Because Americans are, on average, living longer and having fewer children, the average age of the population is rising and that trend is expected to continue. As of 2015, people age 65 and over accounted for 15 percent of the population, but by 2045 they are expected to comprise more than 20 percent of the population. Life expectancy is the average estimated number of years of life for a particular demographic or group of people at a given age. Life expectancy can be expressed in two different ways: (1) as the average number of years of life remaining for a group, or (2) as the average age at death for a group. Life span for a particular individual within a group may fall above or below this average. Researchers use a variety of statistical methods and assumptions in making their estimates, such as how longevity trends are expected to change in the future. Researchers also may use different data sources to develop life expectancy estimates. For example, some may use death data maintained by SSA, while others may use Centers for Disease Control and Prevention (CDC) mortality data or Census data. As noted, life expectancy can be estimated from different initial ages, such as from birth or from some older age. For a given population, the earlier the starting age, the greater the remaining years of life expectancy, but the lower the average age at death. This is because, when projected from birth, measures of life expectancy reflect the probability of death over one’s entire lifetime, including from childhood infectious diseases. In contrast, life expectancy calculated at older ages, such as age 65, generally predicts that individuals will live to an older age than when life expectancy is calculated at birth, since the averages for older persons do not include those who have died before that age. As a result, the average age that will be reached from birth will be lower than the average age that will be reached by those who have already reached age 65. Studies have found various factors associated with disparities in life expectancy. For example, women tend to live longer than men, although that gap has been getting smaller, according to SSA data. In addition, 65-year-old men could expect to live until age 79.7 in 1915, on average; in 2015, they could expect to live until age 86.1—an increase of about 6.4 years. Meanwhile, 65-year-old women could expect to live until age 83.7 in 1915, on average; in 2015, they could expect to live until age 88.7—an increase of about 5 years. Other factors that have been shown to be associated with differences in life expectancy include income, race, education, and geography. A recent study examined trends in life expectancy at the county level from 1985 to 2010 and found increasing disparities across counties over the 25-year period, especially in certain areas of the country. The lowest life expectancy for both men and women was found in the South, the Mississippi basin, West Virginia, Kentucky, and selected counties in the West and Midwest. In contrast, substantial improvements in life expectancy were found in multiple locations: parts of California, most of Nevada, Colorado, rural Minnesota, Iowa, parts of the Dakotas, some Northeastern states, and parts of Florida. The study found that while income, education, and economic inequality are likely important factors, they are not the only determinants of the increasing disparity across counties. Certain environmental factors, such as lack of access to health care, and behaviors such as smoking, poor diet, and lack of exercise, have also been shown to be associated with shorter life expectancy. In the United States, income in retirement may come from multiple sources, including (1) Social Security retirement benefits, (2) payments from employer-sponsored defined benefit (DB) plans, and (3) retirement savings accounts, including accounts in employer-sponsored defined contribution (DC) plans, such as 401(k) plans; and individual retirement accounts (IRA). Social Security pays retirement benefits to eligible individuals and family members such as their spouses and their survivors, as well as other benefits to eligible disabled workers and their families. According to SSA, in 2014 about 39 million retired workers received Social Security retirement benefits. Individuals are generally eligible to receive these benefits if they meet requirements for the amount of time they have worked in covered employment—i.e., jobs through which they have paid Social Security taxes. This includes jobs covering about 94 percent of U.S. workers in 2014, according to SSA. Social Security retirement benefits offer two features that offset some key risks people face in retirement: (1) they provide a monthly stream of payments that continue until death, so that there is no risk of outliving a person’s benefits; and (2) they are generally adjusted annually for cost-of-living increases, so there is less risk of inflation eroding the value of a person’s benefits. Social Security retirement benefits are based on a worker’s earnings history in covered employment. The formula for calculating monthly benefits is progressive, which means that Social Security replaces a higher percentage of monthly earnings for lower-earners than for higher- earners. As we reported in 2015, retired workers with relatively lower average career earnings receive monthly benefits that, on average, equal about half of what they made while working, whereas workers with relatively high career earnings receive benefits that equal about 30 percent of earnings. In 2013, SSA reported that the program provided at least half of retirement income for 64 percent of beneficiaries age 65 or older in 2011 and that 35 percent of beneficiaries in this age range received 90 percent or more of their income from Social Security. For retired workers, Social Security pays full (unreduced) benefits at the full retirement age, which ranges from 65 to 67 depending on an individual’s birth year. Workers can claim Social Security retirement benefits as early as age 62, resulting in a reduced monthly benefit, or can delay claiming after they reach full retirement age, resulting in an increased monthly benefit until age 70 (i.e., no further increases are provided for delayed claiming after age 70). According to SSA documentation, the Social Security benefit formula adjusts the amount of monthly benefits to reflect the average remaining life expectancy at each claiming age. More specifically, benefits are adjusted up or down based on claiming age so that, on average, the actuarial present value of a beneficiary’s total lifetime benefits is about the same regardless of claiming age. For example, workers currently age 62 who would reach full retirement age at 66 would receive a monthly benefit about 25 percent lower if claiming early, at age 62, compared with the benefit that would be paid at their full retirement age. Those delaying claiming until age 70 would receive about 32 percent more per month than their full retirement age benefit, according to SSA. Despite higher monthly benefits for those who delay claiming, in 2014, age 62 was the most prevalent age to claim Social Security retirement benefits: About 37 percent of total retired worker benefits awarded were awarded at age 62. When workers die before reaching age 62, they may not receive any of the Social Security retirement benefits that they would have been entitled