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the life expectancy
at age 65 has increased
an average of about
one month every year.
over the 70-year period,
that amounts to
nearly six years.
In 1983, while Congress was changing benefits, it changed
the normal retirement age. For persons born after 1937, the
retirement age rises two months per year from age 65 to age
66 and then plateaus for 12 years. Subsequently, it rises again
two months per year from age 66 to age 67, where, under current law, it remains. However, in 1980, the life expectancy had
already improved to the point that a 71-year-old had a longer
life expectancy than the 65-year-old in 1930. And in 1990, that
life expectancy had risen beyond age 72. Using the 27 percent
proportion of working lifetime, the optimum age for retirement in 1980 was 68 years.
Over the 70-year period, death rates at most ages have been
declining approximately 1 percent to 2 percent per year. Given the resources being committed to health care, it would be
unreasonable to assume that this will change. If the trend continues just to 2010, the life expectancy at age 74½ will equal
what it was at age 65 in 1930.
We are dealing with a dynamic population with increasing lifetimes and declining mortality. The 1980 changes were
belated and inadequate. A solution that maintains balance
requires a dynamic design. The intergenerational equity ratio
(a constant ratio of something like 27 percent) of post-retire-ment life expectancy to life expectancy at the beginning of
working life is simple to define and administer and goes a
long way toward establishing that balance.
Social Security is a political creation affected by many factors. This is one of several changes necessary to stabilize the
system. But it’s one that will go farther than any other in establishing equity between generations while significantly reducing
the problems of financing. Because once the target ratio is set,
with the rest self-adjusting, it will also reduce political anguish.
It can be easily administered on a regular schedule by the Social Security Administration. Any uncertainty introduced for
younger lives would be no greater than presently exists.
THOMAS H. SHELBY III, a member of the academy and
an enrolled actuary, is a consulting actuary with t H shelby
& Co. in Dallas.