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Longevity and the Future of Retirement

John Curry
Senior Director | CAPTRUST Marketing

A quick googling of the term longevity — meaning long life — yields some interesting results. One article spotlights residents of the Greek island of Ikaria, one of the so-called “blue zones”— small areas around the world where residents frequently outlive their life expectancy by more than a decade.1 Another highlights Texas centenarian Pearl Cantrell, who swears by her daily dose of bacon as a contributor to her long life. “It’s got to be crispy,” she told a recent interviewer.2 A third features genius inventor and entrepreneur Ray Kurzweil, who plans to live forever with the help of 150 pills a day and a supercomputer backup of his brain.3

As interesting — and quirky — as these stories are, seeing them merely as curiosities may cause us to ignore evidence that increased longevity is already underway and that we may enjoy surprisingly long lives. In fact, life expectancy in developed countries like the U.S. has been — and is expected to continue — 
rising at a rate of 2.5 years per decade: 3 months per year, 6 hours per day.4

Scientists, medical technologists, and statisticians are clear that increased longevity has already broadly taken root. Life expectancy in developed countries increased by three decades over the course of the 20th century alone. Children born in 1900, 1950, and 2000 in the U.S. were expected to see 47.3, 68.2, and 77.0 years of age, respectively.5 Today, without any further improvement in longevity, three-quarters of newborns will mark their 75th birthdays. More than half of babies born today in rich nations will live for 100 years.6

However, this is not simply a story about better health care for children; much of this increase in longevity is the result of a decline in mortality after age 80, which means that older people are living and staying healthy longer.7 Better elder health care has lengthened lives by allowing earlier diagnoses and better treatment of illnesses such as heart disease, cancer, and diabetes. Public health campaigns against smoking have also aided longevity.8

If you take it as a given that advances in medicine and technology are conspiring to give us longer lives, your likely (and legitimate) next question is: So what? While it is impossible to address the implications of an issue as far-reaching as longevity within this Strategic Research Report, we will attempt to provide a few broad strokes for thinking about longevity’s impact on retirement.

One result of increasing longevity is a distinctly older America. The U.S. Census Bureau reports there are more Americans age 65 and older than at any time in U.S. history. Its 2010 report indicated there were 40.3 million people age 65 and older in 2010, up from 35 million in 2000 and just 3.1 million in 1900.9 That amounts to more than 13 percent of the U.S. population or more than one in eight Americans. Looking ahead, this number is projected to increase to 54.8 million in 2020 and 72.1 million by 2030 — representing more than 19 percent of the U.S. population of retirement age.10 

Yet, even today, the idea of retirement is fading — for reasons both good and bad. Many Americans whose savings were adversely affected by market turmoil over the past decade are choosing to retire later.11 Meanwhile, others — facing the prospect of as many as 30 or 35 years of life post-paycheck — are rethinking the nature of retirement itself. Regardless of the cause, if we do, in fact, live longer and stay active well into our 80s and 90s, it begs the question of how we will spend our time.

The supply and demand for labor are central to this debate. As a demographic cohort, the baby boom generation (the 81 million Americans born between the years of 1945 and 1964) represents
 38 percent of today’s working population with almost 60 million participating in the workforce.12 As the boomers begin to retire in the near term — the youngest is approximately 50 years old — employers may be hard-pressed to find suitable replacements.

As Figure Two suggests, while boomers can be replaced by younger workers, generation X may not be sufficient in size — at “only” 49 million — to sate demand for experienced workers.13

As this imbalance plays out, employers will need to reengineer their work arrangements to entice their older and more experienced workers to remain engaged in the workforce. Several broad possibilities exist:

Work longer.
Employers may actively encourage  employees to continue career work on a full-time basis well beyond today’s average retirement age of 61.14 The prospect of staying active at work, while providing additional years of savings and accrual of Social Security benefits, may be appealing to many of retirement age. Some may consider this option for access to affordable health insurance alone.

Flexible work arrangements.
Fearful of losing their most experienced workers and knowledge base, employers may opt to allow part-time work for employees into their late 60s and early 70s.15 This phased retirement approach will allow these employees to continue working on a basis that helps them maintain social and economic connectivity to their workplace with enough free time to enjoy more traditional retirement pursuits.

