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The Problem with Living Longer

Click here to buy - A How To Book of SMSF's by Tony Negline
Lester Wills

An article in The Australian noted that paying for people in their retirement has become the biggest system failure in the developed world. As Stephen Lunn pointed out, no western government can afford the impending rush of long-living retired baby boomers, a problem that runs into the tens of trillions of dollars. Not only do governments have to find a way to pay for all the promised benefits, this pails into insignificance against the potential bills for health services that are likely to be required.

David Bogan and Keith Davies suggest a different approach in their book 'Avoid Retirement and Stay Alive'. They suggest a return to old ways, work until you drop to use the headline from the Australian article. What they actually suggest is for people to keep working and thereby stay in control of their finances, their future, and as a result, their lives. But not necessarily in the same job, but working in some fashion. This is a variation of the ideas contained in the Finnish scheme I wrote about previously called 'work ability'.

In summary, the work ability program was instigated because Finland had one of the most rapidly ageing populations in Europe and until recently had low levels of employment of older workers. This of course meant that the country was heading for a labour shortage, a similar situation to Australia in many respects. This ageing population is clearly evident in the town of Valkeakoski in western Finland. This is a place where almost 40% of the workforce is over 50, but rather than winding down for retirement, they are being encouraged to stay at work. They are being given extra training, moved to more appropriate jobs where possible and treated as the wise elders of companies. As the Personnel Manager of one of the companies involved in the programme explains, "the main target is to keep people longer in working life and to create such health conditions that they can stay longer to get additional training and support".

As one of the authors in the Australian article noted, "the smart people aren't the ones retiring". He went on to argue that those that can afford to retire don't and those that can't afford to do. He suggested that the people who stay working often aren't doing it for the money. It's what they enjoy, it's what challenges them. As he says, it's about staying engaged with the world, not withdrawing.

There will of course be those who still wish to retire for a myriad of reasons. However, they will have tomeet challenges that previous generations never faced because the situation facing the baby-boomers is very different from that facing their parents. As Olivia Mitchell from Wharton noted, the risks are much greater and the uncertainties huge with problems funding social security and medical benefits in the future.

As the Christopher Condron, President & CEO of AXA Financial recently commented, there are boomers all around the world and the need for retirement planning is universal. Michell commented that different countries have different institutional structures. Sometimes they facilitate retirement planning, retirement protection, and sometimes they don't. There are of course those that wants to just defer the whole thought of retirement. The problem being, what do you say to such people?

Condron argues that it is important to remind them that they are going to live for a long time. He suggests that this is the one piece of information that people are shocked at. As he says, people tend to think, "If I'm 65, I've got a 15-year life expectancy". But, herein lies a problem. Such thinking is based on the notion that life expectancies for children born today are somewhere around 80 years. However, what many are forgetting is that if you make it to age 65, your life expectancy is a lot longer.

Condron explains this by using probabilities. They have found that in the US (and I suspect similar figures apply in Australia), if a couple is aged 65, there is a 62% probability that one of them is going to live past age 90. This is based on the most recent data, i.e. from the year 2000. Using the older 1970 data, there was only a 40% probability that one of them was going to live past age 90, a massive change in a relatively short period of time.

In a word, people are living longer and the change is happening sooner than many appreciate. Consequently longevity risk is fast becoming a major problem and few seem to appreciate it. While living longer sounds good, it has its own problems, not least of which is running out of money.


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