The Death of Bertha F. and the Rise of the Super Old

Last week my aunt-in-law, Bertha F. died at age 105.  I liked Bertha.  She was a ground breaker and was one of the first women ophthalmologists in the area.   Over the last week I have spent a few minutes searching news sites and blogs.  There is not a single mention of her death.  The complete lack of news is an amazing and very troubling economic event!

The concept that the death of a person at 105 is now so ordinary and so uneventful that it does not deserve mention is astounding.  A century ago the death of a 105-year-old person would have been front page news.  Around the same time Bertha died, a lady in London died who was 110.  She got a large obituary but almost none of it focused on her advanced age.  I remember when Willard Scott, the weatherman on the Today show, began in the early 1980s wishing people who turned 100 “happy birthday” on the air.  This was a major event since in the early 1980s relatively few people reached 100.  Today turning 100 is commonplace even though working to 100 still makes headlines.

The US Census Bureau tracks the number of very old people, which it defines as 85 years and over.  In 1999 it estimated there were about 3 million very old people.  By 2012 the number had grown to 5 million.

Why is this an economic issue? Because in the USA the concept of when someone expects to retire has not changed even though the ranks of the very old have swelled.  People still expect to retire in their mid 60s after working about 35+ years in the labor market.  If many people live to 100 and beyond, the amount of time spent in retirement will be equal to or greater than the number of years spent working.   This extreme longevity will wreak havoc with already fragile Social Security and Medicare programs.  It will also destroy the solvency of defined benefit pension plans that cover many city and state employees, resulting in these plans being unable to fulfill their promises.

What should be done?  In my mind a straightforward solution is to remove from Social Security and other publicly funded plans the concept of either a fixed retirement age at 65 or 67 or retirement after a fixed number of years of work.

Instead, all publicly funded retirement plans should provide benefits based on a person’s relative life expectancy and the number of years society wants to fund the average person’s retirement.  Let’s assume the public decides to provide the average person with 15 years of retirement benefits.  When someone turns age 55, the pension plan or Social Security can look up that person’s expected longevity.  For example, white men who are age 55 are currently expected to live slightly more than 25 years.  Since their life expectancy is 25 more years and society wants to fund 15 years of retirement then these white men can stop working ten years from now at age 65.

This is different from what we have now because the new system would automatically adapt to changes in life expectancy.  If medical technology enables white men age 55 to live an expected life of 40 more years, then my suggested system tells them that they can start receiving Social Security or their public pension at age 80 since they are expected to live on average to age 95.

The rapid growth of the very old means we need to rethink retirement.  By changing retirement from an absolute goal (I retire at age 65 or after 25 years on the job) to a relative goal (I retire 15 years before I am expected to die) we can avoid huge macroeconomic problems.

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