Competition for skilled workers will heat up as some employers provide flexible arrangements and embrace retirement-age employees, while others lag behind the trend. Employers may also have trouble retaining employees who are not ready to retire but want to try something different. Options for recareering are numerous and include everything from working at (or starting) a not-for-profit to incubating a new business to returning to school to build an entirely new set of skills and knowledge.

The impact of our aging population on Social Security and Medicare, our so-called social safety net, is already front and center in the current U.S. budget debate. A vast number of Americans depend on these programs as their primary means of support in retirement. That number will grow significantly in the future, simply as a function of the number of Americans reaching the ages at which they are eligible to receive benefits. Pundits estimate the long-term deficits of Social Security and Medicare at $9.6 and $34 trillion, respectively, over the next 75 years — unless action is taken to improve their economics.16,17   

Potential fixes for these programs include cutting benefits, means testing, upping eligibility ages, and increasing contribution rates. More than likely, the resolution will be some combination of all of the above. Any resolution will put increased pressure on individuals to take action to plan, save, and invest for their own retirements, either through employer-sponsored retirement plans, personal savings, or a combination of both. 

While it is hard to imagine not finding a solution for future generations, individuals or families would be wise to do the following:

Plan to live a long time and save accordingly. Don’t rely on backward-looking benchmarks like average retirement age or life expectancy; these statistics are misleading and likely to result in under-saving. Plan for a retirement that could last 30 or 35 years — just to be on the safe side — and be sure to understand the amount of savings necessary to fund a potentially long retirement. 

Invest for the long haul.
While many early- and near-retirees seek refuge from market volatility in a more conservative investment portfolio, they may inadvertently expose themselves to a different set of risks. Notably, they may expose themselves to the risk of running out of money (also known as shortfall risk) and the risk that inflation — especially healthcare inflation — erodes their purchasing power.

The prospect of living a long, healthy, and happy life presents an exciting opportunity. While Pearl Cantrell may credit her long and productive life to her three-piece-a-day bacon habit, for most it will not be that simple. Accumulating the resources necessary to wind down career employment at some point is a goal for most that will take thought, planning, and discipline to succeed. More than ever, individuals will be looking to their employers for retirement plans, education, and advice to help them address this important issue. Further, given longer lives for those of retirement age and the likelihood of Social Security and Medicare rollbacks in the future, employers may want to anticipate the implications of an older workforce — maybe one that incorporates a significant part-time population. We welcome the opportunity to speak with you more about longevity, and its impact on your retirement plan and plan participants. 

Sources:

1 http://www.nytimes.com/2012/10/28/magazine/the-island-where-people-forget-to-die.html
2 http://www.today.com/food/its-got-be-crispy-woman-105-says-bacon-key-longevity-1C9846050

3http://online.wsj.com/article/SB10001424127887324504704578412581386515510.html
4 http://www.demogr.mpg.de/en/laboratories/survival_and_longevity_12/

5 http://www.census.gov/statab/hist/HS-16.pdf, “No. HS-16. Expectation of Life at Birth by Race and Sex: 1900 to 2001”
6 http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aGCHVoAxPlu8
7 http://www.demogr.mpg.de/en/laboratories/survival_and_longevity_12/
8 http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aGCHVoAxPlu8
9 U.S. Department of Health and Human Services, “Administration on Aging, A Profile of Older Americans: 2011”, 2011
10 Ibid
11 http://www.gallup.com/poll/162560/average-retirement-age.aspx
12 Bureau of Labor Statistics, “Household Data, Not Seasonally Adjusted: Table A-13: Employment Status of the Civilian Noninstitutional Population by Age, Sex, and Race”, 2012
13 Ibid
14 http://www.gallup.com/poll/162560/average-retirement-age.aspx
15 http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aGCHVoAxPlu8
16http://cnsnews.com/news/article/social-security-faces-96t-unfunded-liabilities-83894-household
17http://online.wsj.com/article/SB10001424127887323393804578555461959256572.html

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