Tuesday, April 15, 2008

Life expectancy and Social Security

A number of commentators on Andrew Sullivan's blog bring up this table published by the SSA as evidence that rising life expectancies don't play a big role in Social Security's funding problems. Referencing the right hand columns, they point out that since 1940 life expectancies for men have increased by less than three years.

Leaving aside that an increase in life expectancy from 12.7 to 15.3 years implies a 20% increase in costs, these commentators also ignore the left-hand columns: these show the probability of a 21-year old surviving to collect benefits at 65. These probabilities have risen sharply: from 53.9% to 72.3% for men; from 60.6% to 83.5% for women. Now, this isn't simply a cost increase for the program, since people who survive longer also pay taxes longer.

Nevertheless, if you multiply the percentages in the left-hand columns by the life expectancies in the right-hand columns, you get the expected years of retirement the program would have to finance for a 21-year entering the program. For men, this rises from 6.8 it 11.1 years, for women it rises from 8.9 to 16.4. That’s a pretty big increase in costs.

Obviously, declining fertility also plays a major role. Nevertheless, even after the fertility rate stabilizes, life expectancies are projected to continue increasing. This is the factor that tends to drive costs up in the long term (e.g., from the 2030s onward).

1 comment:

Anonymous said...

yes. exactly.

and that's why the tax will need to be raised by about 2% of payroll.

out of an income that will have increased by about 40%

i think we can afford it. anyway, it's our money.