Sunday, January 28, 2007

World’s oldest person takes on actuaries, and loses

Centenarians may be the world’s fastest-growing demographic, and supercentenarians (those aged 110+) now quite common, but centeenarians (113+) are, just like adolescents on their first lap of the clock, a troublesome age-group.

Centeenarians get this label not for having wild mood-swings etc, but because of their propensity for dying just when the going starts to get good – i.e. the “world’s oldest person” title seems within reach.

Barring a handful of women in the last few decades, 115 is pretty much the wall when it comes to long life. Despite improvements in medicine, and the much larger numbers just a few years younger down the line, this age “wall” has barely budged for decades. As a boy reading the Guinness Book of Records in the mid-1970s, I remember the world’s oldest person title being a disappointingly close tussle between a bunch of 113-and-a-bit year olds. While a few stand-outs, most notably Jeanne Calment, who died at 122 in 1997, have since smashed the old wall-at-113, there remains a strong cluster of drop-offs at an only slightly older mark, of 114 and 115.

The proof in the pudding here is that since last week, the world’s oldest person has been the merely 114 (and a little bit) year old Emma Tillman, born on 22 November 1892. What seems likely is that Emma will hold this title to 115, but only if she’s a stayer, and then it will pass on to another 114 or 115 year-old for a few months, ad infinitum barring the occasional super-stayer.

I’m sure this demographic outer-limit of around 115 must be cheering to actuaries, sweating over defined-benefit superannuation plans*, and annuities written long ago.

Jeanne Calment buffs will remember her supreme actuary-trumping annuity deal, in which in 1965, aged 90, she traded her capital for a regular income, the annual sum of which was one-tenth her capital – then lived for another 32 years.

As an extremely risk-averse Xer, Calment’s annuity-stretching seems to me a noble act of thrift, and that rare thing to begin with: a bet that feels psychologically safe.

In contrast, HECS and defined-contribution superannuation – those hallmarks of Xer life – are perverse bets. Unless one does very well – way above the middle – or very poorly, they are losing bets. Currently, this is more clearly seen with HECS – a person who graduates in law (say) with a $40,000 debt (that’s for a nominally taxpayer “subsidised” place) will be in the worst of all possible worlds if s/he always earns around the HECS minimum repayment threshold (currently about $38,000 annually). The debt will be repaid in full, but the graduate will be actuarially worse off by hundreds of thousands of dollars, assuming (as seems likely) that their degree did not bump up their earnings, and taking into account income forgone while studying.

With defined-contribution superannuation, there will be a similar troubling softness in the middle when Xers start to retire. A typical, and median, Xer super balance at 65 might be $150k (2006 dollars). Unless Xers will not generally live past 75, such a lump-sum is trifling as a retirement income stream conversion, compared to what even the old-age pension currently provides.

Faced with these perverse bets, in which one must run either first or last to win, my hunch is that many Xers (certainly myself) have done the naturally risk-averse thing, and aimed low.

* Such plans were always mostly closed to Xers, but boomers are now no doubt gearing up to pillage them in retirement, as they have pillaged everything else on the planet they ever touched.

Sidebar: Boomer cannot think of less-offensive metaphor for shafting Xers than “nigger” one

This is hilarious – and I so hope that the 54 year-old Australian-born Trevor Matthews gets sacked for it (and in turn there might be a new book here for Helen Garner, "shocked" at my "vindictiveness"). I think Matthews most probably indeed is not a racist, but that nothing can absolve him for his not having a sufficiently rehearsed, glib explanation as to why his company’s modification of its defined-benefit plan (i.e. shafting post-boomers, presumably) was buried in the footnotes of a company report.

My Shorter Oxford defines “nigger in the woodpile” as “a concealed motive or unknown factor affecting situation in an adverse way”. The irony is that actuarially there is nothing concealed or unknown about shafting post-boomers within, if not locking them wholly out of, defined-benefit superannuation plans. On the contrary, this little nigger is naked and alone in the flat field.

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