Longevity Risk: My Money or Your Life

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
Leeraar
Posts: 4109
Joined: Tue Dec 10, 2013 7:41 pm
Location: Nowhere

Longevity Risk: My Money or Your Life

Post by Leeraar »

I was interested to find this in The Economist print edition of Aug 23-29:

http://www.economist.com/news/finance-a ... ey-or-your
... Such statistics are enough to send a pension trustee to an early grave. Yet there is an apparent cure, in the form of “longevity swaps”, which pension schemes can use to insure against the risk that their members will live longer than expected. In July, the pension scheme of BT, Britain’s former telecoms monopoly, which is wrestling with a deficit of £7 billion ($12 billion), offloaded the longevity risk on over a quarter of its liabilities to Prudential Financial, an American insurer. BT will pay Prudential a monthly fee and it in turn will pay the extra pension costs if the shuffleboarders in question live longer than forecast.
Maybe BobK and I are the only ones interested in this. But, since Prudential now holds my ex-GM pension as an annuity, I am interested that they will take on insuring others for their geezer liabilities.

As a potentially unallowed comment: The cancer drugs now in the news that cost $100,000 per year or more will put a strain on pension systems and SS in that they extend life, in addition to the obvious strain on health care costs.

And, by the way, I do not understand the graphic in The Economist article. Explanations will be appreciated.

L.
Last edited by Leeraar on Sun Sep 07, 2014 12:01 am, edited 1 time in total.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
claver
Posts: 213
Joined: Thu Jan 16, 2014 10:34 pm

Re: Longevity Risk: My Money or Your Life

Post by claver »

Leeraar wrote:
And, by the way, I do not understand the graphic in The Economist article. Explanations appreciated.

L.
The graphic shows how long a male was predicted to live, varying by the year they were born (and therefore the year the prediction was made). Each colored line on the graph points from a year born to an expected age at death. The expected ages at death are graphed on the continuous line against the y-axis. Thus, at birth in 2012, the average age for a male at death was predicted to be 79. The age predicted at death for a male born in 1985 was about 73.

BTW, this is what a civil answer looks like.

claver
Topic Author
Leeraar
Posts: 4109
Joined: Tue Dec 10, 2013 7:41 pm
Location: Nowhere

Re: Longevity Risk: My Money or Your Life

Post by Leeraar »

And, the line "At start" means ... ?

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
claver
Posts: 213
Joined: Thu Jan 16, 2014 10:34 pm

Re: Longevity Risk: My Money or Your Life

Post by claver »

Leeraar wrote:And, the line "At start" means ... ?

L.
LE as predicted at birth. Predicted LE increases as one gets older.
Topic Author
Leeraar
Posts: 4109
Joined: Tue Dec 10, 2013 7:41 pm
Location: Nowhere

Re: Longevity Risk: My Money or Your Life

Post by Leeraar »

Graphic in question:

Image

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
User avatar
celia
Posts: 16774
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: Longevity Risk: My Money or Your Life

Post by celia »

I think the brown "At Start" line is the only line on the graph that matters. It is the life expectancy on the y-axis for the year one was born on the x-axis. The other lines seem like they are left-pointing arrows (without the arrowhead) showing where each birth year falls on the "At Start" line.

Possibly "At Start" is the British equivalent of "At birth" in the U.S.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
User avatar
celia
Posts: 16774
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: Longevity Risk: My Money or Your Life

Post by celia »

If I understand the article correctly, I don't think I'll buy any "longevity" bonds.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
Topic Author
Leeraar
Posts: 4109
Joined: Tue Dec 10, 2013 7:41 pm
Location: Nowhere

Re: Longevity Risk: My Money or Your Life

Post by Leeraar »

celia wrote:If I understand the article correctly, I don't think I'll buy any "longevity" bonds.
"It's a puzzlement" - The King and I. :happy

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
User avatar
nisiprius
Advisory Board
Posts: 52212
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Longevity Risk: My Money or Your Life

Post by nisiprius »

A century ago, people celebrating their 100th birthday were rare enough to be local news, but common enough not to be national news.

Today, people celebrating their 100th birthday are rare enough to be local news, but common enough not to be national news.

