As the poor die earlier, Social Security isn't paying off

Death and taxes may be inevitable, but they hit the rich and poor in different -- and sometimes unfair -- ways.

That's increasingly evident with the expected life spans of today's workers, given that low-income Americans are projected to die as many as 13 years earlier than their wealthier cohort, while a century ago the rich and poor had relatively identical lifespans, according to new research into longevity and retirement from the Government Accountability Office that was prepared for Democratic presidential candidate Sen. Bernie Sanders (D-VT).

The growing gap between the lifespans of the rich and poor is eating away at the benefits that poor workers can expect from Social Security, the report found. American men who make about $20,000 annually are likely to lose as much as 14 percent of their Social Security lifetime benefits because of their shorter-than-average lives, while men making $80,000 per year stand to see a gain of 18 percent in their benefits given their additional years on earth, the report found. Boosting the retirement age would only exacerbate those disparities, the GAO warned.

Because poor Americans often rely on Social Security as their sole means of support in retirement, boosting the retirement age would provide a double-whammy to many low-income workers. They'd still die at an earlier age than rich Americans, while also being penalized if they couldn't continue working until an even older full retirement age.

"Poverty should not be a death sentence," Sanders, the ranking member on the Primary Health and Retirement Security Subcommittee, said in a statement. "When over half of older workers have no retirement savings, we need to expand, not cut, Social Security so that every American can retire with the benefits they've earned and the dignity they deserve."

Currently, workers can claim Social Security retirement benefits when they turn 62 years old, but take a reduced benefit at that age. It's by far better to hold off on claiming Social Security as long as one can, given that benefits increase at full retirement age, which is currently 66 for people born between 1943 to 1954. Benefits are highest if seniors can wait to claim until they turn 70, although that's tougher for poor Americans, given that the majority lack other sources of retirement funds.

"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," the report said. "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."

At the heart of the issue is the progressive structure of the Social Security system, which is geared toward helping poorer Americans in old age by redistributing income from higher earners. But as life expectancies are increasingly determined by income, the program is losing its progressive edge.

It's not only the shorter lives of the poor that are eating into their retirement benefits, but the fact that many retire earlier. About 56 percent of men and women in the bottom third of the mid-career income distribution start claiming Social Security at 62, while only 14 percent hold off until they reach 66 years old, the Brookings Institution found earlier this year.

The life expectancy gap may be growing due to differences in smoking rates and health care coverage among the rich and poor. A high-income man born in 1920 had a life expectancy of 79.3 years, while a poor man born the same year was projected to live 5 fewer years. For men born in 1940, that gap has widened to 12 years, Brookings found. The GAO report cited six reports on life expectancy that all found gaps between rich and poor Americans, with the differences in years of life ranging from 3.6 years to almost 13 years.

While wealthier Americans are living longer, poor white workers have been hit by issues including drug and alcohol abuse. Death rates for whites between 45 to 54 have increased half a percent per year since 1998, the Princeton University economists Anne Case and Angus Deaton found last year.

Given that Social Security's combined reserves may be dry by 2034, policy makers are floating ideas such as raising the retirement age. But there are other ways to boost the program's reserves, including lifting the cap on taxable wage income, which now stands at $118,000, or raising the payroll tax.