Differential Mortality and the Progressivity of Social Security

I examine if the positive correlation between wealth and survivorship has any implications for the progressivity of Social Security's benefit-earnings rule. Using a general-equilibrium macroe- conomic model calibrated to the U.S. economy, I show that the optimal Social Security arrange- ment is largely insensitive to wealth-dependent mortality risk. This is because while a more progressive benefit-earnings rule provides increased insurance for households with relatively un- favorable earnings histories, labor supply, savings, and therefore survivorship, their relatively high mortality risk heavily discounts the utility from old-age consumption. I find that these two effects roughly offset each other, yielding nearly identical benefit-earnings rules both with and without differential mortality.