, vol. 30(2), pages 29-52, Spring.
    7. McClellan, Mark & Skinner, Jonathan, 2006. "The incidence of Medicare," Journal of Public Economics, Elsevier, vol. 90(1-2), pages 257-276, January.
    8. Coronado Julia Lynn & Fullerton Don & Glass Thomas, 2011. "The Progressivity of Social Security," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-45, November.
    9. Gruber, Jonathan, 1997. "The Incidence of Payroll Taxation: Evidence from Chile," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages 72-101, July.
    10. John Bound & Arline T. Geronimus & Javier M. Rodriguez & Timothy A. Waidmann, "undated". "Measuring Recent Apparent Declines in Longevity: The Role of Increasing Educational Attainment," Mathematica Policy Research Reports 0c715b1386df45edb4d21d33c, Mathematica Policy Research.
    11. Gustman, Alan L. & Steinmeier, Thomas L., 2001. "How effective is redistribution under the social security benefit formula?," Journal of Public Economics, Elsevier, vol. 82(1), pages 1-28, October.
    12. Alan Gustman & Thomas Steinmeier & Nahid Tabatabai, 2014. "Distributional Effects of Means Testing Social Security: An Exploratory Analysis," Working Papers wp306, University of Michigan, Michigan Retirement Research Center.
    13. John Shoven & Sita Slavov, 2013. "Recent Changes In The Gains From Delaying Social Security," Discussion Papers 13-019, Stanford Institute for Economic Policy Research.
    14. Gruber, Jonathan & Orszag, Peter, 2003. "Does the Social Security Earnings Test Affect Labor Supply and Benefits Receipt?," National Tax Journal, National Tax Association;National Tax Journal, vol. 56(4), pages 755-773, December.
    15. Martin S. Feldstein & Jeffrey B. Liebman, 2002. "Introduction to "The Distributional Aspects of Social Security and Social Security Reform"," NBER Chapters, in: The Distributional Aspects of Social Security and Social Security Reform, pages 1-10, National Bureau of Economic Research, Inc.
    16. Mariacristina De Nardi & Eric French & John Bailey Jones, 2016. "Medicaid Insurance in Old Age," American Economic Review, American Economic Association, vol. 106(11), pages 3480-3520, November.
    17. Barry P. Bosworth & Kathleen Burke, 2014. "Differential Mortality and Retirement Benefits in the Health and Retirement Study," Working Papers, Center for Retirement Research at Boston College wp2014-4, Center for Retirement Research.
    18. James P. Smith, 2007. "The Impact of Socioeconomic Status on Health over the Life-Course," Journal of Human Resources, University of Wisconsin Press, vol. 42(4).
    19. Anne Case & Angua Deaton, 2015. "Rising morbidity and mortality in midlife among white non-Hispanic Americans in the 21st century," Working Papers 15078.full.pdf, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
    20. John Bound & Arline Geronimus & Javier Rodriguez & Timothy Waidmann, 2014. "The Implications of Differential Trends in Mortality for Social Security Policy," Working Papers wp314, University of Michigan, Michigan Retirement Research Center.
    21. Bhattacharya, Jay & Lakdawalla, Darius, 2006. "Does Medicare benefit the poor?," Journal of Public Economics, Elsevier, vol. 90(1-2), pages 277-292, January.
    22. Aaron, Henry J., 2011. "Social Security Reconsidered," National Tax Journal, National Tax Association;National Tax Journal, vol. 64(2), pages 385-414, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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. Mauro Caselli & Paolo Falco, 2020. "As long as they are cheap. Experimental evidence on the demand for migrant workers," Discussion Papers 20-06, University of Copenhagen. Department of Economics.
    3. 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).
    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. Fabrizio Culotta, 2021. "Life Expectancy Heterogeneity and Pension Fairness: An Italian North-South Divide," Risks, MDPI, vol. 9(3), pages 1-22, March.
    6. Peter H. Lindert, 2017. "The Rise and Future of Progressive Redistribution," Commitment to Equity (CEQ) Working Paper Series 73, Tulane University, Department of Economics.
    7. 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.
    8. 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.
    9. 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.
    10. 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.
    11. 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).
    12. 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.
    13. 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.
