Edward Lotterman
How do you know not to hire a particular financial planner? Well, if they write about Social Security that “when they started the program the average age of death was 65 — and the average person never collected Social Security,” you need to run. Fast!
But the preposterous idea is common enough that it got published and then picked up on a usually-wrong financial website.
Still, as phrased, it is not as imbecilic as Ultimate Fighting Championship “color commentator” and podcaster Joe Rogan, who calls Social Security “Franklin Roosevelt’s little scam, because nobody would get it.”
The best one can say about ignorance like this is German writer Friedrich Schiller’s observation that, “Against stupidity even the gods struggle in vain.”
But the belief that hardly anyone got Social Security benefits at first is widespread. It is based on a near-universal misunderstanding of “life expectancy,” which has a very specific definition. Yet failure to understand key details doesn’t excuse fatuous assertions that no “average American,” or even no one at all, got Social Security when it was established in 1935.
You don’t need highly developed critical thinking skills. Common sense should make it obvious.
So while it’s true that in 1935, “life expectancy at birth” was under 62 — lower than the retirement age of 65 in the Social Security Act — 7.8 million people over age 65 already were alive in our country. Were they somehow “abnormal?” Moreover, another 9.3 million were between 55 and 64. Were all doomed to death before getting benefits?
No, of course not! The general population back then had more common sense than now. They knew how many old people were living. They knew the rough odds of themselves eventually getting benefits. That is why the Social Security Bill was so overwhelmingly popular.
It was a Democratic party bill. Members of that party voted for it 284 to 15 in the House and 60 to 1 in the Senate. But Republicans also voted yea 81 to 15 in the House and 16 to 5 in the Senate. Such bi-partisanship was unusual back then. The GOP fought most of FDR’s proposals tooth and nail. But the electorate rightly understood that the bill would benefit a large number of them and wanted passage.
To get benefits, workers had to “contribute” over specified lengths of time. So when benefits were first paid, in 1940, only 222,000 people got checks. Yet that rose to 1.1 million by 1945, 2.93 million by 1950 and 7.56 million by 1955. Had these people somehow miraculously cheated death?
No, they hadn’t. Moreover, to comprehend these numbers, one must understand three facts.
First, a 1939 amendment added survivors, so that children and widows of qualifying workers got benefits. Secondly, most wives did not have earnings records or get benefits themselves. They did gain from their husbands’ benefits. So the number of individuals helped by the new program was substantially higher than the number of checks sent. Thirdly, farmers would not get included until 1955. In the mid-1940s they still made up nearly 30% of U.S. households. Government employees, railroad workers and ministers also were still out. So the number of beneficiaries was a substantially higher fraction of the worker groups covered by the Act than of their age group in the general population.
You don’t need a college degree to understand this. There were myriad old and aging people when the program started. Most rightly knew they or their families would benefit. Broad majorities in Congress supported it. These included anti-FDR Republicans who were not deluded about it not benefitting “average persons.”
My uncle who never got past eighth grade could have understood these simple facts in an instant.
The underlying problem is complex, however. Most people just don’t understand “life expectancy,” and perhaps the very label of this data set encourages this misunderstanding. A 2020 post on the Actuaries Digital website explains it perfectly:
“Life expectancy is a statistical calculation which estimates the average number of years individuals in a certain group will live. However, people seem to interpret it as an expert opinion that tells them exactly how long they can expect to live. This interpretation is dangerous and belies the wide range of lifespans for individuals within any group in practice.”
Succinctly, errors arise when people see an “average” without considering what it is, and how it is calculated. It is like being told “the average weight of high school students is 137 pounds” without considering differences between boys and girls or freshmen and seniors. No one would assume from this that every student weighs 137 pounds. We all know they don’t.
Same with average life expectancy. Yet millions hold contradictory beliefs: First, if the life expectancy at birth in the U.S. is 77.5 years, people believe that they, themselves, can confidently plan on living to that age and arrange affairs accordingly. Second, people assume that the large majority of people will die near that age. Neither is true.
These things are true:
• The vast majority of people living when that metric was calculated will not die at that age. Some will die decades before 77.5 and others decades after.
• Most people live longer than the “life expectancy at birth” calculated in the year they were born.
• U.S. life expectancies have edged upwards for more than a century, with COVID as an aberration.
All good, but understand what is calculated and what the numbers mean.
The definition and calculations start with a “life table” for a given year that has the death rates for people at each year of age. What percentage of live births die in their first year? How many in the second year? The fifth? The 23rd? The 49th? The one tabulated by the Centers for Disease Control and Prevention and used by the Social Security Administration continues through the 119th year.
Now, with these “age-specific” death rates, begin with 100,000 births in a given year. How many will die in their first year? their second? and so on. When you get to a point where all are dead, figure out the weighted average age of deaths. That is the life expectancy of someone born that year if these death rates for each year remained frozen over time, until the last of the 100,000 babies dies. That obviously does not happen. Death rates, and so expectancies, at birth change.
Crucially, most of the improvement of life expectancies from 62 in 1935 to near 78 in 2021 came from reductions in death rates between birth to “adulthood.” The SSA sets that at age 21. Moreover, most of the improvements in that age range came at the early end, through reductions in “young child mortality” — deaths before the fifth birthday. Within that, the greatest improvement was in infants, birth to age 1.
Put another way, people in 1935, as in 2021, were likely to live long enough to collect Social Security if they simply made it through childhood. That fewer people are dying young as infants and young children remains the primary reason for longer expectancies over the last 90 years. Health improvements in adulthood add to that in greater survival into very old ages.
So, the financial adviser and podcaster Rogan all flub what should be obvious to anyone with common sense: A low nominal life expectancy did not mean there were not many millions of people who would draw benefits from Social Security within years of its launch. Many people did die before 65, but the deaths with the greatest effect on the metric were preschoolers.
Unfortunately, failure to understand variation around an average leads to other bad advice. What if a 62-year-old man’s financial planner tells him, “your life expectancy is another 19 years so you can plan on living to 81?” If the man responds, “Okay, but what is the chance I will die before that?” he will probably get met with a blank stare. The correct answer would be, “Well, for 1,000 62-year-old men, 476 will die before their 81st birthday. (Women who are 62 can “expect” to live another 22 years, yet 45.5% would die before reaching age 84.)
But the grim reality is that if you pose this question to 1,000 “financial advisers,” even CPAs or partners in white-shoe Minneapolis law firms, 990 will stare back blankly without the faintest idea of how to answer.
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St. Paul economist and writer Edward Lotterman can be reached at stpaul@edlotterman.com.
