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The Impact of Growing Health and Mortality Inequalities on Lifetime Social Security Payouts

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Abstract

The prevalence of obesity, diabetes, and other health problems has increased in recent decades in the United States, and there is a growing gap between the health and longevity of individuals with high socioeconomic status (SES) and low SES. These trends likely have implications for Social Security’s financial position in the coming decades. Because high-SES individuals tend to receive higher annual benefits and live longer, increases in health and mortality inequalities may result in increases in aggregate Social Security payouts. This paper uses data from the Health and Retirement Study, and a microsimulation model of health, mortality, and Social Security benefits, to forecast lifetime Social Security benefits of the 1934 to 1959 birth cohorts in the U.S. We compare alternative assumptions about the future course of mortality. We find that accounting for health and mortality inequalities is important. In a baseline model that ignores trends in mortality inequalities, we estimate that lifetime Social Security benefits would grow by 26% in real terms between the 1934 and 1959 birth cohorts due to increasing benefit levels and improvements in average mortality. When we account for mortality inequalities, we find an increase of 28% to 38% in average lifetime benefits, depending on the assumptions of the model. We also forecast lifetime benefits using the alternative assumption that improvements in population mortality will slow for younger birth cohorts.

Key Findings

  • Changes in health conditions and subsequent mortality have a direct impact on Social Security payouts. The relationship with socioeconomic status (SES) is more nuanced. Increased life expectancy for high SES individuals can cause higher total payouts even if overall mortality is unchanged.
  • We assessed how changes in health conditions and mortality may affect Social Security payouts for cohorts born between 1934 and 1959. Our preferred model suggests lifetime payments will increase 28%. Models with different assumptions yield increases in payouts ranging from 11 to 38%. Forecasts taking into account differences in mortality across SES groups indicate greatest payout increases for women and for those in the highest SES quintiles.
  • Tracking health and mortality trends by SES groups is important to improve predictions of future Social Security payouts.

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Project

Paper ID

WP 2020-412

Publication Type

Working Paper

Publication Year

2020