Money and life Expectancy

When you start to think about family money, start by thinking about yourself as critically as you can. In the course of your life, you can be both an asset to family money (by earning and investing well) and a liability (by spending lavishly or for a long time). How much as each will you be? That depends, in part, on how long your life lasts. In the 1,400 years from the fall of the Roman Empire to 19th Century America, the lifespan of an average person living in the most developed society
increased just nine years from 38 to 47. In the century since 1900, it has increased almost four times as fast to nearly 80. University researchers and other longevity experts predict that life expectancy could expand as far as 110 or even 125 years in the coming century.

This trend has had and will continue to have a major impact on everything from the size and shape of families to the best strategies for individual investment plans.

Life expectancy charts used by insurance actuaries usually follow a complex pattern of calculating the years a person has left, based on the age he or she has reached or when he or she was born. For instance, a 40-year-old male can usually expect to live until he’s 76; a 40-year-old female, until she’s 81. Some researchers say that 50 percent of baby girls born in 2000 will reach age 100. Current projections are based on relatively straightforward models with known variables. They don’t take into account potential breakthroughs in the biology of aging. More importantly, they have no bearing on how an individual lives how many packs of cigarettes a day you smoke, how many banks you rob, how many quarts of bourbon you drink, etc. Nevertheless, governments and insurance companies who bet on long-term trends want to know how long people can be expected to live. So, demographers continue to develop more intricate computer models. If you assume mortality rates will not decline, by 2050 there will be 9.9 million Americans 85 and older the current low estimate of the Census Bureau. But, if you assume that the impressive 18 percent decline in the death rate seen in the 1970s and 1980s will continue, there could be 27.3 million people over 85 years old in the U.S. by 2050. That’s the Census Bureau’s high estimate and a potential nightmare for Social Security and Medicare. Nightmares for Social Security mean problems
for most family finances.

When Social Security was initiated in 1935, life expectancy at birth was about 61 years, and there were 40 workers to support each retiree. Today, according to federal figures, life expectancy is 76.9 years and there are three workers per retiree.

The system is financed by payroll taxes 6.2 percent of each worker’s paycheck goes to Social Security and another 1.45 percent to Medicare, for a total of 7.65 percent. Employers also kick in 7.65 percent per worker. So far, it has worked. But, with life expectancy rising and Baby Boomers poised to start retiring en masse around 2011, the system is headed for trouble.

To forestall insolvency of the Social Security system (which includes the Old Age Survivors and Disability Insurance fund and the Medicare health insurance system), Congress has taken various steps. Most of them mean more work and fewer benefits for younger workers. For example: The federal government is pressing up the age at which a person
may retire with full benefits to 67 from 65. In a society that finds a growing number of older people using a shrinking supply of financial and health care assets, everyone has to make some decisions about where they will allocate their personal assets. The society as a whole also has to make these decisions.

One effect has already been felt: People are working longer. The median age of the work force in the United States increased 15 percent between 1980 and 2000. And the average retirement age could increase several months per year over the next few decades as Baby Boomers gray, but stay in the work force. And this will remain the trend for a long time; a full 80 percent of Baby Boomers expect to work in retirement.

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