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You Will Probably Live Longer Than You Thought—But Can You Afford To?

Personal_Finance / Pensions & Retirement Dec 21, 2018 - 05:40 PM GMT

By: John_Mauldin

Personal_Finance

I have long warned that demographic changes have made Social Security unsustainable.

In 1940, the Social Security system had 159.4 workers per beneficiary. Then it went off the rails quickly. By 1945 the ratio was down to 41.9 and a decade later was in single digits.

We usually think this is a result of the Baby Boom generation turning 65, and that’s a big part of it. But rising life expectancy is equally and maybe more important.


People now live longer, which lowers the ratio and means they collect more years of benefits than previous generations.

Let’s stop here and think about this “retirement” concept.

Retirement As We Know It Doesn’t Make Sense

Retirement is a relatively new thing. For millennia, the idea that a physically able person of “non-royal” blood would simply stop working and enter a life of leisure was unthinkable.

You worked as long as you could, declined quickly, and then died. Very simple and financially sustainable most of the time.

It was no coincidence that retirement developed along with the Industrial Revolution. Technology made food production far less labor-intensive. This reduced the need for less productive, older people to contribute.

Societies around the world decided to let the oldest members take some final time off before their end. A good and humane practice, I think. However, it has limits.

When the retirement systems were created, nobody thought that average people would spend the last 30% or 35% of their lives at the broader society’s expense. They would’ve thought that was nuts!

And yet we are trying to do it. No surprise, the seams of our retirement dream are beginning to unravel.

The Retirement Age Is Lagging Behind

The problem is not simply that there are so many Baby Boomers. It is that we have so many Baby Boomers and they’re living longer than previous generations did.

In 1950, 8.4% of the US population was over 65, and 1.2% was aged 80 or above. In 2000, the 65+ share of the population went from 8.4% in 1950 to 12.3% in 2000.

But wait, that’s not all.

If the projections are right, then in 2050 some 22.3% of the US population will be over 65 and 8.3% will be over 80. Both would be huge increases since 2000…

But I think the estimate is probably wrong, and not in a helpful way. You see, these estimates don’t include the age-extending technologies that I believe are coming in the next decade.

That means by 2050 the working-age population will be less than half the total. And yet it has to support its children and elders? I don’t think so. Something will break first.

The most likely scenario is readjustment of “working age” at the upper end. The current retirement age is rooted in times when few people lived that long. And most of those who did were physically incapable of going much longer.

That is rarely the case now. I’m knocking on 70 and still work as full-time as I ever did. And I’m surrounded by friends my age and older who are just as active or more active than I am.

To reflect rising life expectancy and better health, the retirement age should have been raised beyond 70 years ago. People would have had time to to plan for it. That didn’t happen, so now we have to scramble for solutions.

Will We Afford Living Longer?

Preparing for retirement would be far simpler if you knew in advance when you would get sick and die. That means you must either:
  • Save too much and possibly check out with a surplus, or  
  • Outlive your savings, then fall back on Social Security and the kindness of family for your final years.

The first option is obviously better, but is it unfeasible for most people. A surprising number of people die in debt.

Longer lifespans make this harder. Say you finish your education and start making money at age 25. If you retire at 65, your career was 40 years.

During that time, you had to buy a house, help children with college, maybe repay your own student loans, and otherwise live a normal and hopefully comfortable life. You used whatever was left for retirement savings.

Now, is it mathematically possible to save enough in those 40 years to fund another 30 or 40 years of retirement? Probably not.

Sure, you might build a business or invent a new technology. But the average working person can only save so much of their income. And basic retirement living costs will consume most of it in less than 30 years.

This is what my British friends call a “sticky wicket.” The good news is we will soon be living longer. The bad news is we will soon be living longer.

Since the technology is coming regardless, we need ways to reconcile the costs and benefits. However, it is not at all clear how we will do so.

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