to receive had they lived longer. In cases where a worker dies before or during retirement, there are survivors benefits that provide widows and widowers up to 100 percent of the deceased spouse’s benefit. Defined benefit (DB) plans are generally tax-advantaged retirement plans that typically provide a specified monthly benefit at retirement, known as an annuity, for the lifetime of the retiree. Qualified private sector DB plans may be single-employer or multiemployer plans. Single-employer plans make up the majority of private sector DB plans (about 94 percent) and cover the majority of private sector DB participants (75 percent of about 41.2 million workers and retirees in 2014). The amount of the annuity provided by a DB plan is determined according to a formula specified by the plan, and is typically based on factors such as salary, years of service, and age at retirement. Plan sponsors generally bear the risks associated with investing the plan’s assets and ensuring that sufficient funds are available to pay the benefits to plan participants as they come due. As indicated in figure 1, over the past several decades employment-based retirement plan coverage, especially in the private sector, has shifted away from DB plans to defined contribution (DC) plans, which generally require participants to bear the risks of managing their assets. Retirement savings accounts can provide individuals with a tax- advantaged way to save for retirement, but, unlike DB plans, they generally require individuals to manage their own assets. There are two primary types of retirement savings vehicles: employer-sponsored DC plans, such as 401(k)s, and individual retirement accounts (IRA). DC plans’ benefits are based on contributions made by workers (and sometimes by their employers) and the performance of the investments in participants’ individual accounts. Workers are generally responsible for determining their contribution rate, managing their savings and investments, and deciding how to draw down their assets after retirement. There are also tax-advantaged retirement savings accounts that are not employer-sponsored, such as traditional IRAs and Roth IRAs. Eligible individuals may make contributions to traditional IRAs with pre-tax earnings and any savings in traditional IRAs are tax-deferred—that is, taxed at the time of distribution. Eligible individuals’ contributions to Roth IRAs are made with after-tax earnings and are generally not taxed at the time of distribution. Individuals may choose to roll over their employer- sponsored DC plans into an IRA when they leave employment. The projected continuing increase in life expectancy for both men and women in the United States contributes to longevity risk in retirement planning. For the Social Security program and employer-sponsored defined benefit plans, longevity risk is the risk that the program or plan assets may not be sufficient to meet obligations over their beneficiaries’ lifetimes. For individuals, longevity risk is the risk that they may outlive any retirement savings they are responsible for managing, such as in a DC plan. Increasing life expectancy adds to the long-term financial challenges facing Social Security by contributing to the growing gap between annual program costs and revenues. Although life expectancy is only one factor contributing to this gap, as individuals live longer, on average, each year there are more individuals receiving benefits, adding to the upward pressure on program costs. According to the 2015 report from the Board of Trustees of the Federal Old-Age and Survivors Insurance (OASI) and Federal Disability Insurance (DI) Trust Funds, the Social Security OASI trust fund is projected to have sufficient funds to pay all promised benefits for nearly two decades, but continues to face long-term financial challenges. In 2010, program costs for the combined OASI and DI trust funds began exceeding non-interest revenues and are projected to continue to do so into the future (see fig. 2). The 2015 Trustees Report projected that the OASI trust fund would be depleted in 2035, at which point continuing revenue would be sufficient to cover 77 percent of scheduled benefits. To help address the long-term financial challenges facing the Social Security retirement program, various changes have been made over the years. For example, the Social Security Amendments of 1983 established a phased-in increase in the full retirement age, gradually raising it from age 65 (for workers born in 1937 or earlier) to age 67 (for workers born in 1960 and later). Also, challenges facing the DI trust fund have affected OASI. For example, in late 2015, Congress passed a law that reallocates some tax revenue from the OASI trust fund to the DI trust fund, thus delaying benefit reductions to DI beneficiaries that were projected to occur in 2016 until 2022. In addition, a wide range of options to adjust Social Security further have been proposed. To illustrate this range of options, table 1 provides examples from among the options and summarizes their effect according to SSA’s Office of the Chief Actuary (OCACT). Some options would reduce benefit costs, such as by making adjustments to the retirement age. Other options would increase revenues, such as by making adjustments to payroll tax contributions. The table shows the most recent OCACT analysis, which is based on the intermediate assumptions of the 2015 Trustees Report and reflects the impact on both the OASI and DI trust funds combined over the next 75 years. The trustees estimate that, using intermediate projections, the shortfall toward the end of their 75-year projections would reach 4.65 percent of taxable payroll for 2089. The options are based on proposals introduced in Congress or suggested by experts, but are not exhaustive. Each has advantages and disadvantages, and GAO is not recommending or endorsing the adoption of any of the specific options presented. Although there are many factors at play in the decline of defined benefit (DB) plans, increasing life expectancy adds to the challenges these plans face by increasing the financial obligations needed to make promised payments for their beneficiaries’ lifetimes. For example, plan sponsors and industry experts estimate that the Society of Actuaries’ 2014 revised mortality tables, if adopted for DB plans, would increase plan obligations by 3.4 to 10 percent, depending on the characteristics of a plan’s participants. As of 2012, more than 85 percent of single-employer DB plans were underfunded by a total of more than $800 billion, according to the most recent data available from the Pension Benefit Guaranty Corporation (PBGC). DB plan sponsors have increasingly been taking steps, known as “de-risking,” to either reduce risk or shift risk away from sponsors, often to participants. De-risking can be classified as internal or external. Internal de-risking approaches include reducing risk by (1) shifting plan assets into safer investments that better match certain characteristics of a plan’s benefit liabilities, and (2) restricting growth in the size of the plan by restricting future plan participation or benefit accruals, such as by “freezing” the plan (variations of which include closing the plan to newly- hired workers or eliminating the additional accrual of benefits by those already participating in the plan). In 2012, more than 40 percent of single- employer DB plans were frozen