John B Shoven
Trione Director of SIEPR
Adjusting Institutions for Longer Lifetimes
Working Longer
Living Longer – It is a Fact
The Probability of Future Birthdays for 65-Year Olds
100
%
65-year old males in 1955
90
80
70
Dwight Eisenhower
and Groucho Marx
were 65 in 1955
60
50
50% Chance of
Reaching 77.5
40
30
20
20% Chance of
Reaching 85
10
8.8% @ 90
0
65
70
75
80
85
90
95
100
105
Living Longer – It is a Fact
The Probability of Future Birthdays for 65-Year Olds
100
%
65-year old males in 1955
75% Chance of 77.5
90
65-year old males in 2014
80
e.g. Bruce Springsteen
70
50% Chance of
Reaching 85
60
60% increase
50
40
50% Chance of
Reaching 77.5
30% Chance of 90
30
20
20% Chance of
Reaching 85
10
8.8% @ 90
0
65
70
75
80
85
90
95
100
105
Living Longer – It is a Fact
The Probabilities of Future Birthdays
100
%
65-year old males in 1955
90
65-year old males in 2014
80
65-year old females in 1955
70
65-year old females in 2014
60
40% Chance of
Reaching 90
50
40
30
Meryl Streep turns 65 in 2014
Agatha Christie turned 65 in 1955
5.6% Chance
Of 100
20
10
0
65
70
75
80
85
90
95
100
105
Are These Four People Really the Same Age?
Retirement Lengths for Couples
Table 2. Life Expectancies of Retirement Age Married Couples
Age of
Husband
62
63
64
65
66
67
68
69
70
Age of Expected Years
Wife
to First Death
60
61
62
63
64
65
66
67
68
17.53 (28)
16.85 (27)
16.18 (26)
15.51 (25)
14.85 (24)
14.19 (23)
13.53 (22)
12.89 (21)
12.26 (20.5)
Expected Years
to Second Death
Expected Length
of Widowhood
29.11 (37)
28.21 (36)
27.31 (35)
26.41 (34)
25.52 (33)
24.64 (32)
23.75 (31)
22.87 (30.5)
22.00 (29.7)
11.58
11.36
11.13
10.90
10.67
10.45
10.22
9.98
9.74
Note: Numbers in parenthesis represent 90th percentile outcomes
Data: Cohort life tables from Social Security used in the 2012 Trustees Report for men
born on 1/1/1951 and women born on 1/1/1953
A Few Important Facts
• Average retirement age is 64 for men, 62 for women
• At those ages, people need to prepare for at least 30-year
retirements
• At those ages, the survivor of a couple outlives their
spouse by an average of 11 years
• YOU CAN’T FINANCE 30-YEAR RETIREMENTS
WITH 40-YEAR CAREERS!
The Consequences of Trying to Finance 30year Retirements with 40-Year Careers
• Vastly underfunded state and local pension funds
• Social Security Trust Fund becomes exhausted in
2033, followed by a roughly 25% cut in benefits
• Fewer workers relative to retirees
• Lower standard of living for retired workers
What Can We Do About It?
• The easiest solution is to work longer
• For instance, 48-year careers and 22-year
retirements
• Today’s Stanford undergraduates probably will
need to work until at least 70
Hidden Early Retirement Incentives Need to
be Eliminated - I
• Social Security turns into a pure tax on work soon
after 35 years of work
• Introduce “Paid Up Workers” = People who have
already worked 40 years. Paid Up workers would
not face either the employer and the employee
payroll tax for Social Security and Medicare
• This would remove a 15.3% wedge between
employer’s cost and employee’s take home pay
Hidden Early Retirement Incentives Need to
be Eliminated - II
• Medicare could be changed from Medicare as a
Secondary Payer (MSP) to Medicare as a Primary
Payer (MPP)
• Today, people 65+ get Medicare unless they work.
If they work, then the employer sponsored health plan
must include them.
• MPP would mean that those 65 and over would be
covered by Medicare whether they work or not
Simply Change the Terminology of Social
Security – Change Full Retirement Age to 70
Monthly Benefits for Different Commencement Ages
2,800
Possible New Definition of
Benefits at “Full Retirement Age”
2,600
2,400
2,200
Benefits at Official
Full Retirement Age
2,000
1,800
Why Not Have the Full Retirement Age Correspond
to the Maximum Monthly Benefit?
1,600
1,400
62
63
64
65
66
67
68
69
70
We Need To Change Labor Market
Institutions to Reflect Longer Lifetimes
•
•
•
•
Change Social Security – Paid Up
Change Medicare – MPP
Change the “Full Retirement Age”
Facilitate Part Time Opportunities for Senior
Workers
• Retrain workers in their mid-career
• Look at how Japanese labor markets work
Only Economists Could Turn Living
Longer Into a Problem!