Explorations in the Economics of Aging

Abstract This chapter assesses the implications of differential mortality by income for the lifetime progressivity of the “old-age” or retirement portion of Social Security. Social Security has a highly progressive benefit formula that applies in the determination of the monthly benefit amounts from the program. Workers with low lifetime earnings get a monthly payment stream with a much higher replacement rate than workers with high lifetime earnings. However, because of differential mortality by income, those with low lifetime earnings will on average receive their Social Security benefits for a shorter period of years. Thus, some of the progressivity in the benefit amount is counterbalanced by the longer average lifetimes experienced by higher lifetime income recipients of Social Security. The goal of this chapter is to quantify these offsetting effects.