Till Death Do Us Part?
Death awaits all of us, but how patiently? To unlock the mystery of when we’re going to die, start with an actuary.No doubt, America's two-tiered healthcare system is exceptional for the top 1%, decent for the middle-class but pathetically awful for millions of poor and working poor. So rising inequality and lack of education are crucial factors explaining mortality differences among different socio-economic cohorts.
Specializing in the study of risk and uncertainty, members of this 200-year-old profession pore over the data of death to estimate the length of life. Putting aside the spiritual, that’s crucial information for insurance companies and pension plans, and it’s also helpful for planning retirement, since we need our money to last as long we do.
The latest, best guesses for U.S. lifespans come from a study (PDF) released this month by the Society of Actuaries: The average 65-year-old American man should die a few months short of his 86th birthday, while the average 65-year-old woman gets an additional two years, barely missing age 88.
This new data turns out to be a disappointment. Over the past several years, the health of Americans has deteriorated—particularly that of middle-aged non-Hispanic whites. Among the culprits are drug overdoses, suicide, alcohol poisoning, and liver disease, according to a Princeton University study issued in December.
Partly as a result, the life expectancy for 65-year-olds is now six months shorter than in last year’s actuarial study. Longevity for younger Americans was also affected: A 25-year-old woman last year had a 50/50 chance of reaching age 90. This year, she is projected to fall about six months short. (The average 25-year-old man is expected to live to 86 years and 11 months, down from 87 years and 8 months in last year's estimates.) Baby boomers, Generation X, and yes, millennials, are all doing worse.
Americans increasingly need an accurate sense of how long they’ll be alive. Employer shifts from traditional pensions—which sent a regular check for life—to individual 401(k) accounts mean workers must figure out retirement on their own. When you die becomes a crucial variable, helping to determine how much you need to save and how much you can afford to spend: Die at 95 and your retirement could be twice as expensive than if you die at 80. Information on mortality also helps set the price of annuities, insurance contracts that can pay buyers a set amount of money for the rest of their lives.
Some of the most commonly cited estimates of longevity are misleading for anyone putting together a retirement plan. For example, the life expectancy for Americans at birth is 76 for men and 81 for women, according to the Centers for Disease Control and Prevention. But if you’ve already survived to middle age, you have a good chance of living much longer. The Society of Actuaries’ website offers a longevity calculator that takes both your age and health into account.
Estimating longevity is as much an art as a science. The simplest way to calculate life expectancy is to look simply at how many people are dying at every age. If you want to know a 25-year-old’s chances of hitting age 100, you just calculate her statistical chances of getting through the next 75 birthdays unscathed. Looking at current data, what are her chances of dying at 25, 26, 27, 28, and so on?
The problem with this simple calculation is that it assumes life expectancy won’t improve over the next 75 years. Today’s 25-year-olds could be kept alive by safety technologies and medical treatments that don’t exist yet. At least, we hope.
So, baked in to the Society of Actuaries’ calculations is an assumption that longevity will keep improving. It looks at recent data to estimate near-term improvements.
The latest numbers, however, aren’t pretty: From 2000 to 2009, American death rates improved1 at 1.93 percent for men and 1.46 percent for women annually. From 2010 to 2014, that plunged to 0.6 percent for men and 0.42 percent.
This is bad news for almost everyone but pension fund managers. Still, it’s not time to panic yet.
“Year-over-year changes in mortality are very volatile,” said Dale Hall, managing director of research at the Society of Actuaries. Over time, death rates jump up and down a lot: All it takes is a bad flu season or the onset of a novel disease to make for a bad year, while new drug treatments for heart disease can produce several excellent years.
Actuaries assume that eventually, longevity improvements will get back on their long-term track. Still, the bottom line is that longevity’s rise has slowed way down. When they reach the traditional retirement age of 65, the average millennial should get just a few more years than the average baby boomer.
If Americans’ health continues to decline, these estimates could prove optimistic. Then again, the actuaries might be not be able to see huge improvements around the bend. The long-term historical record is encouraging: For two centuries, researchers have found (PDF) life expectancy in the world’s healthiest countries to have risen at a more-or-less steady rate of an additional three months for every year that passes, or 2.5 years a decade. In the 1840s, Swedish women were living to an average age of 45. Today, Japanese women have a life expectancy of 87. If the U.S. somehow got back on this track, today’s 25-year-olds should have an extra decade of life by the time they're at retirement age.
