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Will Americans Die Young Enough to Save Pension Plans?


“Pension fund problems worsen in 43 states” says the Bloomberg headline. Laurie Meisler writes,

New Jersey, Kentucky and Illinois continue to lose ground and now have only about one third of the money they need to pay retirement benefits. And three states had double-digit declines in their pension funding ratios in the past year: Colorado, Oregon and Minnesota—though some of this can be attributed to actuarial changes in the way pension liabilities are calculated.

Nevada PERs is thinking about making a change, from assuming 8% investment returns to 7.5%. The higher the assumed rate, the less future beneficiaries have to contribute.  And, ultimately, Sean Whaley writes for the LVRJ,

The assumptions are used to ensure the solvency of the plan over the long term for the approximately 105,000 active members and 54,000 retired and disabled members. Because the public retirement plan is a defined benefit plan where retirees get a fixed monthly pension, taxpayers are ultimately responsible for its fiscal health.

Nevada PERS Executive Officer Tina Leiss said NvPERs funding ratio of 74.1 could drop if the returns assumption is lowered.

The good news (or maybe it's bad news) is “Americans are retiring later, dying sooner, and sicker in-between” says Bloomberg. Ben Steverman writes,

Data released last week, reports Bloomberg,  suggest Americans’ health is declining and millions of middle-age workers face the prospect of shorter, and less active, retirements than their parents enjoyed.

The mortality rate increased 1.2% from 2014 to 2015, the first time its increased since 2005 and the first time it's jumped over 1% since 1980. Full social security benefits don’t kick in until a person is 66+ now, so, “Almost one in three Americans age 65 to 69 is still working, along with almost one in five in their early 70s.”

That sounds okay, except, University of Michigan economists HwaJung Choi and Robert Schoeni have studied middle-aged folks and found, “the number of middle-age Americans with ADL (activity of daily living) limitations has jumped: 12.5 percent of Americans at the current retirement age of 66 had an ADL limitation in their late 50s, up from 8.8 percent for people with a retirement age of 65.”

Then you might say, well, I might not be able to get around, but at least my mind is sharp. Except, “Cognitive skills have also declined over time. For those with a retirement age of 66, 11 percent already had some kind of dementia or other cognitive decline at age 58 to 60, according to the study. That’s up from 9.5 percent of Americans just a few years older, with a retirement age between 65 and 66.”

Maybe that’s why people are either killing themselves quickly--suicide-- or slowly with alcohol, drugs, or overeating.  This is all good news for pension plans. The Society of Actuaries says a 65-year-old man can expect to live to 85.6 years, and a woman can expect to make it to 87.6. So, the group calculates a typical pension plan’s obligations could fall by 0.7 percent to 1 percent.

That won’t do much good, in New Jersey, Kentucky and Illinois.


Doug French

Douglas French is President Emeritus of the Mises Institute, author of Early Speculative Bubbles & Increases in the Money Supply, and author of Walk Away: The Rise and Fall of the Home-Ownership Myth. He received his master's degree in economics from UNLV, studying under both Professor Murray Rothbard and Professor Hans-Hermann Hoppe.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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