For millions of Americans Social Security represents an economic safety net. Yet recent research shows its benefits are tilting more and more in favor of the wealthiest retirees. And it’s due to how long we live.
According to new analysis from the Center for Retirement Research at Boston College, big gains in life expectancy among the richest Americans, compared to much more modest ones for the less well off, have given the wealthy more time to collect Social Security benefits.
Life expectancy for the wealthy born just over a century ago, in 1912, was only 0.7 years longer than for their contemporaries with below median earnings. That figure has grown to 5.3 years for those born in 1941.
Just how much does this add up to in Social Security benefits? As the chart above shows, someone born in 1960 whose earning put them the lowest income quintile can expect to collect $122,000 in retirement, on average, measured in 2009 dollars. That same person born in 1930 is likely to end up collecting $126,000 in Social Security benefits.
The $4,000 difference equates to a drop of about 3%.
Meanwhile, wealthier Americans have seen their expected benefits significantly increase.
To be sure, top earners have always been able to expect bigger Social Security benefits: They pay more into the program.
But as they live longer and longer, the size of their payouts have steadily increased. Top earners born 1960 can expect to collect $295,000 throughout their lives, up from $229,000 for someone born 30 years earlier -- an increase of 29%.
Why the Difference Exists
Americans born in the 1960s and later are living longer in part because of improved healthcare. Healthcare quality has improved for all income groups. However, wealthy Americans and those living in areas with more generous publicly funded health benefits, have tended to fare the best, says study author Matthew Rutledge.
Another big reason Americans are living longer has to do with smoking. Millions of Americans gave the habit up when health risks became clear in the 1960s and 1970s. But the data show that lower income folks were slower to give up smoking than higher income individuals. Since the reduction of smoking takes a long time to play out in the real world, the figures are still capturing a lot of heavy smokers among the lowest quintile, adds Rutledge.
What About You
While you don't necessarily have control over how much money you make -- or how long you will live, there are things you can do to make sure you get the most you can out of Social Security.
The biggest is waiting as long as possible to start collecting. It's possible to start collecting Social Security as young as 62, instead of waiting until the full retirement age of 66 (for someone born between 1943 and 1954). But that means accepting a big penalty -- benefits that are only 75% of those you would stand to receive four years later.
Of course, if you're health is flagging you may not have any choice. Given, the fact that wealthier Americans also tend to be healthier -- it's yet another regressive feature of the system, says Rutledge.