Washington wonks love to portray raising the retirement age for Social Security as a painless "fix" for the program's finances.
After all, the thinking goes, the near-retired can be exempted from the increase, and since Americans on average are staying healthier into their later years, working longer and living longer in retirement, holding off retirement benefits is not only fair, but from a fiscal standpoint essential.
But a new study punctures this argument with stark data showing that within the average there are winners and losers — mostly distinguished by household earnings and wealth. The analysis comes from the Social Security actuaries, who showed in a study released last week that mortality rates among people 62 and older are inextricably linked to lifetime earnings. The higher the earnings, the lower the mortality rate.
The study tracked differential mortality rates — that is, how far above or below the average each of five income segments landed. The actuaries used average indexed monthly earnings — the average of a Social Security beneficiary's earnings over 35 years, which is used to compute the worker's primary retirement benefit. Then they compared the death rates among retirees by sex, age group, and AIME with the overall death rate for each sex and age group alone. That isolated the income factor.
What the actuaries found is that lifetime earnings are a powerful predictor of mortality. As Kathy Ruffing of the Center on Budget and Policy Priorities points out, among men ages 65 to 69, those in the lowest 20% of lifetime earnings (less than $22,400 a year) had death rates more than three times as high as those in the top 20% (annual earnings of $74,356 or more). Specifically, the lowest-income group had a mortality rate 65% higher than the average of all men ages 65 to 69, while the highest-earning had a rate 39% less than the average.
The spread between rich and poor narrowed for older groups, but never disappeared. The actuaries conjecture that the reason is that the healthiest members of each age group live the longest, and as the number of survivors shrinks, the wealth factor becomes less crucial.
Importantly, the study measured relative death rates, so it doesn't aim to show that mortality increases with age — just how wealth affects mortality within each age group.
The actuaries' study basically adds to a large and robust body of evidence showing a gulf in longevity between rich and poor. In 2016, Kathleen Romig of CBPP showed that "the higher a person's socioeconomic status — whether measured in earnings, income, or education — the longer his or her life expectancy." Moreover, she observed, the gap in life expectancy between rich and poor was growing, and the trend was accelerating.
Romig's post joined studies by the National Academy of Sciences in 2015 and the Congressional Research Service in 2017 documenting the widening gap in life expectancy by income. The implications for Social Security reform nostrums are major. As the CRS noted in its 2017 report, proposals to raise the retirement age "would affect low earners disproportionately (i.e., reductions in their lifetime Social Security benefits would be considerably larger than for high earners)."
Such proposals fall into three categories. Some would raise the earliest eligibility age (currently 62), others would raise the full retirement age (currently 67 for those born in 1960 or later), and others would raise both. Any of these options would harm lower-income claimants more, because they would place benefits further out of reach or lead to shorter benefit periods for those who might die earlier.
That's not even counting that wealthier retirees can afford to delay claiming Social Security longer, which enables them to receive a premium of 24% over the benefits due them at normal retirement age. The higher benefit for late claiming, like the reduced benefit for claiming before the normal retirement age, is designed to be actuarially equivalent for those with average life expectancies — in other words, they collect more every month but for fewer years. But given the evidence that the wealthier have longer life expectancies, this increase gives them a disproportionate gain, too.
As we've written before, these factors help to explain why proposals to raise the retirement age tend to come from well-nurtured policy wonks comfortably ensconced in Washington think tanks, or from members of Congress assured of a decent government pension after they leave office.
One argument often heard in favor of increasing the retirement age is that it's been done before. The 1983 Social Security reforms raised the full retirement age to 67 from 65 in steps, and deferred the change well into the future. The first retirees affected by the increase were 45 in 1983 and therefore 20 years from retirement in 2003; their full retirement age was raised to 65 and two months from 65. But the differential impact between rich and poor may not have been as well understood in 1983 — certainly the growth of income and wealth inequality was not as much on policymakers' radar screens then as it is now.
Yet the idea that raising the retirement age is only a minor change persists. For many policymakers today, all Social Security recipients look the same — typically, like themselves. But incomes and life experiences are infinitely variable, which means that the consequences of tampering with the Social Security retirement age are a lot more complicated than they think.