Thursday, April 30, 2009

Chart of the Day:Retirement Age v. Life Expectancy

The chart above displays the decreasing median retirement age for men (data from BLS) over the last half century, from almost 67 years in 1950 to less than 62 years by 2005, a decrease of more than 5 years. During the same period, male life expectancy has increased significantly by almost 10 years, from 65.47 years in 1950 to 75.2 years in 2005 (data from CDC). As a result of those two trends, the average expected time in retirement for men has increased from 0 in 1950 to 13.5 years in 2005.

Comments:

1. It's only been in the last 50 years or so that the average male lived long enough to enjoy any time in retirement. For all of human history before the 1950s, the average male worked his entire life and died before reaching retirement age. When it comes to expected years in retirement, there has never been a better time to be alive.

2. The Social Security system was designed in the 1930s when the average male wouldn't ever collect any benefits.

3. Given the recent performance of the stock market, the median retirement age may increase.

25 Comments:

At 4/30/2009 9:38 AM, Blogger clincally acceptable said...

I believe this is one of those cases where statistics don't tell the whole story, and this is especially so when attempting to pull out truths about the day to day life of an individual from a average of many.

While the average male life expectancy in 1950 was about 64.5, that does mean that at birth an individual male could expect to live as many years. Lost in that statistic is that premature death during childhood and early and late adulthood are averaged with those who live full adult lives and bring the statistical average down. The situation for any individual man in 1950 was probably something more like, "If you don't succumb to injury or disease in your formative years, then you can expect to live into your 70's."

The real problem with this use of statistics is that the two statistics are sampling two entirely different groups of individuals. The retirement age statistic sampled only those individuals who made it past premature death and continued onward to reach retirement age. On the other hand, the life expectancy statistic sampled all males, including those who succumbed to premature death during childhood and early adulthood. This discrepancy becomes even more dramatic when one realizes that if these statistics are applied to any one individual, then that average 1950's man could have expected to continue to punch the clock for an additional 1.5 years postmortem to earn his retirement pay.

While I do believe that more people are enjoying longer and more luxurious retirements, and that this is an indicator of an increase in the quality of life, these specific statistics can't be combined to show that.

 
At 4/30/2009 10:05 AM, Blogger Patrick said...

I wonder how the defined retirement in the chart. A lot of people "retire" from full-time work and start taking retirement benefits or IRA funds, but still keep working on a limited basis. I don't think that happened as much in past as it does now. That could also skew the stats.

I still think Mark's point about social security is valid though. Things today are different than they were when it was started. Someone is going to have to take on for the team on this one.

 
At 4/30/2009 10:57 AM, Blogger Walt G. said...

clincally acceptable,

The data are at the CDC link that Mark provided. It is in two-year life increments for each demographic, and you can even export it from Excel to a statistical program. You can then import BLS data to do your own calculations.

Even after doing all that, I think you will find people are retiring younger and living longer. But that's just my guess.

 
At 4/30/2009 12:56 PM, Blogger bob wright said...

clincally acceptable's point is accurate.

The number 75.2 from Table A on page 3 of the CDC data is the life expectancy of all males "at birth".

The life expectancy of a male who lives to age 60 is 20.8 years.

So the average man who lives to 60 could draw social security through age 80.

 
At 4/30/2009 1:06 PM, Blogger bob wright said...

Here's the kicker.

The average woman who lives to age 60 has a life expectancy of 24.0 years. This figure is also from Table A on page 3 of the CDC data.

So the average woman who lives to age 60 will draw social security until age 84, versus 80.8 for the average man.

So while the average woman will draw benefits for 3.2 years longer than the average man, the man pays the same social security tax as the woman.

So the men are subsidizing the women.

When the media cries "equal pay for equal work", why don't they also demand a reduction in the FICA tax for men? This is a clear case of sex discrimination.

Equal tax for equal benefits!

Are there any lawyers willing to take this to court?

 
At 4/30/2009 1:17 PM, Anonymous Anonymous said...

Life expectancy changes as you age - in essence you are expected to live a longer shorter time.

 
At 4/30/2009 1:59 PM, Blogger Walt G. said...

bob wright,

But she will argue that she is paying it on only 77% of what a man makes, so the longer collection time is an equalizing factor for the lower wage during her working years.

 
At 4/30/2009 2:37 PM, Blogger clincally acceptable said...

In my second paragraph, I made a typographical error in writing "While the average male life expectancy in 1950 was about 64.5, that does mean that at birth an individual male could expect to live as many years."

I had meant to write "doesn't" which makes more sense given the context of my response.

Also, to clarify, I am not arguing with Dr. Perry's comments, only the data selection. Social security is indeed severely overburdened in way that is unprecedented. It is bloated to point of useless for those who receive it and financial asphyxiation for employers and employees who have to pay it. I was simply commenting this particular bit of data isn't the evidence needed to argue that.

 
At 4/30/2009 3:52 PM, Blogger Joelle said...

here is a nomination for chart(s) of the day. be sure to click on the pie slices
http://www.theatlantic.com/slideshows/feds/

 
At 4/30/2009 4:57 PM, Blogger randian said...