in some form, according to the most recent data available from PBGC, and many frozen plans are ultimately terminated, which can shift the risk of ensuring an adequate lifetime retirement income to individuals, as discussed below. External de-risking involves closing the plan completely (referred to as terminating the plan) or reducing the size of the plan by transferring a portion of plan liabilities, plan assets, and their associated risk to external parties—typically either to participants or to an insurance company. For example, an employer may terminate its DB plan, if it can fund all of the benefits owed through the purchase of a group annuity contract from an insurance company (sometimes called a “group annuity buy-out”). Short of termination, an employer can also transfer a portion of plan assets and liabilities to an insurance company for a certain group of plan participants, such as former employees with vested benefits. Alternatively, an employer may, under certain circumstances, terminate its DB plan by paying all the benefits owed in another form, such as by providing a lump sum to each participant or beneficiary of the plan, if the plan permits. The employer could also opt to make a lump sum buy-out offer only to certain plan participants. When such an offer is made, plan participants have a specified amount of time, known as the lump sum “window,” to choose between keeping their lifetime annuity or taking a lump sum. Participants who accept the lump sum assume all of the risk of managing the funds for the remainder of their lives. A key reason that individuals face challenges in planning for retirement is that many people do not understand their life expectancy, the number of years they will likely spend in retirement, or the amount they should save to support their retirement. For example, a survey conducted by the Society of Actuaries showed that there is a greater tendency for retired respondents to underestimate rather than overestimate their life expectancy. In addition, many individuals will live beyond their life expectancy in any case, since it is an average. Further, as we reported in 2015, older workers tend to retire sooner than they expected. Coupled with increasing life expectancy, this means they will likely spend more years in retirement than anticipated. In 2015, more than a third of workers surveyed by the Employee Benefit Research Institute reported that they expected to retire at age 66 or later and an additional 10 percent expected to never retire; however, only 14 percent of current retirees reported that they retired after age 65. Similarly, 9 percent of workers said they expected to retire before age 60, while 36 percent of current retirees reported they retired earlier. The median age of retirement reported was age 62. Additionally, only 48 percent of those surveyed had calculated how much in savings they would need for retirement. Beyond underestimating life expectancy, individuals preparing for retirement face a number of additional challenges in accumulating retirement savings sufficient to sustain them for their lifetime. In previous work we found that many households near or in retirement have little or no retirement savings (see table 2). Nearly 30 percent of households headed by individuals age 55 and older have neither retirement savings nor a DB plan. About half of private sector employees do not participate in any employer- sponsored retirement plan. In previous work, we found that among those not participating, 84 percent reported that their employer did not offer a plan or they were not eligible for the program their employer offered. Those that do participate in employer-sponsored retirement plans are increasingly offered access only to DC plans, which—unlike DB plans—do not typically provide a guaranteed monthly benefit for life. For many of these participants, the level of savings accumulated in their DC retirement accounts at the time they leave the workforce will not be sufficient to sustain their retirement. Moreover, employer-sponsored DC plans typically offer only an account balance at retirement, leaving participants to identify longevity risks and manage how they will draw down their funds over the course of their retirement. To help address individuals’ difficultly in estimating their life expectancy and the resources needed to avoid outliving their savings, the federal government, plan sponsors, and others have developed certain tools to aid with retirement planning. For example, benefits calculators assist participants in translating their savings into potential annual retirement income. One such calculator, available on the U.S. Department of Labor’s website, assumes survival to age 95, which is beyond the average life expectancy for individuals currently age 65. To encourage saving among those who lack access to employer-sponsored plans, in November 2015, myRA, a federal government-managed retirement savings program, was opened to individuals below a certain income threshold. Also, as we reported in 2015, a number of states are exploring strategies to expand private sector coverage for people who otherwise do not have access to a plan. In addition, for those with employer-sponsored plans, the Pension Protection Act of 2006 included provisions that made it easier for certain DC plan sponsors to implement automatic enrollment and automatic escalation so that workers can be defaulted into plan participation with rising contributions over time. Default investment arrangements, including target date funds which invest according to length of time until retirement, can also help participants to maintain a balanced investment portfolio with a level of risk that is appropriate to their retirement dates. Moreover, to provide greater assurance that individuals with DC plans will not outlive their savings, some plan sponsors are adding an annuity option at retirement. In addition, Internal Revenue Service (IRS) regulations that went into effect in July 2014 allow for a Qualified Longevity Annuity Contract whereby participants in 401(k) and other qualified DC plans and traditional IRAs may use a portion of their accounts to purchase annuities that begin payout no later than age 85. In sum, despite the efforts by the federal government, plan sponsors, and others to encourage greater retirement savings, many individuals may not be adequately prepared for retirement. The trend toward increasing life expectancy may mean that more individuals outlive their savings, with only their Social Security benefits to rely on. Lower-income individuals have shorter-than-average life expectancy, which means that they can expect to receive Social Security retirement benefits for substantially fewer years than higher-income individuals who have longer-than-average life expectancy. As a result, when disparities in life expectancy are taken into account, our analysis indicates that, on average, projected lifetime Social Security retirement benefits are reduced for lower-income individuals but are increased for higher-income individuals, relative to what they would have received if they lived the average life expectancy for their cohort. Also, our analysis indicates that one frequently suggested change to address Social Security’s financial challenges, raising the retirement age, would further reduce projected lifetime benefits for lower-income groups proportionally more than for higher-income