Opinion: You are likely to be retired for a long time

By Neville Bennett New Zealand is about to experience a massive wave of baby boomer retirements. Technically, baby boomers are people born after 1945, the product of people wanting to build a new peaceful life. In the USA baby boomers were born 1945-1964, but it is sometimes argued that the large birth bulge lasted longer in NZ, up to about 1973 when birth-rates began to dive. Then Prime Minister Bill Rowling, incidentally, recognised that a falling birthrate was a problem and proposed a "baby bonus" for the 1975 election. He was ridiculed and swept away by Rob Muldoon who campaigned for retirement at 60 "” a very successful election bribe. As they retire, many boomers will ask "How long will I live?" because they want to plan to prevent their money running out before they die. I think most of them will live longer than they think, so they should get very serious about their finances. Most people will remember the biblical "three score and ten" and, although "score" has dropped out of the vocabulary, will remember that is a life expectancy of 70. It has been a good rule of thumb but expectancy has increased considerably in the last few years, especially for men. The latest release from Statistics New Zealand, who have just released Life-Tables for 2005-7, is that a girl born today can expect to live for 82.2 year and a baby boy 78 years. Does that mean that a bloke retiring at 65 has an average of about 13 more years to live, and a 65-year old woman another 17 years? No it does not! It is as if this information is a death sentence. People commonly assume they will get to the age of 80 at best, and then peg out. Let's start getting deeper by realising that life expectancy from birth is not really relevant for people aged 65. That calculation includes people who die before 65 (of disease, in childhood, teenage exploits, falling off ladders or in car crashes etc). This requires data supplied in a life table. The last life table available was the one composed for 2000-2, so I have been champing at the bit for the 2005-7 which was released last week. Table 1. Life expectancy 2005-2007 .............. Current ..... years of life ........your .................. age ....... expectancy ...... expectancy Women ...... 65 ............ 20.62 ............. 85 Men ........... 65 ............ 17.95 ............. 83 Source: Statistic NZ Looking at this table, most people will assume that men will die at the age of 83 and women will die at the age of 85. The assumption is that most men and women will be dead at these ages. Wrong! The truth is that you have a 50/50 chance of dying at that age. Put in another way, Table 1. indicates that women at the age of 65 can expect an average of 20 years more life. Some will die within a year at the age of 66. Others will live for another 40 years, until 105. So the average age of death of 85 is neither a minimum nor a maximum: it is an average age of death for people who have already survived until the age of 65. Indeed, quite a few people will survive to 85. A man who has lived to 85, (using 2005-7 data) could live on average another 5.6 years. So his life expectancy is 90.6. But he could well live longer. If he survives to the age of 90, he will not have expectancy of 0.2 years but of 3.9 years. Women, who attain 85, have a life expectancy of 91.6, but an expectancy of 94.4 if they get to age 90. But these figures are likely to be too pessimistic. I confidently predict longer lives than the statistics at present indicate. There is constant movement in the mortality tables. People are living longer because of better medicine, nutrition, fitness and safety. There have been positive movements in the last decades. Men aged 65, had an average of another 12.8 years from 1950-1975, but their expectancy increased another 4 years 1975-2002, to 16.7. Women added another 3.4 years after 1975. There has been a huge change from 2000-02 to 2005-07; women added another year to their life expectancy, while men added more: a huge 1.7 years. For the last 30 years, life expectancy for men has increased faster than for women. In 1975, a women's average life expectancy was 6.4 years longer than men; the gap has narrowed to 4.1 years now. If this trend continues, boys born now will have a life expectancy equal to girls. As expectancy grows, it follows that people consulting a life table in 1975, might under-estimate their expectancy by around 4 years. As medicine, nutrition, safety etc are still improving, I am going to make an assumption that life expectancies will improve by as much in the next 30 years as they did in the last. This is very rough science. At best I will arrive at a ball-park figure that may not be wildly wrong. I apologise now to the actuaries who suffer from apoplexy in indignation of my willful trespass on their turf. Table 2 Estimated lives .............. Current ..... years of life ........your .................. age ....... expectancy ...... expectancy Women ...... 65 ............ 23.4 ............. 88.4 Men ........... 65 ............ 20.7 ............. 85.7 The assumption is that on average life expectancy will increase by 4 years for those people currently aged about 60. That is a significant length of time if you are in penury. These figures are for all males and females. The only ethnic group that has separate statistics is Maori who have about 4 years less expectancy. Incidentally, life expectancy does not always increase: it fell in the 1960's, perhaps due mostly to tobacco, whose consumption peaked in 1963. It could fall again, as many of the younger generation are more obese than the boomers, and there is always the danger of disease that does not respond to antibiotics: a real fear with TB. So how many years should I regard as likely to be my lifespan? Obviously, it is almost impossible to answer this question with any degree of accuracy. It is a difficult equation that does not just depend on the medicine, nutrition, safety that we have already discussed. There are added complications of ethnicity, and perhaps poorly understood ones of genetics. Even the region of your residence is worth a few months, either way. The government statistician cannot deal with small numbers. Discussion of population is usually done in groups of 100,000. The current abridged life table indicates that of every 100,000 males, 85,000 are still alive at 65. Thus 85% of the group is alive at age 65, and they have an average expectancy of 82.5. But a male has a 55% chance of reaching 80, and an amazing 37% of reaching 85! At 85, a survivor has an average chance of another 5.6 years. If you attain 85, you have a sporting chance of becoming 95. At present, the life table shows that 18,172 males per 100,000 (18.1%) get to 90. Put in another way about a fifth of the men who get to 65 will get to 90. As I compute these figures I am aware of a great change since 2002, men have added about 2% to their chances of a longer life! I will say no more for fear of inducing apoplexy in statisticians. The table indicates that 90,600 women per 100,000 attain 65, and their expectancy is 85.6 years. But women have a 66% chance of reaching 80, and 30,500 or 30% get to 90. About a third of the women who attain 65, will get to 90, they will then average another 4.4 years. My searches did not result in better actuarial tables but I believe there is about a 10% chance that women, who get to 65, will live to be a hundred. This theme suggests that increased longevity ought to influence investment plans: "¢ Postpone your retirement for a few years. Some extra saving is necessary "¢ Work part time when possible, it will either help with saving or slow down the consumption of your savings. Remember that you are likely to be retired for a very long time. Conventional wisdom is that you invest for income. This usually means that your capital will not grow. But when the growth cycle is at a low point, it is sometimes appropriate to invest for growth. I hope to write more for the retired on investment and also explore rather difficult data that is emerging on how long we can expect to lead a healthy, independent life, and how many years of dependency are usual. ____________ * Neville Bennett was a long-time Senior Lecturer in History at the University of Canterbury, where he taught since 1971. His focus is economic history and markets. neville@bennetteconomics.com www.bennetteconomics.com