How Close to Actuarial Fairness Are Old-Age, Spouse’s and Widower’s Benefits for Current and Future Beneficiaries?

We propose to analyze how close Social Security’s adjustments to old-age, spouse’s, and survivor’s benefits are to actuarial fairness for workers and their (surviving) spouses. Using cohort life table data and mortality projections, we will assess the actuarial fairness of past, current, and proposed future adjustment schedules for all three benefit types by comparing present values of benefit streams across take-up ages for average mortality beneficiaries. Using individual-level data from the Health and Retirement Study, we will develop measures of ‘goodness of actuarial fit’ and ‘actuarial favorability’ (to beneficiary) and quantify how much the statutory adjustments depart from fair levels for retired workers and their (surviving) spouses. We will also analyze how fairness and favorability differ across characteristics, assess the implied take-up risk to benefit outlays faced by Social Security, and perform simulations to show how the shape of the benefit adjustment schedule may be used to manage this risk.