Living to 100 and beyond: Implications of longer life spans

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

* There has been growing discussion of defined contribution approaches to retiree medical benefits, which help limit the financial risk to the employer of providing these benefits.

* Other forms of insurance, including long-term care insurance, and more aggressive communication of annuity options for all types of pension distributions are being considered by U.S. employers. In other countries, including Canada and the United Kingdom, government regulations require annuity payouts for certain benefits.

Employees, in turn, should respond by saving more aggressively for retirement and by working for more years, as well as by employing various strategies to phase into retirement over a period of years.

VI. IMPACT ON SOCIETY AS A WHOLE

Lengthening life expectancies in the industrialized nations have brought about substantial changes in those societies. Over the past century, some of these changes have included the following:

* Changes in the type of economic activity, housing, social services, and population make-up of our communities

* Growth in the health care system and changes in the service mix provided, as the elderly consume more health care per capita and need different services

* Growth of insurance and other financial markets offering products targeted to meet the needs of the elderly

* Growth of the private pension plans as an engine for savings and capital accumulation

* Strains on long-term care facilities and programs and increasing shortages of both family and paid caregivers

* Change in public pension systems and other programs offering support for the elderly as they compete with other programs for public resources.

Governmentally sponsored old-age security programs are financed by a variety of mechanisms, including individual accounts, pay-asyou-go from general revenues, pay-as-you-go from special taxes on wages, or various combinations. To the extent that these plans are financed on a pay-as-you-go basis, they are subject to financial and political risks, which may place their beneficiaries in financial peril. Furthermore, these plans, through their benefit provisions, can influence societal expectations about which retirement age is appropriate. Increasing longevity places a greater financial burden on all such plans if the additional years are not prefunded. For pay-as-you-go plans, the cost of greater longevity is passed on to younger generations that are still working and paying taxes.

One of the most important options for dealing with population aging is increasing the age for eligibility of benefits under Social Security and medical and other social programs. This idea is very unpopular, and it is politically difficult to make such changes. The matter is further complicated in the United States now that those over age 65 can collect full benefits and at the same time continue working without any limit on earnings. The public is continuing to work to a somewhat later age, but wants to work and collect benefits at the same time. Retirement age, or age of benefit eligibility, will be a major consideration in the updating of programs in the future.