I am skeptical about true life extension, although that may be sour grapes because if we do get it, it will be too late for me. I was wrong about "flat TV you can hang on a wall," they were just around the corner since the 1950s and I didn't think we'd ever see them; on the other hand, I don't see the helicars or the moon colonies.

I think we're seeing some blip due to more people achieving the natural lifespan, not extension of lifespan, and I don't think it can be projected forward any more than the recent decline in U.S. life expectancy at birth (yes, decline) can be projected forward. I don't think increases in life expectancy at age 65 mean the natural life span is increasing, and I don't think the decline in life expectancy at birth means the natural life span is decreasing.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
dhodson
Posts: 4117
Joined: Mon May 24, 2010 3:03 pm

Re: Longevity Risk: My Money or Your Life

Post by dhodson »

while i dont know if life expectancy is going to substantially increase, i will say that if it does then people who bought products to cover that longevity risk are going to have a hard time collecting from the insurance companies. There is no magic in this world for social security nor the insurance companies.
User avatar
VictoriaF
Posts: 20122
Joined: Tue Feb 27, 2007 6:27 am
Location: Black Swan Lake

Re: Longevity Risk: My Money or Your Life

Post by VictoriaF »

Leeraar wrote:Graphic in question:

Image

L.
The graph is ambiguous. If the intention was just to show the expected lifespan in the year of birth, it could be accomplished with a series of dots for (year of birth, life expectancy) pairs.

The lines represent how the projections of the life expectancy change with every passing year. The straight black line on the bottom represents the forecast made in 1971 of how the life expectancy might grow. The wiggly brown line on the top represents how the life expectancy of men born in 1971 actually grew.

Victoria
Inventor of the Bogleheads Secret Handshake | Winner of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)
Valuethinker
Posts: 49030
Joined: Fri May 11, 2007 11:07 am

Re: Longevity Risk: My Money or Your Life

Post by Valuethinker »

Leeraar wrote:
As a potentially unallowed comment: The cancer drugs now in the news that cost $100,000 per year or more will put a strain on pension systems and SS in that they extend life, in addition to the obvious strain on health care costs.


L.
I doubt that is really true. Maybe on healthcare budgets yes, but enough of an increase of life expectancy to affect the average life expectancy?

Hepatitis C? Maybe. That's $30-40k for a *cure* and there are 1.5 m sufferers in USA (I haven't checked that number). Adding say 30 years on average to their useful life (although those aren't, usually, the kind of people who buy annuities).

Cancer? You are talking tiny numbers of people for each drug. And 1-5 years of life extension on 1-2 million people (across all these drugs) even 3m isn't going to transform yours or my life expectancy.

Also remember those drugs will go generic in less than 20 years, so the healthcare impact is smaller.
Valuethinker
Posts: 49030
Joined: Fri May 11, 2007 11:07 am

Re: Longevity Risk: My Money or Your Life

Post by Valuethinker »

Leeraar wrote:I was interested to find this in The Economist print edition of Aug 23-29:

http://www.economist.com/news/finance-a ... ey-or-your
... Such statistics are enough to send a pension trustee to an early grave. Yet there is an apparent cure, in the form of “longevity swaps”, which pension schemes can use to insure against the risk that their members will live longer than expected. In July, the pension scheme of BT, Britain’s former telecoms monopoly, which is wrestling with a deficit of £7 billion ($12 billion), offloaded the longevity risk on over a quarter of its liabilities to Prudential Financial, an American insurer. BT will pay Prudential a monthly fee and it in turn will pay the extra pension costs if the shuffleboarders in question live longer than forecast.
Maybe BobK and I are the only ones interested in this. But, since Prudential now holds my ex-GM pension as an annuity, I am interested that they will take on insuring others for their geezer liabilities.

As a potentially unallowed comment: The cancer drugs now in the news that cost $100,000 per year or more will put a strain on pension systems and SS in that they extend life, in addition to the obvious strain on health care costs.

And, by the way, I do not understand the graphic in The Economist article. Explanations will be appreciated.

L.
There is misperception in these statistics.

The revolution in life expectancy is that a lot of people who used to die young, don't, any more. That plus certain public health offensives: air pollution, asbestos and smoking in particular. Each of these has had a measurable effect on premature death rates in adults.

That plus medicare and SS means Americans who make it to 65 are quite likely to make it to 80-something.

