According to the Centers for Disease Control and Prevention, life expectancy at birth in the US was 78.8 years in 2013 — 76.4 years for men, 81.2 years for women — but I have good news. Those statistics do not mean what you probably think they mean.
In fact, a child born in the US in 2013 is likely to live six or more years longer than those averages: boys into their early 80s, girls into their late 80s.
Any life expectancy calculation is based on a series of probabilities: If you are currently 21, what are your odds of living to 22; if you live to 22, how likely are you to make it to 23; and so on. In the most commonly cited life expectancy statistics, which actuaries call period life expectancy, the death rates at each age are held fixed over time. That is, a girl born on Jan. 1 next year who lives to see 2076 is assigned a probability of dying in 2076 that equals the probability of a woman who is currently 60 years old dying next year.
Of course, the assumption that 60-year-olds in 2076 are no healthier than 60-year-olds today is unlikely to be correct, but actuaries do not use it, because they are idiots; they use it because it is useful for comparing current health conditions across countries.
If babies in Country A and Country B are likely to have about the same life span, but older people are sicker in Country A than in Country B, this method would produce a lower reported life expectancy for Country A. What this life expectancy figure tells you is that when you average all the young people and the old people, people in Country B would tend to live longer.
So this statistic is useful for measuring the health of a country’s inhabitants, but it is not useful if what you want to know is how long your new child would likely live. For that, you need to look at cohort life expectancy, a statistic that adjusts for the fact that death rates tend to decline over time as health and safety improve. According to the US Social Security Administration (SSA), that is 83.1 years for boys born in the US this year, and 86.8 years for girls.
But wait, I have more good news: Those estimates are probably not optimistic enough. The Technical Panel on Assumptions and Methods established by the Social Security Advisory Board, an independent US government agency that advises Social Security’s trustees on matters including actuarial assumptions, says Social Security is systematically underestimating future declines in mortality rates and therefore underestimating the likely life spans of young Americans. (Of course, demographic estimates are necessary to project future revenue and expenses for the program.)
In the long run, the Social Security Administration assumes the “mortality improvement rate” would be 0.71 percent — that is, the odds of dying at a given age fall, on average, that much each year. Remember, that is a rate of relative improvement and at most ages the odds of dying are low, so the numbers do not move around very much.
If a person your age had a 1 percent chance of dying in a given year, the Social Security Administration’s assumption of 0.71 percent annual mortality improvement would imply a 0.9921 percent chance of death the following year for people a year younger than you — just a little bit safer.
The technical panel thinks 0.71 percent is not high enough and that Social Security should assume an improvement rate of 1 percent per year, which better reflects past improvements in health. Over time, that small difference would compound into a meaningful increase in life expectancy. By 2090, this change in assumptions would add 2.5 years to life expectancy, relative to the assumptions currently used by Social Security.
That is, there is a very good chance today’s newborn boys might live to be about 85 and newborn girls could approach 90, on average.
Of course, you could just say the Social Security Administration is being conservative in forecasting an unknowable future — further improvements in life expectancy are likely to depend on unknown and unforeseen improvements in medical technology, but one quirk of Social Security is that a piece of obvious good news — people will live longer than we thought — is bad news from the narrow perspective of paying for retirement benefits — the government might have to pay benefits longer.
A higher life expectancy estimate is optimistic for the human condition, but pessimistic for the Social Security Trust Fund. So perhaps it is not surprising the trustees of Social Security have resisted prior recommendations to raise life expectancy assumptions.
A succession of six technical panels established by the Social Security Advisory Board — in 1995, 1999, 2003, 2007, 2011 and this year — have argued that Social Security was assuming unrealistic mortality rate improvements. Eventually, the Congressional Budget Office (CBO) started tweaking Social Security’s assumptions to adjust life expectancy upward.
“We felt at CBO a few years ago that we just couldn’t stick with the SSA projections anymore, given where the experts seemed to be,” said Doug Elmendorf, who until recently served as director of the office.
That is a modest piece of bad news for the federal budget — lower mortality rates might worsen the shortfall in Social Security by 11 percent over the next 75 years, with nearly all of the increased deficit emerging after 2040.
However, the need to close that gap should be a small price to pay for the upside of living a bit longer.
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