That future may have already arrived for some Americans—the very wealthy. According to research earlier this year in the Journal of the American Medical Association, a 40-year-old man in the top 1 percent can expect to live 14 years longer than his counterpart in the bottom 1 percent. Education may also make a difference: A college-educated 25-year-old can expect to live a decade longer than a high school dropout of the same age, according to the Population Reference Bureau.
If you’re trying to figure out how long you’re likely to live, estimates of “average” life expectancy may not be that helpful. That’s getting worse in an age of rising inequality. Great medical care and good fortune may add decades to the lives of the wealthy and educated, while much of the rest of America is left behind.
Also, quite disturbingly, middle-aged white Americans are dying more than they should be:
Middle-aged white Americans are dying at increasing rates and half a million people are dead who should not be, according to a new report published in the Proceedings of the National Academy of Sciences.Why are mortality trends important for pension fund managers? Because the longer people live, the more pensions (and individuals) need to set aside to pay for future liabilities.
The study, co-authored by Anne Case and Angus Deaton, analyzed death rates for men and women aged 45 to 54 in the United States, a range often categorized as “middle-age.” The duo, both economics professors at Princeton, then compared the data to those death rates found within other domestic racial categories and those seen in similarly wealthy nations.
Black, Hispanic and older Americans (65 and up) have continued to see longer lives, as have those in Sweden, Australia, Germany and other rich nations, but middle-aged white Americans have not. The results represented a “marked increase” in mortality between 1999 and 2013, and the trends seem to “reverse decades of progress in mortality and was unique to the United States.”
Those with less education were also more likely to die in middle age due to suicide or alcohol and drug poisoning, the authors note.
The study links the increase in mortality to a slew of problematic issues seen throughout American society, including an increase in drug and alcohol abuse and an increase in suicide rates. White men had the highest suicide rate of any demographic in 2013, according to the Centers for Disease Control and Prevention.
The authors also draw a stark link between a rise in opioid availability, including the growing problem of cheap heroin. They theorize that an uptick in “the epidemic of pain, suicide and drug overdoses” may be tied to 2008’s financial crisis, and say many baby-boomers are among the first to live a harsher life than their parents.
The Washington Post notes such a large increase in mortality seen in a particular group within a developed nation is exceedingly rare. Although there were higher death rates of Russian men after the collapse of the Soviet Union, by and large, people have been leading longer lives since the 1970s.
The authors say that if America had seen a constant rate of increased longevity like other nations, some 500,000 people would still be alive. Others, facing an increase in illnesses like cirrhosis of the liver, will “age into Medicare in worse health than the current elderly,” which could put a hefty strain on an already overburdened system.
For example, teachers typically live a lot longer than most other demographic cohorts. Why? I think it's because they are a highly educated and doing socially productive work and they are not sitting behind a desk all day (sitting is the new smoking!).
Now, are all teachers going to live past 100 years old? Of course not, but the longer teachers live, the more pressure it puts on pensions like the Ontario Teachers' Pension Plan to deliver exceptional long-term returns to make sure they can cover the pensions of their members, many of whom are already centennials.
Go back to read an older comment of mine where I looked at whether longevity risk will doom pensions where I delved deeply into this risk factor and noted the following:
No doubt about it, the Oracle of Ontario, HOOPP and other Canadian pensions use much more realistic return assumptions to discount their future liabilities. In fact, Neil Petroff, CIO at Ontario Teachers once told me bluntly: "If U.S. public pensions were using our discount rate, they'd be insolvent."A few key points I want to hammer in:
Mauldin raises issues I've discussed extensively on my blog, including what if 8% is really 0%, the pension rate-of-return fantasy, how useless investment consultants have hijacked U.S. pension funds, how longevity risk is adding to the pressures of corporate and public defined-benefit (DB) pensions.
Mauldin isn't the first to sound the alarm and he won't be the last. Warren Buffett's dire warning on pensions fell largely on deaf ears as did Bridgewater's. I knew a long time ago that the pension crisis and jobs crisis were going to be the two main issues plaguing policymakers around the world.
And I've got some very bad news for you, when global deflation hits us, it will decimate pensions. That's where I part ways with Mauldin because longevity risk, while important, is nothing compared to a substantial decline in real interest rates.
Importantly, a decline in real rates, especially now when rates are at historic lows, is far more detrimental to pension deficits than people living longer.
What else did Mauldin conveniently miss? He ignores the brutal truth on DC pensions and misses how the 'inexorable' shift to DC pensions will exacerbate inequality and pretty much condemn millions of Americans to more pension poverty.
He also fails to look at the success of DB pensions in Canada, the Netherlands and other Nordic countries where they have implemented risk sharing and use proper pension governance to make sure these pensions operate at arms-length from the government and are supervised by a qualified, independent board of directors (see my recent comment on the list of highest paid pension fund CEOs).