But there has not been a revolution in how many people live past 85 say. It's not that we've made it possible for humans to live past their alloted span (say around 100 years) it's just we've worked out how to get more people to that age.

It is also, btw, quite likely to go dramatically backwards. Ebola and SARS are merely the first of a wave of zoonotic diseases (see David Quammen's book, which is really good) that are going to hit the human race. History shows that when you get 10 billion large anythings, and there will be 10 billion of us, that the things that prey on them also multiply (and adapt very rapidly). Since humans are the apex of the predatory tree, that means the diseases that prey on us-- a human is just a cold virus' way of replicating and spreading itself.

If you look at the data on effectiveness of antibiotics and the number of 'curable' diseases that now have an incurable strain (tuberculosis) then you can see that our big gains in life expectancy are likely to be in abbeyance.

Imagine being in a world, as we were pre 1945, where a routine surgical procedure had a high chance of death due to infection. We are returning to that world very fast.

I haven't even mentioned the rise in 'diseases of affluence'. In particular obesity and diabetes. In which the US, UK, Canada lead the world, btw.
User avatar
VictoriaF
Posts: 20122
Joined: Tue Feb 27, 2007 6:27 am
Location: Black Swan Lake

Re: Longevity Risk: My Money or Your Life

Post by VictoriaF »

Valuethinker wrote:
Leeraar wrote:
As a potentially unallowed comment: The cancer drugs now in the news that cost $100,000 per year or more will put a strain on pension systems and SS in that they extend life, in addition to the obvious strain on health care costs.


L.
I doubt that is really true. Maybe on healthcare budgets yes, but enough of an increase of life expectancy to affect the average life expectancy?

Hepatitis C? Maybe. That's $30-40k for a *cure* and there are 1.5 m sufferers in USA (I haven't checked that number). Adding say 30 years on average to their useful life (although those aren't, usually, the kind of people who buy annuities).

Cancer? You are talking tiny numbers of people for each drug. And 1-5 years of life extension on 1-2 million people (across all these drugs) even 3m isn't going to transform yours or my life expectancy.

Also remember those drugs will go generic in less than 20 years, so the healthcare impact is smaller.
Your last line is the key. After drugs become generic and inexpensive, they have a much broader impact. For 20 years, cancer drugs will be affecting healthcare budgets, but on the long run they will be affecting the longevity.

Victoria
Inventor of the Bogleheads Secret Handshake | Winner of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)
Valuethinker
Posts: 49030
Joined: Fri May 11, 2007 11:07 am

Re: Longevity Risk: My Money or Your Life

Post by Valuethinker »

dhodson wrote:while i dont know if life expectancy is going to substantially increase, i will say that if it does then people who bought products to cover that longevity risk are going to have a hard time collecting from the insurance companies. There is no magic in this world for social security nor the insurance companies.
Except that the people who created the SS System actually anticipated the rise in longevity fairly accurately. Roger Lowenstein's book on pensions will take you through the data. I was certainly surprised by that.
User avatar
VictoriaF
Posts: 20122
Joined: Tue Feb 27, 2007 6:27 am
Location: Black Swan Lake

Re: Longevity Risk: My Money or Your Life

Post by VictoriaF »

Valuethinker wrote:That plus medicare and SS means Americans who make it to 65 are quite likely to make it to 80-something.

But there has not been a revolution in how many people live past 85 say. It's not that we've made it possible for humans to live past their alloted span (say around 100 years) it's just we've worked out how to get more people to that age.
Ray Kurzweil and others expect that stem cells, nano technology, and other medical advances will reverse some effects of aging. They anticipate waves of longevity. For example, if you live for 10-20 more years and maintain your basic health, your life expectancy will be increased by 10 years. As you live these 10 extra years, new advances will extend your life by additional 10 years, and so on.

At the individual level, riding a wave of longevity is a positive Black Swan that you have to be able to afford. At the healthcare and insurance level, jumps in longevity are a negative Black Swan that will break current forecasts.

