Association for Public Policy Analysis & Management

We consider the distributional implications of Social Security policy changes in the context of increases in life expectancy and differential mortality. Demographic and socioeconomic changes in the American population over the past 50 years have affected the Social Security program in many ways. One major demographic trend challenging Social Security is increasing old-age longevity. A range of Social Security policy options has been considered by policymakers and retirement experts to address declining old-age mortality.

In this paper, we use a robust microsimulation model to examine how several options raising the retirement age, including a scenario that applies a mortality adjustment in combination with such policies, affect different types of individuals and households. Policy changes are simulated for 2030 Social Security beneficiaries using the Modeling Income in the Near Term microsimulation model.

We first consider options that would raise the Social Security retirement age: one that would increase the full-retirement age (FRA) by two years to 69, and one that would raise both the early- and full-retirement ages simultaneously by two years, to ages 64 and 69 respectively. Altering the retirement age has been a commonly suggested change to “update” the Social Security program to account for longevity gains. We also examine a hypothetical mortality adjustment to benefits designed to offset the growing differentials in longevity in combination with the options that would raise the retirement age. Applying a mortality adjustment reflects one plausible scenario, among others, to mitigate potentially adverse impacts of raising the retirement age on disadvantaged groups. In addition, our analysis explores whether possible behavioral adjustments to these policy alternatives would substantially alter the estimated impact.

The paper contributes to our understanding of the distributional implications of possible Social Security reforms in the context of ongoing changes to life expectancy in old age. The primary contribution is the inclusion of robust microsimulation techniques to analyze the distributional impacts of policy scenarios that would increase Social Security’s full retirement age and adjust for differential mortality by SES. The projection results show the extent to which the options affect the benefit levels and economic status of future retirees in 2030 across key groups, such as those with low lifetime earnings. The analysis also uncovers the extent to which adjusting the benefit structure to offset the expected increase in the gap in life expectancy would alter the estimated declines in benefits and increases in poverty among disadvantaged groups following raising the retirement age. Together, we provide a new perspective on the intersection of possible longevity-related policy reforms to Social Security with retirement security. We do not advocate or oppose any of the policy options examined herein.