How the Life-Expectancy Gap for Rich and Poor Skews Social Security

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A growing body of research in recent years points to the striking fact that wealthier people are living significantly longer than less wealthy people, and the gap appears to be widening. Just this week, a study led by Stanford University economist Raj Chetty, showed that life expectancy differed for the top 1% and bottom 1% of the income distribution by 15 years for men and by 10 years for women.

Now, a new study from the Government Accountability Officeshows the dramatic effect this is having on Social Security. To show the effect of changing U.S. life expectancy, the GAO studied the benefits that men earning $20,000 or $80,000 could expect to receive from the Social Security system over the course of their lives.

Typically, such benefits would be calculated based on the average life expectancy for U.S. men., but GAO calculated the benefits by looking at the life expectancy that’s actually typical for men at different income levels.

An income of $20,000 is roughly the 25th percentile. At age 62, the average U.S. man will live another 21 years. The benefits he would expect to earn over the rest of his life would be about $156,000. But as the research of Mr. Chetty and others has shown, the average man at this income range won’t live quite that long. Based on the average life expectancy of low-income men, they should expect to collect only $138,000 from Social Security.

Waiting to retire still improves Social Security’s payout, on average. Retiring at age 70 would result in $214,400 in benefits with an average life span, but only $184,800 given the typical life span.
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