New America Foundation- Arizona State Panels on Longevity and Public Policy

Last Friday,, 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)

Morning Reads: the longevity cost, doubling down, and silver parachutes

The WSJ says the increase in middle-aged workers planning to work past age 65 has significantly increased because of recent investment losses, stagnating wages, and spells of unemployment. These may be catalysts for individual decisions about retirement, but with ever-increasing longevity, retiring at 65 should cost more, since it is more retirement.

The Motley Fool thinks public pensions are not the appropriate place to double down on riskier investments.

Bloomberg sheds some light on Governor Coumo’s pension “reforms.”

Lawmakers’ retirement hay-day coming to an end in Kentucky… for future lawmakers, maybe.


Non-Sequitors: Catching Up

The Economists‘ Buttonwood blog comments on retirement, longevity, and inherent inequity in a universal pension age.

Michael Barone of American Enterprise Institute foresees an end to the entitlement age, while his AEI colleague Andrew Biggs discussed public pension reform with former San Diego city councilman Carl DeMaio, after San Diego made some painful, but needed reforms.

Some wise words about personal responsibility in planning for retirement from the Wall Street Journal… let’s just say these resolutions are obviously sound practice, but easier said than done.

According to the Washington Post‘s Michael Fletcher the American worker is borrowing from tomorrow to pay for today–which means less leisure, retirement, what-have-you tomorrow.

The Washington Post‘s Jim Tankersley writes that the global economy has pulled American manufacturing into an age of weak labor, and thus weak unions… something to keep in mind during the Social Security and pension reform discussion.

Video with Chuck Jaffe of WSJ‘s MarketWatch in re avoiding the Personal Retirement Cliff.

NPR finds that the government isn’t only struggling with the question of homo sapien retirement as a growing population of research chimps are hanging up their lab coats for country living.


Savings and Longevity

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.

Longevity and the Retirement Age

Adding years to expected life after an individual retires should mean that the individual will have to adjust his spending habits in order to have enough retirement income to reach his end. This is certainly not the case with Social Security. It is a defined benefit program that insures retirees will not go without a income safety net if they have not personally saved enough to pay for all those half-price steak dinners at 5pm (workers are not particularly good at saving enough in private pension accounts). Not only are people living longer, but life expectancy is continuing to increase after reaching age 65. Many countries are increasing the official retirement age for national pensions to pay full benefits, and a few have actually pegged the retirement age to longevity. However, the broad picture remains the same. People are retiring earlier and living longer, leaving the balance of those extra years to taxpayers in perpetuity.