Longevity-Related Options for Social Security: a Microsimulation Approach to Retirement Age and Mortality Adjustments

We consider the distributional implications of Social Security policy changes in the context of increases in life expectancy and differential mortality. Using a robust microsimulation model, we examine how several options for raising the retirement age, including a scenario that applies a mortality adjustment in combination with such policies, affect different types of individuals and households. Policy changes are simulated for Social Security beneficiaries in 2030 using the Modeling Income in the Near Term (MINT) microsimulation model. The analysis shows that increasing either the age at which individuals receive their full retirement benefit alone or the early eligibility and full retirement ages together result in across-the-board reductions in benefit levels. The policies are projected to result in slightly higher poverty, but the expected rise is sharper among groups known to experience higher rates of mortality, as well as many disadvantaged groups. Analysis of a hypothetical adjustment to offset the historical impacts of differential mortality by lifetime earnings on lifetime benefit receipt, when combined with these retirement age increases, shows varied results. While some groups of individuals experience sharper reductions in median monthly benefits, the adjustment has an offsetting and protective effect for the benefits of disadvantaged groups when combined with options that would raise the retirement age. This combined package of policies, as well as simulations that incorporate a behavioral adjustment in benefit claiming ages, result in an increase of less than one percentage point in the average poverty rate.