But John Mauldin is right, at the heart of all pensions is a promise that future obligations will be paid out in full. The United States has long ignored this issue, much to the detriment of millions of workers that will retire in poverty. I've long argued we need universal pensions backstopped by the federal government, which is why I'm all for enhancing the Canada Pension Plan (CPP) for all Canadians and think U.S. policymakers should consider doing the same thing for their Social Security.
Another area where I agree with Mauldin is healthspans are more important than lifespans and there's a revolution going on in healthcare and biotechnology.
- First, longevity risk isn't as important as the direction of real rates in terms of impacting pension deficits.
- Second, defined-benefit pensions are much better than defined-contribution pensions because they lower costs, pool investment and longevity risk which means people with a DB plan never run the risk of outliving their savings during their golden years.
- Third, defined-benefit plans might are not just good for the economy, they're also good for people's health.
Alternatively, people who don't have a DB pension and are stuck with no pension or a DC pension that is beholden to the whims and fancies of stock markets, are going to stress a lot more about their retirement and falling into pension poverty as they risk outliving their savings.
So maybe there is another reason why teachers live longer than other cohorts, most of them enjoy the benefits of a safe, secure DB pension and can retire with peace of mind.
As far as the latest mortality figures, they are troubling because they show how rising inequality is slowly killing Americans, especially middle-aged white Americans who are struggling with depression, suicide, alcohol and drug addiction.
Are there going to be revolutionary new treatments to treat many diseases in the future? No doubt about it which is why I believe in America's biotech moment, but all the new treatments in the world don't match the power of lifestyle choices when it come to healthspans and a longer, more productive life.
I think younger and older Americans are becoming a lot wiser when it comes to their health in terms of what they eat, exercise, diet, sleep, and kicking bad habits like smoking and excessive alcohol use.
So, along with the ongoing biotech revolution, there is a much wider social awakening when it comes to lifestyle choices and taking one's health much more seriously.
[Note: A long time ago, I took a course on medical anthropology at McGill University where I read Thomas McKeown's classic, The Origins of Human Disease. There I learned the biggest gains in life expectancy came from changes to water and sanitation, factors that still impact mortality in less developed countries.]
I myself can write a book on this topic but don't want to bore you with details. That might best be left for another day but suffice it to say that a Mediterranean diet, high dose vitamin D, weight training, swimming, and great sleep are all crucial elements to my health but I'm not strict on anything and will tell you straight out I don't believe in strict or fad diets like the non-gluten diet (limit your intake of carbs but unless you have Celiac's disease, avoid non-gluten diets).
I will however share with you my morning shake which consists of mixing frozen blueberries (not organic, don't go crazy with organic), a bit of liquid Kefir, three large table spoons of 2% Greek yogurt, five raw almonds and 5 walnuts and cold water (no almond milk, you don't need it!).
My friends and family are going to laugh because I'm always lecturing them on what to eat (not that I am perfect, far from it) and how Kefir has transformed my life (used to have irritable bowel syndrome which made for a very crappy morning and day!).
I better stop there as I'm sure my girlfriend will tell me I'm "crossing the TMI (too much info) line again" but if it's one thing I love discussing and learning more about, it's proper health and let me warn all of you, there is a lot of nonsense being peddled out there even from so-called experts (like Dr. Oz who my doctor friends call a "quack").
People need to own their health and stop following bad advice or even good advice which means well but isn't suited or realistic for them. When it comes to health there is no one size fits all, listen to your body and do what is right for you.
Let me end with a little warning. I have been having gum problems at the dentist these last few years which have cost me a bundle. I was surprised because I don't smoke, avoid sugar as much as possible, brush three times a day and floss pretty regularly, so having my dentist send me off to expensive gum surgery really pissed me off.
The culprit? I figured out that brushing vigorously with my electric toothbrush was destroying my teeth, leading to bleeding gums and erosion of my tooth enamel. If I can save all of you thousands of dollars on expensive gum surgery, I would tell you to take it easy with these electric toothbrushes because they will destroy your teeth and gums, especially if they have hard bristles and are not used properly.
Ok, that's enough TMI for a Monday but I'm in a good mood enjoying the big biotech rally (IBB and XBI). Let's see if it holds after the election and if these biotech indices make new highs in the weeks ahead (wishful thinking on my part).
Below, David Tepper, Appaloosa Management, talks about his bets ahead of the election. I quite enjoyed his criticism of Trump's charitable donations this morning (see below). Don't know if his accusations are true but it was a classic and epic rant (his best ever).
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