Chart of the Day: Adjusting Social Security for Age Inflation

When Social Security was enacted in 1935, the average 65-year-old could expect to live another 12 years. In 2005, that life expectancy had increased by 7 years.

Starting in 1975, the U.S. started a cost-of-living-adjusting to account for price inflation. What would happen if Congress enacted a cost-of-not-dying-adjustment to account for age inflation?

The following chart from a new NBER working paper by John Shoven of Stanford and Gopi Shah Goda of Harvard shows that had the government started adjusting the eligibility age in 1940, the percentage of the population who would receive social security would be cut by half by 2050. If adjustments were made starting in 2004, then the people eligible would drop to 17 percent. (The same idea applied to Medicare produces similar results.)

Should the U.S. do this? Are we capable of holding off retirement, both in terms of health and finances, than we were before?

Although the poverty rate for the 65-and-above population has dropped from 30 percent in the mid-60's to 10 percent today, obesity rates, have risen sharply.

Recent data from the C.D.C. show that in 2000, a 70-year-old male had a life expectancy of 13.1 years and an "active life expectancy," which roughly translated is number of years of good health, of 8.2 years.

If the number of inactive life years has remained roughly the same since 1935, then that would mean that it should be easier to digest a jacking up of the age that would qualify older Americans for entitlement programs.

But Shoven and Goda say that although there's evidence that the rise in active life expectancy has matched the increase in total life expectancy, the data isn't there to come to any sort of conclusive answer.

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