groups. People with lower incomes can expect to live substantially fewer years as they approach retirement than those with higher incomes, on average, according to studies we identified and reviewed. For example, these studies estimate that lower-income men approaching retirement live between 3.6 and 12.7 fewer years than those in higher-income groups, on average, depending on birth year and other factors such as whether income groups were calculated by top or bottom half, quartile, quintile, or decile (see table 3). Similarly, studies we reviewed found that lower- income women also live fewer years than higher-income women, on average, with the differences ranging more widely, from 1.5 years to 13.6 years. However, there are factors that make projecting life expectancy for women by income more difficult than for men. It is not unexpected for life expectancy estimates to vary as they depend, among other things, on the particular data sources, populations, and age ranges analyzed. While the studies we reviewed found a range of life expectancy differences by income, each of them finds that disparities exist. Moreover, disparities in life expectancy by income have grown, according to the studies that examined trends over time (see table 3). Specifically, all of the six studies we reviewed that examined trends over time found growth in life expectancy differences, ranging from 0.9 to 7.6 years for men, depending on the age, birth years, and measure of income used. For example, a 2007 study by SSA’s Hilary Waldron found that for men age 65 who were born in 1912, there was only a 0.7 year difference in expected years of life remaining between top and bottom earners, but for those born in 1941, the expected difference grew to 5.3 years (see fig. 3). Similarly, for women, the studies we reviewed found differences in life expectancy by income were greater in more recent years, and the range in years was wider than for men. This is perhaps unsurprising, as some analysts have noted that disparities in household income also increased over time. According to a 2014 Congressional Budget Office (CBO) report, between 1979 and 2011, average real after-tax earnings for the top one percent of households grew about four times as fast as those in the lowest fifth. While higher-income groups have experienced significant growth in their life expectancy at older ages, lower-income groups have either experienced less growth or declines in recent decades, according to studies we reviewed. For example, Waldron’s 2007 study projected that 65-year-old men born in 1941 with below-median earnings would live 1.3 years longer than their counterparts born in 1912, while 65-year-old men born in 1941 with above-median earnings would live 6 years longer than their counterparts born in 1912. Some other studies estimate that life expectancy declined for those in the bottom of the income distribution. For instance, a 2015 study by the National Academy of Sciences found that life expectancy at age 50 has declined for both men and women in the bottom income quintile. Specifically, men and women in the bottom income quintile saw life expectancy decreases of 0.5 and 4 years, respectively, when comparing the 1930 and 1960 cohorts. While the studies we reviewed do not all agree about whether life expectancy is decreasing or increasing slightly for the lowest earners, they all agree that the higher-income groups are gaining more years than the lower-income groups. Some studies show that there are disparities in life expectancy by other characteristics that have been linked with income, such as race and education. For example, the CDC reported that the life expectancy for 65- year-old black individuals was 1.2 years less than for their white counterparts in 2013. Other studies have also examined links with education and found that individuals with a high school degree or less tend to have shorter lives than those with a college education. However, because the primary focus of our analysis was on life expectancy for adults approaching retirement by income group, we did not conduct a complete review of the studies related to other characteristics. Lower-income individuals generally rely on Social Security as their primary source of retirement income, so their retirement security is affected most by how that program is structured. We found that when differences in life expectancy by income are factored in, the amount of projected lifetime benefits received by lower-income individuals is reduced, while the amount of projected lifetime benefits received by higher-income individuals is increased. As a result, although the formula for calculating monthly Social Security retirement benefits is progressive—replacing a greater percentage of a lower-income than a higher-income worker’s pre-retirement income on a monthly basis— differential life expectancy reduces the progressivity of Social Security benefits received over a lifetime. Social Security is the largest determinant of lower-income individuals’ retirement security because, for most such individuals, it is the main source of their retirement income. In a previous report, we analyzed data from the 2013 Survey of Consumer Finances and estimated that 86 percent of recent retiree households in the lowest income quintile rely on Social Security for the majority of their income. About half of recent retiree households in the lowest income quintile rely on Social Security for more than 90 percent of their income. Overall, in that report we found that those with lower incomes have more limited resources for retirement aside from Social Security. Recent retiree households in the lowest income quintile are much less likely to have retirement savings and DB plans than those in higher quintiles. Specifically, as we previously found, only 9 percent have any retirement savings (compared to 84 percent in the top income quintile) and 19 percent have a DB plan (compared to 65 percent in the top income quintile), which typically provides a monthly stream of retirement income for life. Households without retirement savings have few other resources, we found, which puts them at a high risk of outliving their non- Social Security resources. One reason for the lack of retirement savings among lower-income individuals is their lack of access to employer- sponsored retirement savings plans. As we reported in 2015, coverage by and participation in workplace retirement savings programs are also lower among lower-income workers. Specifically, workers in the lowest income quartile were nearly four times less likely than workers in the highest income quartile to work for an employer that offers a retirement savings program, after controlling for other factors. Similarly, we found that approximately 14 percent of workers in the lowest income quartile participated in a workplace retirement savings program compared to 76 percent of those in the highest income quartile. According to our analysis, shorter-than-average life expectancy for lower- income individuals results in a projected reduction in lifetime Social Security benefits received. We calculated the projected lifetime Social Security benefits that would be received for men in various hypothetical scenarios to illustrate the effect of lower-than-average life expectancy on lower-income groups (which we defined as those with individual annual incomes at the 25th percentile, or about $20,000, according to Census data). Our analysis indicates that, on average, the projected lifetime benefits for these lower-income individuals would be reduced by as much as 11 to 14 percent due to their shorter-than-average life expectancy (or “differential” life expectancy) when compared to what they would receive if they had an average life expectancy (see fig. 4). For example, our calculations show that for a hypothetical 62-year-old man in the lower-income group: If he were to claim Social Security benefits now, and live to age 83 (the average life expectancy for men age 62 in the United States), he would receive an estimated $156,000 over his lifetime, or about 7.8 times his current income. If he were to claim Social Security benefits now, and live to age 80 (the differential life expectancy for 62-year-old men in his income group), he would receive an estimated $138,000 over his lifetime, or about 6.9 times his current income, a reduction of 11 percent. However, if a man in the lower-income group delayed claiming Social Security until age 70, the maximum age that will result in increased monthly benefits, and then lived until age 83 (the differential life expectancy for 70-year-old men in his income group), he would receive an estimated $185,000, or a 14 percent reduction in his lifetime benefits when compared to what he would receive if he lived until age 85 (the average life expectancy for 70-year-old men). We also calculated the projected lifetime Social Security benefits that would be received for men in the same hypothetical scenarios to illustrate the effects of differential life expectancy on higher-income groups (which we defined as those with individual annual incomes at the 75th percentile, or about $80,000, according to Census data). In contrast to lower-income individuals, higher-than-average life expectancy for higher-income individuals results in an increase in lifetime Social Security benefits received when compared to average life expectancy—as much as 16 to 18 percent (see fig. 5). For example, our calculations show that for a hypothetical 62-year-old man in the higher-income group: If he were to claim Social Security benefits now and live to age 83 (the average life expectancy for men age 62 in the United States), he would receive an estimated $355,000 over his lifetime, or about 4.4 times his current income. If he were to claim Social Security benefits now and live to age 86 (the differential life expectancy for 62-year-old men in his income group), he would receive an estimated $411,000 over his lifetime, or about 5.1 times his current income, an increase of 16 percent. However, if a man in the higher-income group delayed claiming Social Security until age 70, the maximum age that will result in increased monthly benefits, and then lived until age 88 (the differential life expectancy for 70-year-old men in his income group), he would receive an estimated $595,000, or an 18 percent increase in his lifetime benefits when compared to what he would receive if he lived until age 85 (the average life expectancy for 70-year-old men). Rather than claiming benefits when first eligible at age 62, it is often beneficial for individuals to delay claiming Social Security benefits because it results in larger monthly benefits. However, lower-than- average life expectancy may reduce the value of delayed claiming of benefits for lower-income individuals. For example, in our scenarios, shorter life expectancy reduces the added lifetime benefit of delaying claiming until age 70 (compared to early claiming at age 62) by nearly two-thirds of one year’s earnings for a lower-income man. In addition, it may be more difficult for a low-income individual to delay claiming, for example, after a job loss or a depletion of retirement savings. While many factors may influence someone’s decision about when to claim benefits—such as when a spouse claims—deciding when to claim benefits may be particularly important for women, who tend to have lower earnings but longer lives than men. Social Security’s formula for calculating monthly benefits is progressive— that is, it provides a proportionally larger monthly earnings replacement for lower-earners than for higher-earners. However, our analysis of SSA data indicates that life expectancy differences reduce the size of this progressivity over a beneficiary’s lifetime (see fig. 6). Specifically, differential life expectancy results in reduced projected lifetime benefits for lower-income groups and increased projected lifetime benefits for higher-income groups, relative to average life expectancy, thereby decreasing the lifetime progressivity of the program. Moreover, studies we reviewed suggest the gap in life expectancy has grown. If the gap continues to grow, the progressivity in Social Security’s lifetime benefits will likely continue to decrease. Although present value adjustments are an important economic tool to account for the time value of money, we chose to use unadjusted figures in our scenarios for several reasons, but primarily because of our focus on the effects of differential life expectancy, including the importance of benefits at older ages. Our analysis shows that it is at these older ages when life expectancy differences predict that some income groups will receive, on average, more or fewer years of benefits. However, in appendix II, we also provide calculations with adjustments for present value. These present value adjusted figures are consistent with our basic findings—that differential life expectancy reduces the lifetime progressivity of Social Security retirement benefits—though the magnitude of the reduction in progressivity is somewhat smaller because the adjustments discount the value of money received in the future. Six studies we reviewed also examined the impact of life expectancy differences by income group, and they also generally found that differences in life expectancy by income erode the lifetime progressivity of Social Security benefits. For example, the 2015 National Academy of Sciences study found that the lifetime retirement benefits advantage of the top income quintile over the bottom income quintile had grown by $70,000 (on a present value basis) because of increases in life expectancy differences between 1930 and 1960. Moreover, when considering lifetime benefits from additional government programs, the study found that the change in life expectancy has made these programs less progressive. Another study, conducted for the National Bureau of Economic Research in 2011, indicated that when differences in life expectancy are taken into account, Social Security retirement benefits may have become regressive for some groups. For example, the study found that men in the 75th income percentile earned a higher rate of return from Social Security (based on benefits received compared to taxes paid) than do men in the 25th income percentile. One frequently-cited option to address increasing average life expectancy and Social Security’s long-term financial challenges is increasing the early and full retirement ages. While other options exist, such as changing payroll tax contributions or the structure of benefits , raising the retirement age can be considered a direct response to increasing life expectancy. We adjusted our hypothetical scenario calculations to illustrate the effect of increasing these retirement ages and found that taking such action could