Thursday, March 11, 2010

RETIREMENT AND LONGEVITY INFLATION

As our Boomer generation approaches the magic retirement age of 65 years, there is increased news coverage about whether we all are going to get our due retirement payouts like our parents’ did. The relevance of the subject to us motivated us to track down where the modern concept of retirement originated.

During the late 1880’s in the United States, 78% of workers over the age of 65 still worked full time. The concept of retirement was introduced in Europe in the 1880s by European leaders who sought to quell the rising popularity of communism by proposing full pay for workers that left the work force after their 65th birthday. This was an easy promise in the 1880s when the average life expectancy of a worker was 45 years of age.

Somehow the age of 65 stuck and the fantasy of living a life of leisure after “retiring” from the workforce at 65 became the pervasive industrial age dream though few lived long enough to have it until the Boomers parents’ generation. By the early 1960s over 30% of large US corporations had some form of retirement plan for their workers along with the US government, state governments and military. Meanwhile, longevity increased from 45 years of age in 1880 to over 78 years of age today.

The original “promise” of retirement 130 years ago was only to the few who managed to survive 20 years past the average life expectancy of their generation. Our society has never adjusted the age of retirement to account for the increase in longevity. The average life expectancy is now 78, so using 65 as the retirement age has now become a promise of retirement 13 years before the average person in our generation dies. If we adjust the retirement age in 2010 based on current longevity as compared to the original retirement age suggested when the concept was introduced in the 1880’s, our “longevity adjusted retirement age” would be 98 years old.

Resetting the retirement age expectation to age 98 would make it pretty easy for governments and companies to fund those few who live that long. It would make saving for the remainder of one’s life after leaving the work force at 98 years of age feasible for most.

Since the modern world has conferred such great longevity upon our generation, it is unfeasible for most people to save enough money to support themselves without income for 20 to 30 years of life after age 65. Even those with million dollar windfalls during their career will be challenged to navigate through 30 years of global economic and political change to preserve their retirement savings.

Thinking about this has freed us from the stress and worry of saving enough money to support ourselves for 35 years of retirement. Like many boomers, we have small IRAs and doubts about ever receiving our social security payments in a decade and a half from now. We are starting to realize that the key to growing old with a great standard of living is to have excellent health, sharp minds, and income producing work that we enjoy and can continue to do well until we are 98 years old.

6 comments:

Victoria Hokulani said...

Excellent, excellent, excellent. I have never thought about this nor the history of this entitlement. Since we are self employed it isn't a big giant issue for us since we will never "RETIRE". I suspect most retirement age folks would be a lot more satisfied with their lives IF the did not stop working.
I agree with you about the likelihood of never seeing social security payments in another 10 or so years for myself. In a few short years the cost of servicing the deficit will nearly be the same as the GDP. Surely a recipe for collapse of the way things are right now. Too many unsustainable entitlement programs will sure rip the tattered fabric of this nations current lopsided system.
Three cheers for staying healthy in body, mind and spirit!

Anonymous said...

Just got back from Honolulu. The Alamoana Center was packed with Japanese tourists, buying luxury goods. All of a sudden, Japanese have decided to spend.
If crops in Hawaii, cost of living will skyrocket.
Hawaii imports 85% of it's food, all of it's oil and gasoline.

Anonymous said...

One big flaw in your plan is that you assume your health will remain the same for the next 20 years,or so, so that you can continue to work. I do know two people who worked into their 70's. But I also know someone who had a disc problem in the back at 62, someone who had a heart attack at 46, someone who had breast cancer at 49,and someone who had a brain anurism at 60. All of these people were working, and healthy until the day it happened.
With no "plan B", one or both of you could easily end up in poverty, late in life.

Anonymous said...

Lets not give corporate America any ideas. I know I won't make it to 98 years old. I'm banking on using my pension at 55 years old and 401k to supplement. ...Of COURSE I know I'm one of only a few getting this!

Baby Boomer Writer said...

This was a good post for those who are self-employed. However, there is a strong culture on the mainland cities that looks upon those who are older as less desirable employees. There is an insidious prejudice against hiring older people, supported by a surplus of potential employees and the anonymity of urban life.

Embedded cultural beliefs die hard. Although people over 65 may want to work, and enjoy being productive outside their home, society will not choose them over younger, faster, healthier candidates because the emphasis is on speed and an array of technical skills in most new jobs. We are part of the supply and demand cycle-- unless Baby Boomers own their own business.

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