Unequal Lives, Unequal Benefits: Life Expectancy and Social Security Rules

Virginia Sanchez-Marcos and Javier Fernández-Blanco

No 1556, Working Papers from Barcelona School of Economics

Abstract: Social Security retirement programs are designed to provide full insurance against longevity risks through a progressive scheme. In line with previous work on earnings and race, we document, using HRS data, 2.5- and 5.5-year life-expectancy gaps by wealth and health at age 56, respectively. Such significant differences in life expectancy reduce the progressivity feature of the program. We examine the welfare costs of ignoring life expectancy conditional on wealth and health at the claiming age in a parsimonious way, by adding a wealth- or health-based correction factor to the current program. We build a rich life-cycle model in which married men decide their savings, labor supply and benefits-claiming age, and are heterogeneous in many dimensions, in particular in their fixed health type. We find that the welfare losses of ignoring differences in life expectancy by wealth and health at the claiming age are equivalent to a permanent consumption fall of 2.22% and 0.30%, respectively. Moreover, the effects are very heterogeneous across health types.

Keywords: health; labor force participation; Life Expectancy; retirement benefits; Wealth (search for similar items in EconPapers)
JEL-codes: I14 J22 (search for similar items in EconPapers)
Date: 2026-01
New Economics Papers: this item is included in nep-dge and nep-lma
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