So the men are subsidizing the women.In point of fact Social Security was always a subsidy program for women, just like most of the rest of federal benefits spending. Is there any federal or state benefits program that isn't a net subsidy to women?

Equal tax for equal benefits!We would have to raise the monthly benefit for men in order to actuarially equalize (match present value) men's vs women's benefits. Imagine the ****storm that would cause.

But she will argue that she is paying it on only 77% of what a man makes, so the longer collection time is an equalizing factor for the lower wage during her working years.Let her argue that irrelevant point. Social Security isn't a wage equalization program, after all. Then tell her that a lower earning individual gets a better return on their taxes than a higher earning one.

 
At 5/01/2009 6:00 AM, Blogger inkytrails said...

I am very close to retirement, age 54... and I hope to live into my 80s as my parents did!

That means THIRTY YEARS in retirement! I do have a 30 year pension, IRA savings/
deferred compensation, but... 30 years!

Huge decisions.....

Wendy,
www.retirement-online.com

 
At 5/01/2009 8:24 PM, Blogger marketdoc said...

There was a study that came out a few years back which showed that if you wait until age 65 to retire with full Social Security Benefits, you would have to live another 15 to 20 years-- Just to break even-- when compared with taking a reduced benefit at age 55. Why? The magic of present value of money. Retire early, begin your stream of payments at age 55, even though it is a reduced amount, and you can put that money to work for yourself sooner.. rather than having the government hold it for you!

 
At 5/03/2009 5:07 AM, Anonymous Anonymous said...

The topic may be interesting and the conclusion right, but if an undergrad student misused stats like this, he would be rightly condemned for poor methodology.

Any thanks are due to the commentators, not the author.

David

 
At 5/04/2009 3:00 PM, Anonymous Anonymous said...

Hey Bob, why complain about the woman getting a check a few years longer than the man. After all, she's earned less wages and most likely gets less benefits too.

 
At 5/04/2009 3:19 PM, Blogger Gemini said...

So, are we thinking we should go back to the 1930's, when SS was obviously institued mainly to get more money from us without having to actually pay out retirement funds to many?

Or are we saying we should raise the retirement age again so the 70+ year old roofers, concrete finishers, wait staff, nurses, teachers should continue doddering around, sometimes in a mental fuddle, hoping to continue working until retirement age?

Or are we saying we should do away with SS entirely--while of course refunding all the SS contributions each individual not yet receiving SS has paid into the system--with compounded interest, of course?

 
At 5/04/2009 4:15 PM, Anonymous Anonymous said...

anyone ever look at the retirement benefit for goverment employees. they seem to retire much earlier and with alot more than us regular people do. dont try to feed me a line about not getting paid as much either.the market will show how wrong you are. then figure out the other benifits like free medical for the rest of your life. plus we as taxpayers foot that bill. they even refuse to help to defer some of that cost. when are the rest of us going to get in on that part of retirement. they never bring up what it is costing the rest of us. social security does not even come close. it does not take a PHD, to figure out where our tax dollars have gone.

 
At 5/04/2009 4:19 PM, Blogger Gemini said...

Ummm ... yeah,I've noticed that, Anon ... and complained and ranted about the fact that our 'employees' seem to have a much better deal, with health care, SS, and other perks, than we the employers have. Odd how that happened, isn't it?

 
At 5/04/2009 5:21 PM, Blogger randian said...

Hey Bob, why complain about the woman getting a check a few years longer than the man. After all, she's earned less wages and most likely gets less benefits too.Why? Because women get a higher present-value payment than men do. Isn't equality what feminists want? To equalize the value of the benefit, men should be paid more monthly or women paid less.

Even if her benefits were less, that's as it should be since (assuming your canard about "less wages" were true) she paid less into the system. There's a push going on in the UK to equalize men's & women's pension benefits (in nominal not present value dollars) even though women pay a lot less in tax to support the pension system. It would constitute a huge increase in the cost and value of women's pensions.

 
At 5/04/2009 6:45 PM, Anonymous Anonymous said...

A woman won't collect smaller checks from SS for long. As soon as the husband dies, she can collect on his account.

 
At 5/04/2009 6:50 PM, Blogger exposure said...

Good comments!
Shows that stats used by Government are slanted to support objectives for the future. All have merit to one degree or another but fall short of the "Whole Truth". My personal goals were based on living 10 years after retirement at 65 on interest and another five would consume the principle. Our concept was to live within our means, stimulate earnings to meet the propensity to save and invest wisely. The needed cost of in home help was considered as was reasonable medical expenses. Cost of living went from 7.3 per year avg. to over 100% over the last three years and investments went down the toilet. Had projections been honest and 50 years of covert Political intervention thwarted, all would be well. Good luck to all.

 
At 5/05/2009 3:52 PM, Anonymous Barry Elias said...

Upon conception, the Social Security program taxed income at 2%, had an average benefit payout of one year, and functioned with a worker/beneficiary ratio of 15 to 1.

