Advancing a Free Society

Social Security and Longevity: A Follow-Up

Sunday, May 15, 2011

Last week I published a piece at E21 explaining the relationship between longevity trends and proposals to increase Social Security’s eligibility age. The essence of the piece was to explain the solid rationales behind existing proposals (including Simpson-Bowles), and why some criticism of these proposals was off-base.

Two quick follow-ups today:

First: my general aim in writing about Social Security is to explain the basics of program finances, and not to police the inevitable errors that occur in public discourse. But one erroneous statement (recently made in a well-respected newspaper) is worth noting simply because it encapsulates some of the existing confusion on this subject:

Since Social Security’s inception, life expectancy at age 65 has risen about five years and the retirement age has increased by two years, so beneficiaries are getting three more years of Social Security now than they were then.

This statement is several ways incorrect. First, the normal retirement age (NRA) hasn’t increased by two years since Social Security’s inception. It is scheduled to ultimately rise by two years, but it hasn’t yet. It is 66 now, having risen by only one year.

Second, early retirement at age 62 was established well after Social Security’s inception, and this became the most common age of claim. Taken together, it is not correct to say that “beneficiaries are getting three more years out of Social Security than they were then.” They were more typically getting at least eight (5 additional years of life expectancy at age 65, plus 3 years from claiming earlier). By the time the NRA will actually have risen by the scheduled two years, this typical beneficiary would have been collecting for nine additional years, at least according to figures available in 2010.

My E21 piece also explains in detail how benefit levels at various claim ages reflect a combination of the NRA, the early eligibility age, and Social Security’s benefit formulas. Considered together, benefits are not only being collected for longer, they’re annually much higher even for a constant age. Most Social Security wonks are generally aware of these factors, but the public discourse (as the quotation above shows) isn’t solely confined to experts, so it’s important to lay them out now and then.

Second: The 2011 Social Security Trustees’ report was released last Friday. It turns out that longevity is actually increasing by even more than was measured in last year’s report. Cohort life expectancy at age 65 has now increased by six years each for men and women since 1940. By the time Simpson-Bowles would increase the NRA to 69, this longevity increase from age 65 is projected to be nearly ten years.

The arguments that longevity has not increased that much relative to Social Security’s ages of eligibility thus turn out not only to be incorrect, but inopportunely timed, given the conflicting data updates this very week.