POWIP Piece of Work In Progress – Former Abode of Dan Collins

No cake for you: retirement age and “rights”

As an actuary who has worked with annuities, I pay very close attention to stories about retirement age.

Before I get into the recent news stories, I want to address the old canard "The life expectancy was less than 65 when 65 was set as a retirement age."

I'm not saying that they got they're flat-out lying with this remark, but that they're looking at the wrong number.

Let me give you an example - a population where everyone dies either at birth [age 0] or at age 100. Life expectancy would be a weighted average between these two numbers, depending on the probabilities. Let's start at a 50/50 extreme, and you've got a life expectancy of 50 years from birth. If the infant mortality is at 1%, then the life expectancy becomes 99 years. But the problem of financing retirement doesn't change at all -- if you survive infancy, you live to 100, no matter the probability.

So for a fairer comparison, you need to look at life expectancy from a higher age. I'm picking 25 years old as my starting point for a variety of reasons - I'm trying to avoid most of the mortality due to war and general adolescent stupidity [yes, there still is a pretty obvious trend of male adolescent stupidity up to age 25 or so... mortality for males 25-30 is lower than males 20-25, unlike for females.]

Let's look at the numbers:

Expected age at death for women age 25, by Social Security cohort tables: [obviously, some of this is modeled mortality trends, not actual experience]

1900: 74.6
1910: 77.1
1920: 78.6
1930: 79.7
1940: 80.8
1950: 81.8
1960: 82.6
1970: 83.4
1980: 84.2

Men aged 25, expected age at death, using Social Security cohort tables

1900: 68.3
1910: 70.1
1920: 72.3
1930: 73.9
1940: 75.4
1950: 76.5
1960: 77.4
1970: 78.5
1980: 79.4

Let me explain what you're looking at above. The "1900: 68.3" years expected lifetime comes from a mortality table from men born in 1900 who survived to age 25; the "1980: 79.4" comes from those born in 1980 who survived to age 25 [i.e., survived to the year 2005]. Obviously, that first table comes from actual experience, and the second is mostly projected from mortality trends.

And these numbers are for the general population, by the way, which includes those who aren't working for a variety of reasons. The disabled who die younger are in this cohort, so one would expect the life expectancy for active working people to be even higher... and obviously, if you survive to age 65, you didn't die at age 50, so that has a different effect.

In any case, let's look to Europe and see what they have to say about retirement age:

First the protests in Spain:

SPANISH prime minister José Luis Rodríguez Zapatero is facing the first major union protest of his six years in power as tens of thousands of workers take to the streets to protest against his proposal to kick-start the troubled economy by reforming the labour legislation and raising the retirement age from 65 to 67.

Demonstrations took place in Madrid, Barcelona and Valencia yesterday, to be followed by other towns and cities across the country throughout the week.

In a joint radio interview, Candido Mendez, leader of the General Workers’ Union (UGT) and Ignacio Fernandez Toxo, head of the Workers’ Commission (CCOO) warned the government of the dangers to social stability if their proposed pension reforms went ahead, and they threatened widespread strikes, even a general strike, unless they reconsidered their plans.

“They are making a grave error. Raising the retirement age goes against workers’ rights,” said Mr Mendez.

The country has been in recession for the past two years, and there is little hope of it emerging this year. For years Spain’s economy was heavily dependent on construction and the real-estate boom. Once the bubble burst, so did the economy.

Half-finished buildings line towns and villages around the country, hundreds of factories have closed, and shops are shuttered.

There are almost four million unemployed, including 40 per cent of young people, many of whom have never been in work.

Officials say that because of the unemployment rate, combined with an ageing population and a subsequent reduction in contributions, there will not be enough to pay pensions in a few years’ time.

different side of the retirement age problem in England:

More than 100,000 people were forced to retire against their will last year as employers used the default retirement age to cut back on jobs, according to Age Concern and Help the Aged.

The charity said its research suggested employers had used forced retirement as a cheap and easy alternative to redundancy during the recession.

Michelle Mitchell, Age Concern and Help the Aged Charity director, said: "Our survey clearly shows the use of forced retirement has spiralled out of control, offering some employers a low-cost shortcut to shed jobs during the recession.

"The default retirement age has stamped an expiry date on hundreds of thousands of older workers. It's the most disturbing example of age discrimination which still tarnishes later life for so many people."

The charity's figure is four times higher than the number it expected to see when the default retirement age of 65 was first introduced in 2006.

However it said it expected the situation to get worse in the near future: some 530,000 workers aged 60 and over are still working for employers who enforce the default retirement age of 65, and 250,000 aged 60 to 64 say it is likely or certain that they will be forced to retire.

The workers rights: to work beyond a particular age, or to stop working at a particular age. Isn't that cake you're saving away so stomach-filling? That's a nice trick you've got there.

[There is no cake.]

My proposal: let people have the right to run their own business and work for themselves at any age. Then they can decide when they ought to stop working.

If have to provide for yourself, you have to save away for those years where you're not actively producing any more. Yes, some people become disabled, which is why there's disability insurance [more on that and long-term care insurance another time].

The "traditional" way to save had been to have lots of kids who will produce when you're old and spread the burden of your care amongst themselves. Well, people aren't having that many kids any more... and the problem is that to have savings to live off of, you actually need the young people there to produce, still. But the old "tragedy of the commons" is that it need not be your own specific children, so you have less and depend on other people's children... but =everybody= is having fewer children. Yes, even the religious fanatics.

In any case, I have far more sympathy for the British situation and point of view noted above than the Spanish. The workers can quit working in Spain any time they want - they're not slaves, no one is forcing them to work til official retirement age. Oh, wait, they want a specific amount of money paid to them for the rest of their life when they quit at age 55?

I think Senator Bunning has something to say to you.