Mortality Differentials by lifetiMe earnings Decile: iMplications

The distributional effects of some proposed Social Security law changes (for example, an increase in Social Security’s early entitlement age (EEA)) are at least partially dependent on the distribution of health and mortality risk throughout the fully insured Social Security–covered worker population. To evaluate these types of proposals, retirement policy analysts typically tabulate the percentage of survey respondents who self-report poor (or fair) health or a work-limiting health condition and/or who score below a threshold of hardship, where the hardship level is specified by the analyst rather than estimated. By using a threshold model to evaluate these policy proposals, retirement analysts implicitly assume that only workers who fall below the threshold will be adversely affected by the proposed law change. However, in order for these analyses to accurately describe the distributional effects of proposed Social Security law changes, fully insured workers must be equal in their health, mortality risk, and “ability to work” above the threshold chosen by the analyst. To test the hardship threshold assumption most commonly used by retirement analysts, this analysis estimates mortality differentials at ages 63–71 by lifetime earnings decile. If the hardship threshold assumption is correct, there should be no difference in mortality risk between lifetime earnings deciles above a poverty or hardship threshold. The study finds that the hardship threshold model is overwhelmingly rejected in data from the Social Security program in the United States, a result consistent with similar studies conducted in Canada, Germany, and England.