Sunday, November 6, 2016

Life Expectancy Changes

Bloomberg reported recently Americans are Dying Faster. It is an interesting article exposing the world of the actuary. Actuaries are perhaps the result of those kids from high school who understood calculus and trigonometry without studying much. It is an intensely mathematical profession. 

I once appeared to speak at a workers' compensation conference and handed my PowerPoint to the coordinator. She cheerfully asked "lots of numbers and graphs?" I demurred and said that it was more about cases and decisions. She solemnly said "you do know the audience is mostly actuaries, right? there have to be numbers and charts." I re-worked the presentation that night with a few graphs and charts. Actuaries like numbers, figures, charts, graphs and projections. And, there can be disputes about how they go about analyzing numbers. 

The title of the Bloomberg story noted that this death situation is not limited to us old-folk baby-boomers; they say this recent trend is similarly affecting millennials (born 1982-2004, 12 to 34 years old). As the article describes, actuaries study the occurrence and timing of events, in an effort to statistically predict future events. In this instance, they have been studying death statistics, the how and when of death for Americans. The main focus of their effort is to afford investment experts a foundation for analysis of life insurance and pension probabilities. This analysis is intended to provide predictability, and to some extent perhaps even mathematical certainty. 

So, there is a practicality to this attempt to predict how long people will live. The law uses these predictions of life-expectancy. I remember my first experience with the "life expectancy tables" decades ago. Asked to calculate the legal exposure on a litigated workers' compensation case, I calculated the injured worker's age, and the consulted the tables to learn the prediction of her or his life expectancy. That figure could be converted to a life expectancy in weeks, and that figure multiplied by the weekly payments for benefits in that case. Viola, the cost of paying those permanent total disability benefits for the rest of the workers' life is predicted (some would say "known," but anything can happen even to someone in the best of health). 

A separate process involved reducing that number to a "present value," that is the amount of money that would have to be invested today to yield the total figure over the predicted time span. That "present value" number is also not without uncertainty. In order to make that calculation an interest rate has to be used. How much interest will that lump sum of money today earn over that lifetime, in order to cover that stream of future weekly benefits. The trouble is that interest rates change and predicting the change is impossible, although it may be practical to obtain a long-term rate in some instances (perhaps by investing in mortgages for example). 

This was interesting and somewhat intricate work. The task had to be repeated many times, for each case in which exposure for permanent total disability or other "lifetime" benefits were implicated. I consulted the life expectancy tables for my age back at the inception of my career, when first introduced to the concept. My own death seemed so far in the future then that it hardly merited much thought. Well, a fair number of years has passed since then, and it seems a whole lot closer and more real today. And, coincidentally I have written two obituary columns this year for people close to my age. Thus, this Bloomberg headline caught my eye. 

According to the data, an "average 65-year-old American man should die a few months short of his 86th birthday, while the average 65-year-old woman gets an additional two years, barely missing age 88." For whatever reason, there is a tendency of women to live longer. 

That life-expectancy does not seem too disturbing. at retirement age, the average American has between 21 and 23 years remaining. But this is characterized by the authors as a "disappointment." It is a disappointment because the life expectancy is not increasing as the actuaries had expected. A population of Americans are dying younger in some instances, and American life expectancy has ceased its trend of increasing. The study cited by Bloomberg concludes that the "culprits are drug overdoses, suicide, alcohol poisoning, and liver disease."

On the positive side, the first three of these are at least potentially preventable. If not preventable, they can all likely be addressed in some part. But, the fact remains that these latest results suggest that "the life expectancy for 65-year-olds is now six months shorter than in last year’s actuarial study." Americans are dying sooner. The trend is similar for the younger population also. The "25 year-old woman last year had a 50/50 chance of reaching age 90. This year, she is projected to fall about six months short." 

In Live Like you Were Dyin', Tim McGraw sings about facing a realization that your time is limited. The premise there is learning of a disease process, and he laments the time spent "lookin' at the x-rays." And, then he describes reacting to the unnamed medical news that was reflected (italics are all direct quote) and:

Talkin' 'bout the options and talkin' 'bout sweet time.
Asked him when it sank in, that this might really be the real end.
How's it hit ya, when you get that kind of news.
Man what ya do?

He then describes some exciting things to do before that end, a "bucket list" construct. The song reminds us of what might be our focus if we faced news of our demise, if we knew we were dying. A lecturer at a recent conference sought to illustrate "certainty" and asked the audience, by show of hands, who planned on dying? That landed some laughs as every hand went up. There is no mystery here, we are all dying. The only mystery is how long we have and what we might manage to accomplish before the end. 

And, although the actuaries are generally examining this information for institutional investors like life insurance and pension funds, Bloomberg says that the information is as critical for us non-actuaries. It contends that America is shifting away from the traditional pension, and more people are taking responsibility for their retirement. Pension plans have been in the news recently as their "unfunded liabilities" (the totals they will have to pay out) are said to increase and the cost of these commitments is scrutinized. One Florida municipality is trying to address its shortfall by shifting its new employees from pension to a more personal 401k model, something that may be a trend. 

Those who will rely on such a personal retirement vehicle will need sound data on how long they will live and thus how long they will require retirement funds. Bloomberg says that the trend to these individual retirement products means that "Americans increasingly need an accurate sense of how long they’ll be alive." With an accurate prediction of how many years of life will remain when active employment ceases or decreases, a person may predict their financial needs. 

Bloomberg contends that this analysis requires some sophistication. It explains that life expectancy is not a constant throughout our lives. When we are born, there is a predicted life expectancy. But that contemplates all of the perils of life that we face at that time, and youth can be dangerous. So, if we are fortunate enough to live through some of those perils, and get past "middle age" (whatever that means anymore), our life expectancy in fact increases. 

The article describes various methodologies employed by these actuaries, some simple and some not so much. And, it stresses that science and progress are usually predicted to positively affect life expectancy. But, the fact is data currently supports that various factors, as noted above, can contradict that progress and work to increase the probability of our death. 

The article concludes that this year's decrease in American life expectancy is not a reason for panic. It suggests that a single year result could be anomalous, and cites broader historical trends of improving life expectancy. It notes that "actuaries assume that eventually, longevity improvements will get back on their long-term track." The advances in health and medicine will again overcome the effects of personal behavior.

This is all very interesting. It is also interesting that personal income is implicated in the analysis. Bloomberg claims that "a 40-year-old man in the top 1 percent can expect to live 14 years longer than his counterpart in the bottom 1 percent." There are other factors cited in this distinction, including education; those with more education tend to be in the upper echelons of income. But there is no doubt that with income  comes access to health care. 

So, knowing that the future is perhaps predictable, what will you do with that time? Tim McGraw's lyrical subject had some ideas. He suggested "sky divin'," "rocky mountain climbin'," "bull ridin'," fishing and more. He described the affects of his realization included a focus that allowed him to "love deeper," "speak sweeter "and giving "forgiveness I've been denying."  

Something to reflect upon as we contemplate the potential life expectancies. Something to reflect upon as we consider the potential affects of various personal behavior on that life expectancy. Something to consider.

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