more negatively affect lower-income individuals because of their shorter life expectancy. Specifically, we calculated the effect of increasing all retirement ages by 2 years and found that the overall projected lifetime benefit is reduced more for lower-income men than for higher-income men, given their different life expectancy. For example, compared to the amount of benefits received under current program requirements, if retirement ages were increased by 2 years: A man in the lower-income group retiring at the increased full retirement age would receive lifetime benefits that are reduced by the equivalent of over two-thirds of his current annual income, assuming he lived to the average age expected for his income group. A man in the higher-income group retiring at the increased full retirement age would receive lifetime benefits that are reduced by the equivalent of nearly half of his current annual income, assuming he lived to the average age expected for his income group. A 2014 CBO study also examined the effect of raising the full and early retirement ages and found that it would reduce lifetime benefits more for lower-income groups than for higher-income groups, relative to payroll taxes paid. While the CBO study found that raising the early and full retirement ages together resulted in a slight benefit decrease both for lower- and higher-income individuals, it also found that, if life expectancy disparities continue to increase, raising the retirement ages would lead to larger declines in lifetime benefits for lower-income individuals than for higher-income individuals, relative to the Social Security taxes they pay. The 2015 National Academy of Sciences study similarly found that raising the full retirement age would lead to proportionately lower lifetime benefits for lower-income groups because of life expectancy differences. Specifically, the study found that raising the full retirement age to 70 resulted in reducing lifetime benefits for men with income in the bottom quintile by 25 percent, while reducing lifetime benefits for men with income in the top quintile by 20 percent. The National Academy of Sciences study further reported that raising the early retirement age together with the full retirement age would lead to similar results (a larger benefit decrease for lower-income groups than higher-income groups). While researchers sometimes suggest that workers could adjust to an increased retirement age by working longer, our prior work has shown that this may not be feasible for many who are low-income workers. In a 2014 report, we concluded that people who claim Social Security benefits early, such as those with physically-demanding blue collar jobs, may have done so because they faced challenges continuing to work at older ages. Similarly, in a 2010 report, we noted that many older workers could face health or physical challenges that would prevent them from working longer. For example, in that report we found that the workers who report more difficulty working longer and postponing retirement due to work-limiting health conditions tend to have less education and lower household income than those who do not report health limitations. For these individuals, raising the early or full retirement age could erode an important safety net. Some policies have been proposed to mitigate the potential adverse effects of raising the early or full retirement age on those with lower incomes and shorter life expectancies. For example, some researchers have suggested making early or full retirement ages lower for those with lower lifetime earnings, though others have suggested that this may be difficult to implement. Some experts we spoke with also suggested that eligible, lower-income individuals could receive Disability Insurance to bridge the gap created by raising the early retirement age, though the Disability Insurance program is also under financial pressure. As we reported in 2009, concerns about vulnerable populations have led to proposals to restructure Social Security benefits to help these groups. For example, we reported on proposals to guarantee a minimum benefit, supplement benefits for low-income single workers, or increase survivors benefits. Another identified proposal would provide an additional Social Security benefit to those over the age of 80 or 85, which may be particularly helpful for low-income women. These proposals could have a negative effect on the projected long-term solvency of Social Security, although compensating revisions could help moderate costs. Therefore, in sum, proposals to address Social Security’s financial challenges may affect different groups differently. Lower-income groups, in particular, may be more adversely affected by certain proposed changes because they are more reliant on Social Security retirement benefits and because they have shorter-than-average life expectancy. It is important that any proposals to change the Social Security program take into account how disparities in life expectancy affect the total benefits received by different groups over their lifetimes. We provided a draft of this report to the U.S. Department of Labor, the U.S. Department of the Treasury, the Internal Revenue Service, and the Social Security Administration for their review and comment. SSA provided comments, reproduced in appendix IV, agreeing with our finding that it is important to understand how the life expectancy in different income groups may affect retirement income. SSA also provided technical comments, as did each of the other agencies, which we incorporated as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to appropriate congressional committees, the Secretary of Labor, the Secretary of the Treasury, the Commissioner of the Internal Revenue Service, the Acting Commissioner of Social Security, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7215 or jeszeckc@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix V. To examine the effect of life expectancy on the retirement resources for different groups, especially those with low incomes, we analyzed 11 studies that estimated life expectancy or mortality for different income groups and 9 studies that described the effect of these differences regarding Social Security retirement benefits, and in some cases, the studies also included Social Security disability benefits. These studies are listed in table 4 below. We selected these studies based on our review of longevity studies identified through expert referral and an Internet search, focusing on those that were published in the past 10 years and that included an analysis of effects by income groups. We limited our review to those that were published by government agencies, research organizations, or other scholarly publications, used data from accepted sources (such as the University of Michigan Health and Retirement Study or SSA administrative data), and had findings we determined were valid for our purposes. To examine the effect of life expectancy on the retirement resources for different groups, especially those with low incomes, we developed scenarios to illustrate how disparities in average life expectancy by income group affect the average amount of lifetime Social Security retirement benefits received. While our report discusses various forms of retirement resources, for our scenarios we compare only projected lifetime Social Security benefits against current