    14. Kudrna, George & Tran, Chung & Woodland, Alan, 2022. "Sustainable and equitable pensions with means testing in aging economies," European Economic Review, Elsevier, vol. 141(C).
    15. Gordon, Robert J., 2018. "Declining American economic growth despite ongoing innovation," Explorations in Economic History, Elsevier, vol. 69(C), pages 1-12.
    16. 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.
    17. 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.
    18. 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.
    19. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. 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.
    3. Jeffrey B. Liebman, 2002. "Redistribution in the Current U.S. Social Security System," NBER Chapters, in: The Distributional Aspects of Social Security and Social Security Reform, pages 11-48, National Bureau of Economic Research, Inc.
    4. Irena Dushi & Leora Friedberg & Anthony Webb, 2021. "Is the Adjustment of Social Security Benefits Actuarially Fair, and If So, for Whom?," Working Papers wp421, University of Michigan, Michigan Retirement Research Center.
    5. Janet Currie & Hannes Schwandt & Josselin Thuilliez, 2020. "Pauvreté, Egalité, Mortalité: mortality (in)equality in France and the United States," Journal of Population Economics, Springer;European Society for Population Economics, vol. 33(1), pages 197-231, January.
    6. Coronado Julia Lynn & Fullerton Don & Glass Thomas, 2011. "The Progressivity of Social Security," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-45, November.
    7. 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.
    8. Díaz-Saavedra, Julián, 2023. "Heterogeneity in longevity, redistribution, and pension reform," Journal of Pension Economics and Finance, Cambridge University Press, vol. 22(4), pages 604-639, October.
    9. 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.
    10. Guan Gong & Anthony Webb, 2008. "Mortality Heterogeneity and the Distributional Consequences of Mandatory Annuitization," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 75(4), pages 1055-1079, December.
    11. 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).
    12. Janet Currie & Hannes Schwandt, 2016. "Mortality Inequality: The Good News from a County-Level Approach," Journal of Economic Perspectives, American Economic Association, vol. 30(2), pages 29-52, Spring.
    13. Owen Davis & Siavash Radpour, 2021. "Older Workers' Wages Are Growing - But Not Fast Enough," SCEPA publication series. 2021-04, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    14. Liqun Liu & Andrew J. Rettenmaier, 2003. "Social Security Outcomes by Racial and Education Groups," Southern Economic Journal, John Wiley & Sons, vol. 69(4), pages 842-864, April.
    15. James Banks & Janet Currie & Sonya Krutikova & Kjell G. Salvanes & Hannes Schwandt, 2021. "The Evolution of Mortality Inequality in 11 OECD Countries: Introduction," Fiscal Studies, John Wiley & Sons, vol. 42(1), pages 9-23, March.
    16. Janet Currie & Hannes Schwandt & Josselin Thuilliez, 2020. "Pauvreté, Egalité, Mortalité: mortality (in)equality in France and the United States," Journal of Population Economics, Springer;European Society for Population Economics, vol. 33(1), pages 197-231, January.
    17. Holger Lüthen, 2016. "Rates of Return and Early Retirement Disincentives: Evidence from a German Pension Reform," German Economic Review, Verein für Socialpolitik, vol. 17(2), pages 206-233, May.
    18. Sergio Nisticò & Mirko Bevilacqua, 2018. "Some Notes On The Redistribution Inherent In The U.S. Public Pension System," Contemporary Economic Policy, Western Economic Association International, vol. 36(3), pages 566-581, July.
    19. Rachel J. Huang & Larry Y. Tzeng, 2008. "Consumption Externality and Equilibrium Underinsurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 75(4), pages 1039-1054, December.
    20. Yuh, Yoonkyung & Yang, Jaehwan, 2011. "The Valuation and Redistribution Effect of the Korea National Pension," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 52(1), pages 113-142, June.

    More about this item

    Keywords

    Aging; Generic health relevance; Good Health and Well Being; demographic trends; inequality; government expenditures; social security; Applied Economics; Banking; Finance and Investment; Finance;
    All these keywords.

    JEL classification:

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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cdl:econwp:qt3rw6w0b9. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lisa Schiff (email available below). General contact details of provider: https://edirc.repec.org/data/ibbrkus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.