Living to 100 and beyond: Implications of longer life spans

North American Actuarial Journal, Jul 2002 by Rappaport, Anna M, Parikh, Alan

* Over 60% of the total life expectancy above age 85 is expected to be spent under some form of chronic disability (Stallard 2001).

The oldest of the elderly are more likely to be female, unmarried, and poorer than the rest of the elderly. Furthermore, figures from the U.S. Census Bureau (1997) show that those age 80 and over are almost twice as likely to have a severe disability as those under 80 years of age.

Male and Female Mortality Rate Convergence

Although longevity is important, it is not the only factor influencing these trends among the elderly. The U.S. Census Bureau projects the female-male ratio of those 85 and above to shrink from 2.33 in 2000 to 1.60 in 2050. Mortality tables used in the U.S. Social Security Administration's intermediate forecasts show a shrinking gap between male and female life expectancies over the next 75 years. If these projections prove true, all of the above characteristics of the very old may reverse-as males are generally better off financially in retirement, as they are more likely to be married, and as they tend to die after shorter periods of chronic disability than females.

Financing Retirement

Longer life spans after retirement place an extra burden on people to save adequately for retirement during their working years. Actuaries, economists, demographers, and other skilled researchers are working to build a framework for understanding the risks of the postretirement period. In the United States, several factors contribute to the need for this framework:

* Changes in family composition, reducing the level of support available from family members.

* Long-term reductions in retirement ages, increasing the period when retirement systems and savings are to be relied on for support.

* The decline of employer-provided defined benefit pension plans and lifetime postretirement medical coverage. During the period 1977 through 1997, the number of defined benefit pension plans in the United States dropped by more than 50%, while the number of defined contribution pension plans more than doubled over a similar period.

* The increasing cost to the elderly of health care not covered by Medicare, especially prescription drugs and most nursing home care.

* Uncertainty about the future of Social Security, with the prospect for a scaled-back system.

All of these factors work to compound the problem of financing retirement over longer life spans. Ideally, individual responses should include the following:

* More attention paid to saving for retirement

* More attention paid to the availability of employer-sponsored retirement plans

* Postponement of retirement by those who are able to continue work, including work after retirement from a career job and various forms of phased retirement

* More sophisticated understanding of risk management, including greater interest in annuities, long-term care, and other forms of private insurance, as well as diversification of assets.

There has been an upsurge in interest in most of these issues in the popular press in the United States. This interest, however, is largely triggered by the coming retirement of the baby boom generation of post-World War II births, and their common interest in planning for their own retirements. Indeed, this baby boom generation in the United States and the industrialized nations, combined with lower birth rates in those nations, will lead to sharp increases in the average age of those populations in the coming decades. This will be true even if mortality improvements cease altogether. The potential for longer life spans merely adds another dimension to the planning process now faced by millions of people, as well as employers, financial institutions, and governments.