Last Friday, Slate.com, New America Foundation, and Arizona State University hosted a series of panels discussing the implications of increasing life expectancy on public policy, retirement, and family planning.
Savings defaults, auto-enrollment, and financial literacy were hot topics. Nudges, “guardrails,” and redefining “retirement” are discussed at length.
Life Expectancy Rate and Impact on Retirement (~40 minutes)
Jordan’s last post poses an interesting question: How should longevity risk be split between the retiree and the government?
People who reach retirement these days are living longer than ever. My favorite statistic du jour is that longevity for people aged 65 increased by an ENTIRE YEAR between 2000-2007. That pace may be unsustainable but I’m not qualified to speculate as to that—and I’m not sure if anyone else is either, frankly.
People are starting to discern that once they hit 65 they have a lot more living left to do. The only age cohort working more now than they were five years ago are people 60 and over, and a recent survey suggested that people in their fifties have radically increased their anticipated retirement age in the last five years. That’s no doubt in part due to the shock of the 50 percent stock market decline in 2007-2008 still being fresh in everyone’s mind, so that people are starting to think long and hard about how long they will live and whether they have the resources to sustain themselves over that time. As more and more people reach retirement age with one or more parents still alive (a development that was simply inconceivable even a generation or two ago) the prospect of living to one’s 90s doesn’t seem so implausible after all to a whole host of people.
A natural question to ask is whether people will simply insure against running out of money by buying annuities. Thus far it doesn’t seem like it: to many people they still feel very opaque and besides, they have something akin to an annuity in their Social Security benefits. For 30 percent of retired U.S. households Social Security benefits constitute nearly their entire income. “People don’t buy annuities: they are sold is a common refrain in the industry. In that state of affairs it’s hard to see people flocking to them no matter what kinds of tax breaks come with annuities.
For the top forty or fifty percent of society the current calculus goes like this: they have social security, a private pension worth something, a house more or less paid for, and some other savings. They have a general goal of leaving something to their heirs but it wouldn’t crush them (or their children) if they stuck around long enough to spend down their wealth.
As people start coming to grips with their ever-increasing longevity, they’re increasing how much money they want to have set aside before they retire, and they are working longer—and saving a bit more as well.
Is there a need for a vigilant public policy response? I’m not so sure. It would help if we made Social Security solvent and addressed the rising cost of health care, and in general we should end the punitive taxation of capital income for a whole host of reasons, but beyond that I’m hesitant to call this a crisis. Maybe because the prospect of people living longer and healthier lives is nothing short of miraculous and something we should all be grateful for.