Life Expectancy and Raising the Retirement Age

Working longer is often posed as a solution to the retirement crisis, or the systemic lack of savings for those nearing retirement. However, an often overlooked factor in policy debates calling for a raise in the retirement age is the clear evidence that life expectancy rates have not improved equally for all Americans.

Average life expectancy has increased markedly since World War II.  The average American born in 1950 would live to 68 years old.  By 1980, life expectancy would increase to 73.88 years and to nearly 78 years by 2007.[1]

These remarkable increases, however, belie a growing disparity of life expectancies among different socio-economic groups. The longevity of people in the top half of the income distribution has improved much more than those in the bottom half.[2] This increasing inequality of outcomes has occurred with remarkable speed.  For example, the Inter-American Development Bank estimates that from the 1983-1997 period to the 1998-2003 period[3] the differences in life expectancy between the highest 20% and lowest earning 20% of Americans (for those ages 35-76) grew from 0.7 to 1.5 years among women, and from 2.7 years to 3.6 years among men.[4]

Life expectancy at age 65 has improved the least for African American men and the most for non-Hispanic white men across race-sex groups.  In 2007, the average 65-year-old black man was projected to live 15.2 more years, whereas the 65-year-old white man would live 17.3 years longer.  This disparity is a wholly new development: from 1950 to 1955 elderly black and white men (and women in 1950) lived an average of 12.8 years (and average of 15 years for black and white women).[5] Although such demographic observations are telling, they do not explain the drivers behind the growing disparity of health and longevity outcomes.

To this end, other studies have sought to isolate a broader range of socio-economic variables.  One such detailed analysis by Meara, Richards and Cutler (2008) notes that education is a driving force behind longevity and mortality differentials.[6] They note that differentials in life expectancy among race-sex groups (at age 25) remained constant from 1990 to 2000, but that differences significantly increased between high- and low-education groups.  Indeed, low-educated women (both white and black) had statistically significant lower life expectancy in 2000 than they did in 1990.[7] Given the high correlation between education and life-time earnings, such findings reinforce the evidence of research analyzing the impact of income inequality on life expectancy and mortality.

Finally, what do these numbers suggest for retirement planning and policy?  Simply put, raising the eligibility age for Social Security and Medicare will have much worse impacts on some – generally more vulnerable – populations. Blindly increasing the retirement age will lead to higher older-worker unemployment,[8] more disability claims and worsening retirement prospects for those who can least afford it – and all this will come at a high social cost for state and local governments alike.

A more realistic goal is to have staggered retirement ages, as has been proposed in other OECD countries.  That means lowering the retirement age for those who entered the work force earlier (generally with less education, and who have earned less) and raising the retirement age for those who spent more time in post-secondary institutions, who generally earn more over their life time and who can afford healthier lifestyles.