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Longer lives are not the main problem for pensions, but they are a problem [ClearOnMoney]
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Longer lives are not the main problem for pensions, but they are a problem

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Commentary

Longer lives are not the main problem for pensions, but they are a problem

30 Mar 2011 by Jim Fickett.

From 1930 to 2000, life expectancy from age 65 rose from about 12 years to about 16 years. The bad news is that pension costs per person went up by about 33%, a major increase. The good news is that raising the retirement age by 4 years fixes the problem.

You often read statements that pension funds, Social Security in particular, are in trouble because people are living longer. And just as often, you read the rebuttal that the increase in life expectancy is mostly due to a decrease in infant mortality, and so does not affect pension plans. Dean Baker is typical:

we are told that life expectancy has increased by 15 years since 1935 when the program was established. This is true, but mostly irrelevant. Most of this increase was due to a reduction in infant mortality. That means more retirees, but also more workers. Some of the increase was due to the fact that more people live to the point where they retiree. Only a small portion of the increase has been attributable to people living longer after they retire. And much of this gain has been eaten by the increase in the normal retirement age from 65 to 67 that is already in current law.

This is basically right, though a little misleading. Here are the data:

From 1930 (Social Security was enacted in 1935) to 2000, life expectancy from birth increased 27%, while life expectancy from age 65 increased 33%. So it is not quite right to say that it is all about infant mortality. Still, it is true that from 1930 to 2000 life expectancy from the age of 65 increased by only 4 years.

The bad news is that, with an increase in the life expectancy from age 65 of 33%, the costs per person go up by roughly 33%, and the problem must really be fixed. The good news is that fixing the problem by raising the retirement age by 4 years is politically feasible.

A bigger problem, of course, is demographics, and a fair settlement between generations, for retirement benefits generally, will be harder to come by.