Victoria
Last edited by VictoriaF on Sun Sep 07, 2014 9:37 am, edited 1 time in total.
Inventor of the Bogleheads Secret Handshake | Winner of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)
Valuethinker
Posts: 49030
Joined: Fri May 11, 2007 11:07 am

Re: Longevity Risk: My Money or Your Life

Post by Valuethinker »

VictoriaF wrote:
Valuethinker wrote:
Leeraar wrote:
As a potentially unallowed comment: The cancer drugs now in the news that cost $100,000 per year or more will put a strain on pension systems and SS in that they extend life, in addition to the obvious strain on health care costs.


L.
I doubt that is really true. Maybe on healthcare budgets yes, but enough of an increase of life expectancy to affect the average life expectancy?

Hepatitis C? Maybe. That's $30-40k for a *cure* and there are 1.5 m sufferers in USA (I haven't checked that number). Adding say 30 years on average to their useful life (although those aren't, usually, the kind of people who buy annuities).

Cancer? You are talking tiny numbers of people for each drug. And 1-5 years of life extension on 1-2 million people (across all these drugs) even 3m isn't going to transform yours or my life expectancy.

Also remember those drugs will go generic in less than 20 years, so the healthcare impact is smaller.
Your last line is the key. After drugs become generic and inexpensive, they have a much broader impact. For 20 years, cancer drugs will be affecting healthcare budgets, but on the long run they will be affecting the longevity.

Victoria
The impact on healthcare budgets ($100k pa) is much greater than the impact on pensions (say $25k pa).

And those drugs will decline in efficacy over time, as cancer mutates.

Whilst it would be great to have new cancer drugs, especially for cancers of the digestive system and for breast cancer, it's unlikely they will have a dramatic impact on overall life expectancy.

Computer driven cars *might*.

http://en.wikipedia.org/wiki/List_of_mo ... S._by_year

I am thinking c. 33k deaths pa, and the vast majority of those deaths must be under 65. So the years saved in lives will be large.

http://www.cdc.gov/nchs/data/nvsr/nvsr62/nvsr62_06.pdf

says it is heart disease is number 1. So maybe nearly universal statins? On cancer, I think the problem is that 'cancer' is a class of maladies rather than a disease per se, so the universal cure is unlikely. Cancer is almost a symptom of the fact we live so long, rather than a 'disease'.
Valuethinker
Posts: 49030
Joined: Fri May 11, 2007 11:07 am

Re: Longevity Risk: My Money or Your Life

Post by Valuethinker »

VictoriaF wrote:
Valuethinker wrote:That plus medicare and SS means Americans who make it to 65 are quite likely to make it to 80-something.

But there has not been a revolution in how many people live past 85 say. It's not that we've made it possible for humans to live past their alloted span (say around 100 years) it's just we've worked out how to get more people to that age.
Ray Kurzweil and others expect that stem cells, nano technology, and other medical advances will reverse some effects of aging. They anticipate waves of longevity. For example, if you live for 10-20 more years and maintain your basic health, your life expectancy will be increased by 10 years. As you live these 10 extra years, new advances will extend your life by additional 10 years, and so on.

Victoria
Ray Kurzweil hasn't checked his newspaper. There's a host of antibiotic resistant diseases out there. Plagues that kill 1-2% of the world population (ie 1/10th to 1/20th the lethality of some of the great plagues of medieval and early modern periods) which would be in the realm of the Spanish Flu of 1919, are quite likely.

This quest for eternal life is as old as humans. Look at the whole culture of Ancient Egypt. this desire to cling to life and to 'take it with you'.

We might find a way that most of us live to 110 say, but without actually reengineering our genome, I don't see how we can reasonably expect to live longer than that-- we don't have the metabolism of tortoises.
Topic Author
Leeraar
Posts: 4109
Joined: Tue Dec 10, 2013 7:41 pm
Location: Nowhere

Re: Longevity Risk: My Money or Your Life

Post by Leeraar »

Valuethinker wrote:The revolution in life expectancy is that a lot of people who used to die young, don't, any more.
At 63, I am now older than any of my grandparents lived to be. They all died of diseases that are now curable or preventable through vaccinations.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
User avatar
VictoriaF
Posts: 20122
Joined: Tue Feb 27, 2007 6:27 am
Location: Black Swan Lake

Re: Longevity Risk: My Money or Your Life

Post by VictoriaF »

Valuethinker wrote:
VictoriaF wrote:
Valuethinker wrote:That plus medicare and SS means Americans who make it to 65 are quite likely to make it to 80-something.