income. We do not factor in other resources that an individual may draw upon in retirement, which could include (but are not limited to) future payments from employer- sponsored defined benefit plans, retirement savings accounts, or housing equity. Scenarios that included these other retirement resources could show different outcomes. However, we focused on Social Security because it is the primary source of income for most people with lower- incomes. Moreover, other retirement resources are much less prevalent in this population. We reviewed relevant studies and U.S. Census Bureau (Census) data to determine our scenario assumptions, such as life expectancy by income group, and we calculated monthly Social Security benefits using the Social Security Administration’s (SSA) quick calculator. We chose to use the quick calculator because it is transparent, publicly available, and produces quick, approximate estimates using a methodology developed by SSA actuaries. These scenarios are illustrative in nature and should not be used to determine future outcomes for a particular individual. In addition to gathering input from internal experts, we sought and incorporated feedback on our methodology from one of the co-chairs for a recent study on life expectancy by income by the National Academy of Sciences. All figures are in 2015 dollars. We assessed the reliability of the data we used by reviewing relevant documentation and interviewing knowledgeable agency officials. We found the data to be reliable for the purposes used in this report. We made several assumptions in our scenario calculations, the most important of which is the life expectancy estimate for income groups. We identified and reviewed 11 relevant studies published in the past decade (see app. I) and ultimately used the life expectancy estimates from a 2007 study by SSA’s Hilary Waldron. We chose this study primarily because it produced cohort life expectancy estimates at a number of ages at which an individual can claim Social Security retirement benefits. Other advantages of the 2007 Waldron study are that it relies on comprehensive data on Social Security-covered workers that is not generally available to other researchers, it describes patterns over several decades, and it measures earnings over a multi-year period rather than just over a single year. Moreover, the study’s life expectancy estimates are in-line with other estimates and they are used in two of nine studies we identified that describe the effects of life expectancy disparities. Although we found it sufficient for our purposes, the 2007 Waldron study had some notable drawbacks. First, it produces estimates only for Social Security-covered men. Despite this drawback, we believe the estimates are appropriate for our purposes because the vast majority (94 percent) of workers are covered by Social Security, according to SSA, and because a number of researchers have raised questions about the reliability of life expectancy estimates by income group for women. Second, the estimates are broken-out by those in the top and bottom half of the earnings distribution. While it would have been useful to have a finer break-out by earning groups, the estimates were sufficient for our purposes to describe the effects on individuals with income at the 25th and 75th percentiles (which we describe as lower- and higher- income, respectively). One final drawback is that the study produces life expectancy estimates for individuals born in 1941, who are now past retirement age. It is possible that this cohort is different than past or future cohorts. In particular, given that most studies we reviewed found increasing disparities in life expectancy, our use of this study may underestimate the effect of life expectancy differences for more recent cohorts. In order to calculate lifetime benefits using SSA’s quick calculator, we assumed a set of characteristics for two hypothetical individuals, both men (given the limitations of life expectancy estimates for women). One individual was assumed to have an income in the bottom half of the individual income distribution, and the other an income in the top half. For the mid-point of each half of the income distribution (i.e., the 25th and 75th percentiles), we estimated income for men approaching retirement age using Census’s 2015 Current Population Survey, the most recent available. Based on this, we used $20,000 annual income for our lower- income group and $80,000 annual income for the higher-income group, using income as a proxy for earnings. The SSA quick calculator assumes a prior earnings history based on current earnings covered by Social Security, which we did not alter for transparency. Similarly, we assumed no future change in earnings. For both individuals, we assumed a birthday of 12/1/1953, which makes them 62 years old as of 12/1/2015. Finally, for both individuals, we assumed a retirement date of December for a series of years beginning at age 62, the Social Security early retirement age. In order to further understand the effects of life expectancy differences on income groups, we compared outcomes with and without taking life expectancy differences into account. Specifically, we further calculated lifetime benefits using SSA’s actuarially assumed (average) life expectancy and compared them to the benefits based on the life expectancies by lifetime earnings group from Waldron’s 2007 study. We describe the difference between these two outcomes as the change in benefits due to differential life expectancy. For simplicity and in order to focus on the effects of life expectancy differences in the report, we did not adjust the lifetime Social Security benefits for present value. Present value calculations reflect the time value of money, based on the assumption that a dollar in the future is worth less than a dollar today because the dollar today can be invested and earn interest. While present value adjustments are an important economic tool, we chose instead to report unadjusted figures for several reasons: for simplicity; so that average lifetime benefits could be viewed as a multiple of current income; and in order to focus on the effects of differential life expectancy, including the importance of benefits at older ages. It is at these older ages when life expectancy differences predict that some income groups will receive, on average, more or fewer years of benefits, which is the crux of our analysis. Further, present value adjustments were not incorporated by all of the studies we reviewed, and one expert we consulted suggested that it would be valuable to show both unadjusted and adjusted figures. However, as a check on our analysis, and in order to provide more complete information, we also performed our calculations with adjustments for present value. The results of these calculations are consistent with our basic finding—that differential life expectancy reduces the progressivity of projected lifetime Social Security retirement benefits. The lifetime benefit figures adjusted for present value are presented below. The present value adjustments are based on an assumed real (i.e., inflation-adjusted) interest rate of 2.9 percent, which is what SSA used as the intermediate long-range assumption for the Social Security trust funds in its 2015 Trustees Report. Workers pay a payroll tax of 6.2 percent of their covered earnings into the Social Security trust funds. Their