The Longevity Gap
Director of Fiduciary Advice
Here’s a data point that you read everywhere and is not true – at least, not true for you. It’s Social Security’s estimate of how long you’re likely to live.
Starting at 50, Social Security says, the average American man will live until 80 and the average women, until 83. But that covers the population as a whole. People in the upper income brackets live much, much longer than those with average incomes or below. I think the magnitude of the difference will surprise you.
The poorest fifth of American men who are currently 50 will, on average, make it to age 76. The richest fifth will live 13 years longer – to age 89. Women in the richest fifth are looking at a life expectancy of 92! In the second-richest fifth, life expectancy is almost the same – 88 for men and 91 for women.
And remember, those are averages. Roughly half of the richest fifth will live longer than 89 or 92.
The 90-year-old population has tripled over the past three decades. Last April, my family celebrated my mother’s 102nd birthday. She’s sharp and happy, thank you very much, and five years ago married a lovely (and equally sharp) young man of 86.
So you never know! Your savings are going to have to last a lot longer than you might think.
The principle reason for the longevity gap appears to healthy behavior. Topping the list: the steep decline in smoking amount higher-income people, who are also likely to be well educated. They’re also less likely to do serious drugs or grow hugely fat. There are faint connections between longevity and being covered by health insurance, but in the U.S. – so far — they’re not statistically significant. Still, it’s worth noting that in Canada, which provides universal health care, life expectancy has not only risen but the gap in between rich and poor has narrowed over the past 40 years.
Interestingly, the link between income and good health does not plateau, it keeps on going up. The richest 10 percent live longer than the second richest 10 percent. Do they have bigger gyms? Does the charm of money-making keep them in the game longer? Who knows?
The longevity gap has clear implications for public policy as well as personal finance.
In the public arena, wealthier people are benefiting more than they used to from Social Security and Medicare, because they collect for many more years. Further increases in the retirement or Medicare age would benefit the wealthy, in particular.
As for personal finance, these data are telling you not to go hunting for “safety” or “income investments” just because you’re 60 or 65. At those ages, you are still a long-term investor with perhaps 30 years to live. Over that period of time, the U.S. economy will grow, the global economy will grow, and retirees living on their savings or piling it up for their heirs should be along for the ride.
The longevity data also suggest that you allocate more of your money to stocks than someone your age might have done 20 years ago. Since World War II, the average bear market – from peak to trough and back to the peak again — lasted just 29 months (measured by Standard & Poor’s 500-stock average and assuming dividends reinvested). The longest lasted a little over five years (2000-2006). Assuming that you’re broadly invested, you have plenty of time to wait until stocks recover.
Finally, you need a careful plan for spending from your assets after your paycheck stops. Odds are, you’ll be living for many for years than you imagined. You want to be sure of maintaining your standard of living with no – zero – risk of ever running short.