Retirement As Never Before

The March 2007 issue of Financial Advisor magazine includes an article about "The Exponent of Life Expectancy" that underscores the notion that "retirement," as we've begun to experience it, is a new thing...something never before attempted.

Nick Murray observes that when King Tut, "the boy king," died at age 19 in 1325, the average life expectancy at the time was only 25 years. In fact, it book about 3,000 years for life expectancy to advance to age 30 (in Europe during the year 1400 AD). That sad rate of advance, 1 year of added life expectancy for every 6 centuries, would mean that today's average life expectancy would be only 35. But obviously advances in health and civilization have improved.

Between 1400 and 1800, life expectancy lengthened so that during the lifetimes of Thomas Jefferson, John Adams, Tecumseh, Lewis & Clark and Aaron Burr, the average life expectancy was 37 years of age.

By the end of that century, in only 100 years time, life expectancies increased by 10 years to age 47. During the next century, life expectancies increased by another 30 years to 77. Murray writes that "seventy is the new 50," and then goes on to speculate, "what if 100 is the new 70?"

When Social Security was created, it promised lifetime income to everyone over age 65. At the time, the average life expectancy was 63 years. Less than half of the population even had an opportunity to retire, and for most it was a short-lived season of life. Now, Money magazine has cover stories focused on "early retirement," say around age 55, which for some folks means that they will live almost half of their life "in retirement."

Is there any wonder why the Social Security numbers don't work? Does it really make sense that workers pay about 15% of their income to underwrite this grand new social experiment called "retirement?" Should poverty-stricken working parents be forced to cut back on food and healthcare for their children so that able-bodied workers have the means to spend more time on the golf course?

Retirees need to realize that the whole notion of a retirement portfolio is relatively new, primarily because the notion of "retirement" has probably been around for less than a century. Folks nearing retirement need to make provisions to take care of themselves until age 100, because that might just be where the average life expectancy resides in a few more decades. And everyone might want to think long and hard about just how "entitled" we ought to feel about Social Security, which has been a wealth transfer program since inception, despite the bluster and promise claimed by the politicians.

All that money you gave to Social Security? It's already spent.

Workers need to take care of themselves, and Social Security would function a lot better if it once again functioned as a "security blanket" for those folks who live much longer than expected as the average life expectancy moves inexorably forward.

Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies.

Go to Investments main page.