Did Social Security lower suicide rates?

In a generally silly article claiming – no kidding – that Republicans want to kill people, Slate's Jacob Weisberg claims that Social Security reduced the suicide rate for retirees. Unlike some of this other claims (which NRO's Ramesh Ponnuru deconstructs here), this one isn't totally made up: Weisberg cites an NBER paper by David Cutler and Ellen Meara on the overall decline in U.S. mortality through the 20^th century. Cutler and Meara say:

Since 1930, suicide rates among the elderly have fallen by 56 percent, while rates among teens have tripled. The decline in suicide among the elderly is coincident with the large absolute increase in income for the elderly stemming and pre-Social Security social programs and the phase-in of the Social Security system. Following the introduction of formal Social Security benefits, benefits rose rapidly over the period from 1950 until 1970, with a particularly rapid rise in the late 1960s. During these same time periods, suicide rates among the elderly fell most rapidly.

Sounds reasonable – I wouldn't dispute the possibility that giving early retirees massive transfers of money would improve their mood. But does it hold up? Cutler and Meara don't run any statistical tests themselves; they draw their conclusions entirely from their Figure 14.

Suicide rates for people aged 65 and over do decline significantly from 1935, when Social Security began, to today. But note a couple things:

• From 1930 through 1940, a period when Social Security had not begun paying benefits yet, seniors' suicide rates declined at a rate faster than they did afterwards. Moreover, this was a period in which seniors' incomes were depressed, which formed part of the justification for the Social Security program. If so, shouldn't suicide rates have increased during the Great Depression?
  
• Suicide rates for Americans aged 65 and over closely track those for individuals aged 55-64 and 45-54. These folks weren't receiving Social Security benefits, so pretty clearly something else was going on. These three age groups move closely together throughout the period, while those of individuals aged 15-24 and 25-34, which were generally rising, also track each other.
  
• Beginning in 1980, seniors' suicide rates jump up. One explanation is that this was the beginning of a period of retrenchment for Social Security benefits, although even retirees in the 1980s got a pretty good deal from the system. However, this was also a period when Medicare benefits ramped up. Shouldn't we have seen a similar effect there? Or may all those seniors just hated Reagan and couldn't go on.
  

Cutler and Meara's data doesn't appear to be available online so it's not possible to do any formal analysis. (If anyone has the data, please send it!) I would personally be pretty surprised, though, if the Social Security/suicide conclusion held up under stress.

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New paper: Adjusting Government Policies for Age Inflation

The NBER has released a new working paper by John Shoven of Stanford and Gopi Shah Goda of Harvard entitled Adjusting Government Policies for Age Inflation. Here' the abstract, followed by a link:

Government policies that are based on age do not adjust to the fact that a given age is associated with a higher remaining life expectancy and lower mortality risk relative to earlier time periods due to improvements in mortality. We examine four possible methods for adjusting the eligibility ages for Social Security, Medicare, and Individual Retirement Accounts to determine what eligibility ages would be today and in 2050 if adjustments for mortality improvement were taken into account. We find that historical adjustment of eligibility ages for age inflation would have increased ages of eligibility by approximately 0.15 years annually. Failure to adjust for mortality improvement implies the percent of the population eligible to receive full Social Security benefits and Medicare will increase substantially relative to the share eligible under a policy of age adjustment.

http://papers.nber.org/papers/W14231

Update: The Wall Street Journal has a story on this paper.

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Arnold Kling blogs on Aging vs Health Care

The always-interesting Arnold Kling at EconLog has a short post drawing attention to my recent AEI paper comparing how population aging and health care cost inflation will contribute to the long-term fiscal gap. (Hint: aging plays a much bigger role than many say.)

Here's Arnold's thoughts:

From my perspective, the health care cost issue is a bit of a red herring. If you had government out of the health care financing business, you would not worry about what health care costs are doing. If my fellow citizens choose to spend more of their money on their health care, that's not my concern. It's the prospect of my fellow citizens spending more of my money on their health care that has me worried.

A good point. There are good reasons to spend more on health care – rising incomes make health care more attractive than other good, and new technologies make new treatments available – but there are also a lot of reasons we shouldn't be spending so much. While I'm not a health care expert, I do believe that if customers saw more of the bill they were paying there would be greater pressure for efficiency in the health care sector.

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A bad story (that I happen to agree with)

Today's Washington Post has a story entitled "Many Retirees Face Prospect of Outliving Savings, Study Says." Here's a quote:

The study, set to be released tomorrow, finds that Americans will have to drastically reduce their standard of living before retirement to live comfortably, or even avoid destitution, later in life. Middle-income Americans entering retirement now will have to reduce their standard of living by an average of 24 percent to minimize their chances of outliving their financial assets, the study found. Workers seven years from retirement will have to cut their spending by even more -- 37 percent.

And here's a quote from University of Maryland economist Peter Morici:

"Most people, if they look at their life expectancy and they think they will live to 90, they are nuts to retire at 60. They're going to be living in poverty at 80," said Peter Morici, an economist at the University of Maryland. "I think it's a wake-up call to baby boomers to get serious about getting their houses in order."

Now, with rising life expectancies and fewer defined benefit pensions, it is more important to think about making your money last. A 65 year old may have an average life expectancy of around 83, but there's a non-trivial chance of living to 90, 95 or beyond. You need to play for those years if you don't want to end up running short.

So what's the problem with the article? The study, undertaken by Ernest & Young, was commissioned by Americans for a Secure Retirement, a group that essentially lobbies on behalf of the insurance industry to get government subsidies for annuities. Now, I think more people should annuitize and subsidies might be a good idea, but there's very little hint in the article that the study might be self-serving. There are plenty of good academic studies, including some that conclude that most American retirees are doing just fine. (For example, this paper which concludes that "Fewer than 20 percent of households have less wealth than their optimal targets, and the wealth deficit of those who are undersaving is generally small.") I'm not sure we need to rely on studies funded by groups with a clear financial incentive.

Second, while it's nice to have a quote from an outside expert, Peter Morici is a trade economist – and I'm sure a fine one – not an expert in retirement issues. There are a lot of readily available experts on broad retirement security – say, Alicia Munnell at Boston College or Olivia Mitchell at the Pension Research Council – and a story would benefit from talking to them.

So again, the story's conclusions are good, but I'm not so keen on how they got there.

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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).


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A really good ad

I love this ad. While in the tradition of ads you see in Washington, DC, where you're not exactly sure what they're selling, the statistic that Hallmark sold 85,000 100th birthday cards last year is a great heads-up to people planning for retirement that there's a non-trivial chance of living a long time. (Oh, now I get it -- Allstate sells annuities...). You can download the ad in pdf form here.

For those wanting more details, I've calculated the likelihoods that at least one member of a 65-year old couple will survive to a given age:

Age 70: 99.27%
Age 75: 95.83%
Age 80: 86.87%
Age 85: 69.15%
Age 90: 43.46%
Age 95: 18.74%
Age 100: 4.66%.

This is an area where I and many of those who have favored Social Security personal accounts were -- how shall I put this? -- wrong. While there is no reason account holders couldn't purchase annuities at retirement, one attribute of personal accounts that was often promoted was the ability to "unwind" the Social Security annuity to allow for periodic withdrawals or bequests. Annuities provide very valuable insurance against outliving your assets -- a standard finding is that you'd need around $150,000 in a world without annuities to provide the income security of an annuity costing $100,000. While accounts have a number of other strong points, unwinding the Social Security annuity isn't really one of them.
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