By Andrew G. Biggs

Without forgetting that some people aren’t living longer.

I have a new policy brief co-authored with John Shoven of Stanford looking at how we might address part of Social Security’s funding gap by raising the retirement age, but doing it in a way that account for differential mortality by income — the fact that rich people tend to live longer than the poor, which means that rich people are contributing more to Social Security’s insolvency than are the poor.

The trick is to do two things at once: first, increase the Social Security retirement age by (we assume) two years. This cuts benefits for all new retirees by around 13%, rich and poor alike.

But second, we alter Social Security’s benefit formula in a progressive way. We increase benefits by around 13% for low earners. This means that, even if they can’t work longer, their Social Security benefits aren’t affected. What the retirement age increase takes away, the benefit formula change gives back.

But for the very highest earners we would reduce benefits further, so their total benefits would be reduced by around 26%. This is equivalent to about a four year increase in the Social Security retirement age. So the step accounts for the fact that richest Americans are living extra-long times.

This approach actually saves more money than simply increasing the Social Security retirement age by two years, because the benefit reductions are focused on the people who get the highest benefits.

This idea wouldn’t fix Social Security’s short-term funding gap nor would it prevent Social Security’s trust funds from running out. For these, we’ll need other steps (likely including additional revenues). But Social Security’s long-term shortfall needs to be addressed, and once fully implemented our idea would fix about half of it — without reducing benefits for the Americans who need them the most.

Read more @aei