employers pay an equal amount, for a combined total rate of 12.4 percent. This tax only applies to workers’ earnings up to an annual limit; for 2016, it is $118,500. This cap is technically known as the “contribution and benefit base” because the same cap is used to limit the amount of earnings subject to the payroll tax, as well as the amount of earnings used in the formula to determine benefit levels. The cap on taxable earnings has changed over time. The maximum annual earnings subject to the payroll tax was $3,000 in 1937. However, in 1937, 97 percent of all covered workers had total earnings below that level. In recent years, about 94 percent have had total earnings below the taxable maximum. Meanwhile, the percentage of covered earnings that are subject to the payroll tax has fluctuated before generally declining since the mid-1980s, according to the most recent data available. In 1983, this figure was more than 90 percent, but it has declined since then and, in 2013, about 83 percent of earnings fell below the taxable maximum (see fig. 10). This percentage has declined because earnings among higher earners (those earning above the maximum) have grown faster than earnings among the rest of the working population. In addition to the contact named above, Margie K. Shields (Assistant Director), Margaret Weber (Analyst-in-Charge), Laura Hoffrey, and Vincent Lui made key contributions to this report. Also contributing to this report were Susan Aschoff, Deborah Bland, Mindy Bowman, Alicia Puente Cackley, Sarah Cornetto, John Dicken, Jennifer Gregory, Kathy Leslie, Sheila McCoy, Drew Nelson, Mimi Nguyen, Susan Offutt, Rhiannon Patterson, Oliver Richard, Max Sawicky, Joseph Silvestri, Frank Todisco, and Walter Vance. Retirement Security: Better Information on Income Replacement Rates Needed to Help Workers Plan for Retirement. GAO-16-242. Washington, D.C.: March 1, 2016. Social Security’s Future: Answers to Key Questions. GAO-16-75SP. Washington, D.C.: October 2015. Retirement Security: Federal Action Could Help State Efforts to Expand Private Sector Coverage. GAO-15-556. Washington, D.C.: September 10, 2015. Retirement Security: Most Households Approaching Retirement Have Low Savings. GAO-15-419. Washington, D. C.: May 12, 2015. Private Pensions: Participants Need Better Information When Offered Lump Sums That Replace Their Lifetime Benefits. GAO-15-74. Washington, D.C.: January 27, 2015. Retirement Security: Challenges for Those Claiming Social Security Benefits Early and New Health Coverage Options. GAO-14-311. Washington, D.C.: April 23, 2014. 401(K) Plans: Improvements Can Be Made to Better Protect Participants in Managed Accounts. GAO-14-310. Washington, D.C.: June 25, 2014. Retirement Security: Annuities with Guaranteed Lifetime Withdrawals Have Both Benefits and Risks, but Regulation Varies across States, GAO-13-75. Washington, D.C.: December 10, 2012. Retirement Security: Women Still Face Challenges. GAO-12-699. Washington, D.C.: July 19, 2012. Unemployed Older Workers: Many Experience Challenges Regaining Employment and Face Reduced Retirement Security. GAO-12-445. Washington, D.C.: April 25, 2012. Retirement Income: Ensuring Income throughout Retirement Requires Difficult Choices. GAO-11-400. Washington, D.C.: June 7, 2011. Private Pensions: Some Key Features Lead to an Uneven Distribution of Benefits. GAO-11-333. Washington, D.C.: March 30, 2011. Social Security Reform: Raising the Retirement Ages Would Have Implications for Older Workers and SSA Disability Rolls. GAO-11-125. Washington, D.C.: November 18, 2010. Social Security: Options to Protect Benefits for Vulnerable Groups When Addressing Program Solvency. GAO-10-101R. Washington, D.C.: December 7, 2009.

Summary: An increase in average life expectancy for individuals in the United States is a positive development, but also requires more planning and saving to support longer retirements. At the same time, as life expectancy has not increased uniformly across all income groups, proposed actions to address the effects of longevity on programs and plan sponsors may impact lower-income and higher-income individuals differently. GAO was asked to examine disparities in life expectancy and the implications for retirement security. In this report, GAO examined (1) the implications of increasing life expectancy for retirement planning, and (2) the effect of life expectancy on the retirement resources for different groups, especially those with low incomes. GAO reviewed studies on life expectancy for individuals approaching retirement, relevant agency documents, and other publications; developed hypothetical scenarios to illustrate the effects of differences in life expectancy on projected lifetime Social Security retirement benefits for lower-income and higher-income groups based on analyses of U.S. Census Bureau and Social Security Administration (SSA) data; and interviewed SSA officials and various retirement experts. GAO is making no recommendations in this report. In its comments, SSA agreed with our finding that it is important to understand how the life expectancy in different income groups may affect retirement income. The increase in average life expectancy for older adults in the United States contributes to challenges for retirement planning by the government, employers, and individuals. Social Security retirement benefits and traditional defined benefit (DB) pension plans, both key sources of retirement income that promise lifetime benefits, are now required to make payments to retirees for an increasing number of years. This development, among others, has prompted a wide range of possible actions to help curb the rising future liabilities for the federal government and DB sponsors. For example, to address financial challenges for the Social Security program, various options have been proposed, such as adjusting tax contributions, retirement age, and benefit amounts. Individuals also face challenges resulting from increases in life expectancy because they must save more to provide for the possibility of a longer retirement. Life expectancy varies substantially across different groups with significant effects on retirement resources, especially for those with low incomes. For example, according to studies GAO reviewed, lower-income men approaching retirement live, on average, 3.6 to 12.7 fewer years than higher-income men. GAO developed hypothetical scenarios to calculate the projected amount of lifetime Social Security retirement benefits received, on average, for men with different income levels born in the same year. In these scenarios, GAO compared projected benefits based on each income groups' shorter or longer life expectancy with projected benefits based on average life expectancy, and found that lower-income groups' shorter-than-average life expectancy reduced their projected lifetime benefits by as much as 11 to 14 percent. Effects on Social Security retirement benefits are particularly important to lower-income groups because Social Security is their primary source of retirement income. Social Security's formula for calculating monthly benefits is progressive—that is, it provides a proportionally larger monthly earnings replacement for lower-earners than for higher-earners. However, when viewed in terms of benefit received over a lifetime, the disparities in life expectancy across income groups erode the progressive effect of the program.