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-Caveat Lector- Retirement age will rise to 85
BBC / Paul Rincon | February 19 2006
The age of retirement should be raised to 85 by 2050 because of trends in life expectancy, a US biologist has said.
Shripad Tuljapurkar of Stanford University says anti-ageing advances could raise life expectancy by a year each year over the next two decades.
That will put a strain on economies around the world if current retirement ages are maintained, he warned.
He also told a science meeting in St Louis that 50-year or 75-year mortgages may not be unusual in the future.
Dr Tuljapurkar was speaking at the American Association for the Advancement of Science annual meeting in the Missouri city.
"People are going to do things they didn't get round to in their working lives. Current institutions are really not equipped at the moment to deal with such long lives," Dr Tuljapurkar said.
"We are going to have to plan a lot more carefully, which people are not very good at."
Lifestyle trends
The Stanford researcher has been looking at relationships between historical trends in ageing, population growth and economic activity.
Based on this, he came up with a scenario in which anti-ageing technologies will increase the most common age of death by one year per year between 2010 and 2030.
Dr Tuljapurkar then applied this scenario to four countries: the US, China, Sweden and India.
He found that his projected trends in life expectancy would have profound effects on the economy, lifestyle and population demographics."It might be possible to go through two mortgages, for example, or even have 50-year or 75-year mortgages," Dr Tuljapurkar explained.
In the US, the cost of social security and medical care would almost double if people retired at 65 under Tuljapurkar's scenario.
But an increase in the retirement age to 85 would bring costs down to today's levels.
However these trends would also create a "permanent underclass" of countries where opportunities for increased life expectancy were not the same as in the industrialised world.
"We can't even get retrovirals to some countries now," he told journalists.
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http://popstudies.stanford.edu/socialsecurity.html
Social Security
The aging of the U.S. population creates serious challenges for Social Security, the nation's public retirement system. Under almost all projections, the number of workers supporting each retiree under Social Security should fall from roughly 3.3 today to just two workers by 2020. Some pundits use these projections to argue that the Social Security is headed towards bankruptcy.
But there are large future uncertainties in the key factors that will determine the health of Social Security, and every long-term management policy is truly a gamble. The Tuljapurkar Group carries out and applies cutting-edge research on ways for policymakers to grapple with the uncertainties that cloud the long-term dynamics of Social Security.
Publications on Social Security
- "Mortality Change and Forecasting: How Much and How Little Do We Know?"
- "Demographic Uncertainty and the OASDI Fund."
- Ronald Lee and Shripad Tuljapurkar (1997) "Death and Taxes: How Longer Life Will Affect Social Security," Demography 34:67-81, also in HTML format.
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Stochastic Forecasts of the Social Security Trust Fund
Ronald Lee, University of California, Berkeley
Michael Anderson, University of California, Berkeley
Shripad Tuljapurkar, Stanford University
ABSTRACT:
We present stochastic forecasts of the Social Security trust fund by modeling key demographic and economic variables as historical time series, and using the fitted models to generate computer simulations of future fund performance. We evaluate several plans for achieving long-term solvency by raising the normal retirement age (NRA), increasing taxes, or investing some portion of the fund in the stock market.Stochastic population trajectories by age and sex are generated using the Lee-Carter and Lee- Tuljapurkar mortality and fertility models. Interest rates, wage growth and equities returns are modeled as vector autoregressive processes. With the exception of mortality, central tendencies are constrained to the Intermediate assumptions of the 2002 Trustees Report. Combining population forecasts with forecasted per-capita tax and benefit profiles by age and sex, we obtain inflows to and outflows from the fund over time, resulting in stochastic fund trajectories and distributions.
Under current legislation, we estimate the chance of insolvency by 2038 to be 50%, although the expected fund balance stays positive until 2041. An immediate 2% increase in the payroll tax rate from 12.4% to 14.4% sustains a positive expected fund balance until 2078, with a 50% chance of solvency through 2064. Investing 60% of the fund in the S&P 500 by 2015 keeps the expected fund balance positive until 2060, with a 50% chance of solvency through 2042. An increase in the NRA to age 69 by 2024 keeps the expected fund balance positive until 2047, with a 50% chance of solvency through 2041. A combination of raising the payroll tax to 13.4%, increasing the NRA to 69 by 2024, and investing 25% of the fund in equities by 2015 keeps the expected fund balance positive past 2101 with a 50% chance of solvency through 2077.
SUGGESTED CITATION:
Ronald Lee, Michael Anderson, and Shripad Tuljapurkar, "Stochastic Forecasts of the Social Security Trust Fund" (January 31, 2003). Center for the Economics and Demography of Aging. CEDA Papers: Paper 2003-0005CL.
http://repositories.cdlib.org/iber/ceda/papers/2003-0005CL------------------------
http://www.cbo.gov/showdoc.cfm?index=492&sequence=2
Three main reasons underlie the surge [in the 65-plus dependency ratio] : people will live longer, women will have fewer children in their lifetime, and --most significant-- the members of the large baby-boom generation will retire.
People Will Live Longer. Increased life spans will allow more people to reach age 65 and will allow those who do to live for a longer time. Since 1970, average remaining life expectancy at age 65 has risen by at least two years--from 13 years to 16 years for men, and from 17 years to 19 years for women. According to the Social Security Administration, by 2050 the average remaining life expectancy at age 65 will have risen further, reaching nearly 18 years for men and over 21 years for women.(3)
Women Will Have Fewer Children. SSA projects that the number of children that the average woman eventually bears in her lifetime will fall slightly, from 2.0 children today to 1.9 children by 2020 and thereafter.(4) By itself, that average lifetime fertility rate is too low to keep the total population from eventually falling without an influx of net immigration.
