As I See It: The Longevity Paradox

Published: December 13, 2010

by Victor Rozek

People born at the beginning of this century have a realistic chance of living into the next century. That's great, but I'm going to hold my applause. Longevity is one of those mixed blessings, and it's hard to know whether to celebrate or to weep. Having seen a representative number of so-called "assisted living facilities," I can easily imagine a huge, doddering population wearing soiled Depends, sitting in tiny, overheated rooms, staring blankly at the television, waiting for someone to come in and speak loudly to them.

And all that quality of life for only $5,000 a month!

But we're all headed in that direction, unless we're forced by the cosmic decider to opt-out early. The question is, how will we manage to make our savings last as long as we do? In 1940, people lived an average of 63.6 years. If they retired at 60, they only needed three or four years of savings until the credits rolled and the screen went dark. Besides, in those days, people generally lived with family, who provided all those "assisted living" services for free.

But by 1960, life expectancy jumped to 70 years. Twenty years later, it rose to 73.7 years. By the turn of the century, Americans were living to the ripe old age of 76. By 2020, predictions show us living 79.2 years. And by 2040, we can expect to live past 80. And that's the average. A goodly number of us will survive well into our 90s, and some will reach triple digits. Even if the retirement age is pushed up to 70, that still leaves up to 30 years of unsalaried living.

So, how's your preparation going? How much are you saving?

Slightly less than squat, if you're an average citizen. Americans, like their nation, are living on borrowed money. And what cash we do have is declining in value. Meanwhile, the global population continues to grow. By 2050, our numbers here on Earth are expected to be pushing 9 billion souls. Resources, customarily associated with quality of life, will be both scarce and expensive. The days of McMansions with four TVs, two SUVs, and disposable phones, are numbered. We'll be mining landfills for yesterday's discards. That's the quandary, the perfect storm facing future retirees: more people, living longer, competing for shrinking resources, with money that is losing its value.

Jane Bryant Quinn is an author and a "personal finance expert" (which I consider to be just about anyone who has more money than I do). She writes a column on financial issues for AARP, which she probably wouldn't have to do if she had managed her money more wisely, but hey, I'm not the financial expert. Nonetheless, Bryant Quinn offers sage advice for working people who aspire to something more worthy of anticipation than expiring while chained to their computer.

She and her husband sat down to assess their retirement prospects. "If we went into spend-down mode--living only on savings, Social Security, and incidental income--what would our future be?" Quinn asked. She doesn't reveal their conclusions, but does offer a formula for anyone interested in answering that question for themselves.

"Take no more than 4 percent of your total savings the first year," says Quinn. Then, you can adjust upward for inflation. Wow. Hope you like celery. It sounds almost reasonable, until you do the math. If you have no other income, and you're supporting a 4 percent habit, it means that getting by on a modest $40,000 a year would require a cool $1 million in savings. Maybe I run with the wrong crowd, but no one I know admits to having that kind of stash.

Besides, who knows what that $40,000 will be worth in 2050? If the past is prologue, not so much. The dollar has been steadily losing value for decades. Regardless, it's largely a rhetorical question because 49 percent of workers 55 and over, according to AARP, have less than $50,000 saved for retirement. That's good for one surgery. Maybe.

And what happens when you're on a fixed income and run headlong into runaway inflation?

Several decades ago, my father went back to the land of his birth. At the time, a loaf of bread in Poland cost 20 zl. Just a few years later, when he visited his family again, that same loaf cost 20,000 zl. Hyper-inflation had destroyed the value of Polish currency, and fixed-income retirees suffered greatly. Many became dependant on support from relatives living abroad.

If you're breathlessly waiting for Social Security, the average monthly payment is $1,172. Paris will have to wait. When you look at your monthly expenses, that's not a whole lot. Still, there are people in Congress who were quite happy to wage two wars off the books, and provide Medicare prescription drug benefits on credit, who now want to exercise fiscal restraint by cutting Social Security. They either don't know or don't care that "24 percent of widows 65 and over, rely on Social Security for all their income" or that 40 percent of seniors are supporting their children as well as their parents. Does anyone even factor in that possibility when they begin planning for retirement?

Assuming you have discretionary dollars to invest, Quinn recommends three options. Option one is to diversify your investments into stocks and bonds. The theory is that one or the other will pay dividends. If stocks are up, take your 4 percent from the stock portion. If stocks are down, look to bonds. If the market goes up less than 4 percent, take some from each.

Option two is to divide your investments into separate "buckets" that will mature in 5-year increments. If you project a 20-year retirement, set up four buckets with more conservative investments to guarantee income for the short term, and more aggressive investments for money you will need down the road.

Option three is to buy "an annuity with lifetime payments that start at the day you expect to retire." It all sounds good but the reality is, you have to have money before you can invest. Unfortunately, when the economy tanked, a great many people began prematurely raiding their retirement accounts. The young are also vulnerable, often starting their careers on the lower end of two-tier salary structures, with no pension and minimal healthcare, all the while looking down the road at an increased life expectancy.

As many indicators suggest, Boomers rode the crest of the American experience--cheap education, high paying jobs, affordable healthcare. But the country is in transition, which is a polite word for decline. The post-Boomer generations are the first that are not expected to do better than their parents. The systems that created a vibrant middle class have been eroding for some time. The message could not be louder or clearer.

You don't have to be a financial expert to understand that you're never too young to start thinking about retirement. Start saving today. Do not wait an extra moment. Create the disciplines and habits that will serve you through an extended lifetime. As author Tom Robbins, who once spent a strapped year hitchhiking around the country, acknowledges: "There is a certain Buddhistic calm that comes from having money in the bank."

My father, who in his lifetime saw more hardship than a human being should see, would sometimes shake his head and repeat an old Polish proverb: StaroϾ nie radoϾ. There it is. I think that says it all, doesn't it?

OK, OK. For those of you not fluent in Slavic languages (which includes many Slavs), it means "Old age is no joy."

For all our sakes, I hope my father was wrong.

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