But there has not been a revolution in how many people live past 85 say. It's not that we've made it possible for humans to live past their alloted span (say around 100 years) it's just we've worked out how to get more people to that age.
Ray Kurzweil and others expect that stem cells, nano technology, and other medical advances will reverse some effects of aging. They anticipate waves of longevity. For example, if you live for 10-20 more years and maintain your basic health, your life expectancy will be increased by 10 years. As you live these 10 extra years, new advances will extend your life by additional 10 years, and so on.

Victoria
Ray Kurzweil hasn't checked his newspaper. There's a host of antibiotic resistant diseases out there. Plagues that kill 1-2% of the world population (ie 1/10th to 1/20th the lethality of some of the great plagues of medieval and early modern periods) which would be in the realm of the Spanish Flu of 1919, are quite likely.

This quest for eternal life is as old as humans. Look at the whole culture of Ancient Egypt. this desire to cling to life and to 'take it with you'.

We might find a way that most of us live to 110 say, but without actually reengineering our genome, I don't see how we can reasonably expect to live longer than that-- we don't have the metabolism of tortoises.
Kurzweil distinguishes the statistics of the general population from the possibilities for himself and people like him. Even in the ancient times, when the average life expectancy was dismally low due to the infant, childbirth, accidental, and infection-based deaths, selected individuals were living into their 70s and even 80s.

The thing about medical breakthroughs is that they are positive Black Swans, unexpected a priori and taken for granted a posteriori. While we can't count on any particular Black Swan, a Black Swanish extension of life expectancy is within a realm of possibility.

Some medical discoveries will affect only selected individuals like Kurzweil, i.e., affluent, insightful, and lucky ones, without significant impact on the overall healthcare and insurance statistics. Other discoveries may throw off today's financial forecasts. As with all Black Swans, we don't know today which, if any, will show up.

As an aside, the quest for eternal life is not limited to naive souls. Living life with an attitude of eternity is psychologically healthier than counting days to the statistical endpoint. To clarify, an attitude of eternity does not mean procrastinating in expectation that there will be enough time to do it later. It is an attitude of undertaking challenging, long-term projects without worrying about dying in the middle of the project.

Victoria
Inventor of the Bogleheads Secret Handshake | Winner of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)
AviN
Posts: 479
Joined: Mon Mar 10, 2014 8:14 am

Re: Longevity Risk: My Money or Your Life

Post by AviN »

Leeraar wrote: As a potentially unallowed comment: The cancer drugs now in the news that cost $100,000 per year or more will put a strain on pension systems and SS in that they extend life, in addition to the obvious strain on health care costs.
On the bright side, health care spending has been increasing less than expected over the past few years. If those trends continue, health care spending will be less bad than previously expected.

http://www.vox.com/2014/9/4/6101835/fiv ... get-buster
User avatar
kramer
Posts: 1953
Joined: Wed Feb 21, 2007 1:28 am
Location: World Traveler

Re: Longevity Risk: My Money or Your Life

Post by kramer »

Valuethinker wrote:
But there has not been a revolution in how many people live past 85 say. It's not that we've made it possible for humans to live past their alloted span (say around 100 years) it's just we've worked out how to get more people to that age.
Actually, many experts disagree with you on this statement.

Statistically, life expectancy at age 65 for Americans shows no signs at all of letting up and is increasing by one year per decade.

Possibly the world's greatest expert on this was the now-deceased Nobel Prize winner Robert Fogel and he did not think incremental longevity increases would stop (nor did he think the slope would lessen).

And while there are many factors that have led to our current lifespans, it is not even clear at all which factors contributed the most (vaccinations, public health measures, better nutrition, advances in medical treatment, etc.). As Fogel pointed out in his scrupulous research, whole classes of diseases appear much later in life now than before and no one understands why.

Personally, I am optimistic on incremental life expectancy increases (similar to the present) but not any sort of big life expectancy jump as some hope for.
User avatar
tadamsmar
Posts: 9972
Joined: Mon May 07, 2007 12:33 pm

Re: Longevity Risk: My Money or Your Life

Post by tadamsmar »

nisiprius wrote: I am skeptical about true life extension, although that may be sour grapes because if we do get it, it will be too late for me.
Do those grapes have resveratrol in their skins?
Post Reply