Because people enter the workforce at about age 20, the decline in the lifetime fertility rate foretells small cohorts of workers in future decades. The growth of total nonfarm work-hours will slow to a crawl between 2010 and 2020, nearly reaching a standstill from 2020 to 2030 (see Figure 1-2). Total nonfarm hours rose at an average annual rate of 2 percent from 1960 to 1989 but is expected to average only 1 percent from 1989 to 2010 and only 0.3 percent from 2010 to 2020. Part of that decline will stem from slower growth in women's work-hours, as the percentage of women in the workforce approaches that of men. But most of the decline in the growth of total hours will come from slower growth in the number of people of working age.
The high/low bands for the 65-plus dependency ratio made by SSA and the Census Bureau differ so much because the two agencies focus on different end results. The Social Security Administration focuses on the actuarial balance of its trust fund, which depends on the 65-plus dependency ratio. Thus, SSA creates a high-cost path by combining assumptions that lead to a high 65-plus dependency ratio--that is, low rates of mortality, fertility, and net immigration. The opposite assumptions are made for a low-cost path. By contrast, the Census Bureau focuses on population totals. Thus, it creates a high path by combining assumptions that lead to a high population--that is, low mortality rates and high rates of fertility and net immigration. The opposite assumptions are made for a low population path. The combinations of assumptions that the Census Bureau uses lead to a narrow high/low band for the 65-plus dependency ratio. www.ctrl.org DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. Proselytizing propagandic screeds are unwelcomed. Substanceânot soap-boxingâplease! These are sordid matters and 'conspiracy theory'âwith its many half-truths, mis- directions and outright fraudsâis used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. That being said, CTRLgives no endorsement to the validity of posts, and always suggests to readers; be wary of what you read. CTRL gives no credence to Holocaust denial and nazi's need not apply.
Figure 1-2.
Growth in Work-Hours
SOURCE: Congressional Budget Office based on data from the Bureau of Labor Statistics and the Social Security Administration. NOTE: Annual growth in work-hours in the nonfarm, nonhousing business sector over the previous 10 years.
Population Projections Differ Quantitatively But Agree Qualitatively
Although population projections are uncertain and differ among forecasters, all projections agree that the 65-plus dependency ratio will rise substantially over the next 30 years (see Table 1-2, which compares projections of the Social Security Administration, the Bureau of the Census, and private forecasters). The forecasters' intermediate paths or median projections suggest that the ratio will increase from about 21 percent in 2000 to about 36 percent in 2030.
Similarly, all forecasters expect a significant rise in the proportion of the very old, as evidenced by the 85-plus dependency ratio -- the number of people age 85 or older as a percentage of the population ages 20 to 64. The private demographers, Lee and Tuljapurkar, expect higher dependency ratios than the [Social Security Administration and the Census Bureau] after 2030.
SOURCE: Congressional Budget Office based on population projections from the Social Security Administration, the Bureau of the Census, and Ronald D. Lee and Shripad Tuljapurkar, "Stochastic Population Forecasts for the United States: Beyond High, Medium, and Low," Journal of the American Statistical Association, vol. 89, no. 428 (December 1994), pp. 1175-1189. NOTE: n.a. = not available. a. The 65-plus dependency ratio is the population age 65 or older as a percentage of the population ages 20 to 64. The high/low bands for the 65-plus dependency ratio made by the Social Security Administration (SSA) and the Census Bureau differ so much because the two agencies focus on different end results. The Social Security Administration focuses on the actuarial balance of its trust fund, which depends on the 65-plus dependency ratio. Thus, SSA creates a high-cost path by combining assumptions that lead to a high 65-plus dependency ratio--that is, low rates of mortality, fertility, and net immigration. The opposite assumptions are made for a low-cost path. By contrast, the Census Bureau focuses on population totals. Thus, it creates a high path by combining assumptions that lead to a high population--that is, low mortality rates and high rates of fertility and net immigration. The opposite assumptions are made for a low population path. The combinations of assumptions that the Census Bureau uses lead to a narrow high/low band for the 65-plus dependency ratio. b. High and low alternative populations are determined by sensitivity analysis. c. Lee and Tuljapurkar's populations are based on 750 stochastic projections that depend on a statistical model of population dynamics. d. Upper and lower two-thirds bounds are determined by statistical analysis. The bounds bracket two-thirds of the stochastic outcomes so that one-sixth of outcomes lie above the upper bound and one-sixth lie below the lower bound. e. The 85-plus dependency ratio is the population age 85 or older as a percentage of the population ages 20 to 64. To address uncertainty, all of the forecasters also prepare alternative projections, although they use different methods. The Social Security Administration and the Census Bureau prepare their alternative projections simply by making different assumptions about fertility, mortality, and net immigration. In 2050, the 65-plus dependency ratio rises to 46 percent under the SSA's high path and to about 40 percent under the Census Bureau's high path. By contrast, the ratio is 31 percent under the SSA's low path and 35 percent under the Census Bureau's low path.(5) Lee and Tuljapurkar use statistical methods to develop alternative projections and thus can explicitly estimate the chance of error.(6) For instance, they calculate that there are about two chances in three that the 65-plus dependency ratio in 2050 will lie between 33 percent and 46 percent.
The high and low alternatives of the Social Security Administration and the Bureau of the Census are determined by sensitivity analysis. The high and low alternatives of Lee and Tuljapurkar's stochastic populations are determined by statistical analysis so that there are an estimated two chances in three that the actual 65-plus dependency ratio in any year will be within the range shown above. Let us please be civil and as always, Caveat Lector. ======================================================================== Archives Available at:
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