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

41 Pages Posted: 17 Apr 2017

See all articles by Alan J. Auerbach

Alan J. Auerbach

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Kerwin Kofi Charles

University of Chicago - Irving B. Harris Graduate School of Public Policy Studies

Courtney Coile

Wellesley College; National Bureau of Economic Research (NBER)

William G. Gale

Brookings Institution

Dana P. Goldman

RAND Corporation; National Bureau of Economic Research (NBER)

Ronald D. Lee

University of California, Berkeley - Department of Demography; National Bureau of Economic Research (NBER)

Charles Lucas

Osprey Point Consulting

Peter R. Orszag

Lazard Asset Management

Louise Sheiner

Brookings Institution

Bryan Tysinger

University of Southern California - Schaeffer Center for Health Policy and Economics

David N. Weil

Brown University - Department of Economics; National Bureau of Economic Research (NBER)

Justin Wolfers

University of Michigan at Ann Arbor - Department of Economics; University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy; The University of Sydney - Discipline of Economics; Brookings Institution - Economic Studies Program; Peter G. Peterson Institute for International Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Kiel Institute for the World Economy

Rebeca Wong

University of Texas Medical Branch-Galveston

Date Written: April 2017

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 Jeffrey and Charles, Kerwin Kofi and Coile, Courtney and Gale, William G. and Goldman, Dana P. and Lee, Ronald D. and Lucas, Charles and Orszag, Peter R. and Sheiner, Louise and Tysinger, Bryan and Weil, David Nathan and Wolfers, Justin and Wong, Rebeca, How the Growing Gap in Life Expectancy May Affect Retirement Benefits and Reforms (April 2017). NBER Working Paper No. w23329. Available at SSRN: https://ssrn.com/abstract=2953816

Alan Jeffrey Auerbach (Contact Author)

University of California, Berkeley - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Kerwin Kofi Charles

University of Chicago - Irving B. Harris Graduate School of Public Policy Studies ( email )

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Courtney Coile

Wellesley College ( email )

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National Bureau of Economic Research (NBER)

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William G. Gale

Brookings Institution ( email )

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Dana P. Goldman

RAND Corporation ( email )

P.O. Box 2138
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United States

National Bureau of Economic Research (NBER) ( email )

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Ronald D. Lee

University of California, Berkeley - Department of Demography ( email )

2232 Piedmont Avenue
Berkeley, CA 94720-2120
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
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Charles Lucas

Osprey Point Consulting ( email )

Deer Isle, ME 04627
United States

Peter R. Orszag

Lazard Asset Management ( email )

30 Rockefeller Plaza
New York, NY 10112
United States

Louise Sheiner

Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

Bryan Tysinger

University of Southern California - Schaeffer Center for Health Policy and Economics ( email )

635 Downey Way
Los Angeles, CA 90089-3333
United States

David Nathan Weil

Brown University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Justin Wolfers

University of Michigan at Ann Arbor - Department of Economics ( email )

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Ann Arbor, MI 48109-1220
United States
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HOME PAGE: http://www.nber.org/~jwolfers

University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy ( email )

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Ann Arbor, MI 48109
United States
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HOME PAGE: http://www.nber.org/~jwolfers

The University of Sydney - Discipline of Economics ( email )

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Sydney, NSW 2006
Australia

Brookings Institution - Economic Studies Program ( email )

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Washington, DC 20036
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HOME PAGE: http://www.nber.org/~jwolfers

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/~jwolfers

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

HOME PAGE: http://www.iza.org/en/webcontent/personnel/photos/index_html?key=1737

Centre for Economic Policy Research (CEPR)

London
United Kingdom

HOME PAGE: http://www.cepr.org/researchers/details/rschcontact.asp?IDENT=157943

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, D-24100
Germany

Rebeca Wong

University of Texas Medical Branch-Galveston ( email )

Galveston, TX 77555
United States

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