Contrast those figures with today's: 15% tax on income,average payout of 13 years, and a worker/beneficiary ratio of 3 to 1 (demographic projections are 2 to 1 in the near future).

Unfunded Social Security liabilities (which include Medicare) approximate $50 trillion.

The program structure metastisized well beyond its initial intent and will not be demographically sustainable in the long term.

It seems the desire for political power took precedence over prudent, pragmatic public policy with an eye toward generational equity.

On top of this, total public and private debt are roughly $50 trillion (not including the recent financial crisis balance sheet entries).

The financial crisis has added more than $10 trillion of liabilities in the form of direct payments, loans, and guarantees.

Moreover, the current administration is embarking on policy expenditures that will add more than $1 trillion of debt annually.

In response to my observation that the demographics will not support the current Social Security policy, an individual, who currently collects benefits, informed me that they knew the demographics would not support it. I then asked, why did they do it?

I did not receive a reply.

Respectfully,
Barry Elias
May 5, 2009

 
At 5/05/2009 4:04 PM, Anonymous Anonymous said...

I thought that Social Securty was a supplement retirement program. Then a group of political people starting saying it was for retirement and fill in for the unfortunate people that really need help in their elder years. Some actually believed that concept. Also how about people like my late wife who passed away at 59 and received $255. She paid into the trust fund since she was 16. We all could do better in a bank savings account. This problem will not be solved in anyone's lifetime.

 
At 5/16/2009 3:02 PM, Anonymous Anonymous said...

Dear Mr. Prof.
Don`t you think that bankers and other dubious financiers have produced greater damage to economy worldwide then early retirement?

 
At 9/28/2010 4:35 PM, Blogger Michael said...

A fundamental misunderstanding about Social Security is that is some type of "retirement savings plan". That is NOT what it is. It is INSURANCE against being so broke when you are no longer able to work, that you have to eat dog food and sleep under cardboard.

The money that is deducted from your check is not deposited into an account that is earmarked for your personal use. If it was then some people (who live longer) would run out of benefits before they died and the others (who died before they were paid the balance in their nonexistant accounts) would be able to pass that on to their children.

The reason Social Security is so misunderstood is that we live in a capitalist, ownership society. Social Security is based on a social contract, that is similar to paying taxes for police and fire protection.

When it was started, the first recipients, who were turning 65 and given benefits, had never paid a dime into the system. So benefits for current recipients are paid for by the deductions taken from current workers. This is how it has been since the beginning. So all the money that current workers have paid into the system has already been paid in benefits to people who are retired.

In other words, the current workers are fulfilling their part of the "contract" by paying for other peoples retirement. In return, when they retire, they can expect to get paid from the contributions of the new workers who replaced them. They are collecting on the other side of the "contract".

So what is the Social Security Trust Fund? That was set up in the 70's when the Social Security tax doubled to 12.26% (half paid by the worker, and half paid by the employer) This was designed to offset the bulge in the population curve that the baby boomers represent. So in the early years the SS tax could be low because there were 15 workers for each retiree. The raise in SS taxes came because it was foreseen that the ratio would drop to 3 workers per retiree once the baby boomers left the work force. So those of us who have paid into the system our entire lives have fulfilled our side of the social contract and we have a right to expect that our benefits be paid by what is taken in from the current workforce, supplemented by the extra that was taken out of our pay and put into the trust fund.

The way to fix the problem of dwindling funds is to take off the artificial cap on wages that has moved upward slowly, but is still set at around $103k annually. High income workers who make 500K a year, only pay SS taxes on 20% of their earnings and those who make a million only pay SS taxes on 10%.

Since Social Security is insurance against destitution in old age, everyone should have to pay that on every dollar earned, and no one should be able to collect it if they have a retirement income more than 10 times the poverty level. After all, millionaires and billionaires benefit from a society where the streets are not littered with destitute, aged homeless people, and they should be willing to pay an insurance premium to see that doesn't happen to them or anyone else in this country.

So my advice is raise the cap so people who make more than 103K a year pay taxes on every dollar earned, and the rate could be reduced for everyone, and Social Security would be solvent for generations.

And cap the expenditures so we are not paying benefits to people who don't need them. If you remember that it's INSURANCE then it makes sense - why would an insurance company refund the premiums to someone who never had a loss? If you can retire with an income more than 10 times the poverty level, good for you!, but then you don't need Social Security benefits. And if your income is below that, you've earned them.

 
At 10/04/2010 12:01 PM, Blogger Jamie said...

The only problem is that if you view it as and INSURANCE program, then the amount you pay in shouldn't go higher as you make more money. In fact if you make more money through you life you are probably less of a "risk" to become destitute and should actually get to pay less. That is if you view it as an INSURANCE program.

I'm not saying that it a good idea to make changes so it would actually run like insurance, but you can't say it should pay out like insurance but not take in money like insurance does and still call in an "insurance program" with a straight face.

Also I don't understand how if you pay in less you've "earn it" and have the right to it more than someone who paid in more.

 

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