Sunday, January 6, 2013

Maybe You Live Too Long?


Changing Actuarial Demographics 

The oldest individual in Illinois passed away last Monday in the East St. Louis area of Illinois.  An announcement came on Saturday, coincidentally, while in Chicago the state House and Senate leadership came to an impasse regarding what to do about breaking earlier promises of benefits to Illinois’ public sector workers.  This includes the COLA, which remains a particularly sticky problem for the lawmakers who realize the likelihood or possibility of unfavorable litigation if they alter (i.e., diminish or impair) the benefit.

Mayette Epps-Miller, born on April 15, 1901, was 111 years old.   Identified in surveys of the elderly as a “supercentarian,” one who lives beyond 110, Mayetta was considered by her remaining family to have been the “rock…who pulled everyone together” (http://www.daily-chronicle.com/2013/01/06/east-st-louis-woman-dies-at-111/aupdc7e/).  Such an obituary would leave most of us smiling for the lady.  You go, Mayetta.  On the other hand, if you are a lawmaker in Illinois, this is as frightening as a constituency version of “The Walking Dead,” except the zombies are feasting on dollars.  Never mind that the dollars were owed them to begin with.   

Talk to any legislator in Illinois, he or she will be quick to remind you that we are living too long now.  They say that such changing actuarial demographics make the continued payment of benefits into later years impossible or injurious to payments to later public sector workers.  Of course, an Illinois legislator won’t tell you that the real issue is the colossal sums money diverted for nearly half a century, funds owed but not paid to public sector workers.   

Nevertheless, while they would be right to remind that we are living longer than before, that also creates an even greater need to maintain the compounded COLA.    Life expectancies are at an all time high according to the Center for Disease Control and Prevention – 76.5 in 1977 to 77.9 in 2007.  The downside is that living longer does not necessarily mean living better.  The Lancet Journal of Medicine is carrying a study by the Global Burden of Disease Study, considered one of the most comprehensive studies in the history of medicine, which indicates medical expenses in extended life scenarios may be significantly more.  Despite the scourge of diabetes, etc., we continue to live longer and pay more – for medical care.

Of course the compounded cost-of-living adjustment is not a means to get wealthy after retirement, unless you of course are raking in more than$25,000 (according to Rep. Kelly Cassidy).  The real concern with inflation is not increasing your standard of living. Instead, it's about maintaining it. “For example, assuming a modest 3% inflation rate, your income would need to increase over 80% from age 65 to age 85 just to retain the same standard of living. If inflation were 4%, your income would have to more than double over those twenty years”

Let’s be honest.  In Illinois, where morality is moot, no argument to preserve a compounded COLA is going to receive any serious consideration by our politicians.  The only preventative keeping Nekritz, Biss, Cross, Radogno, Madigan and Quinn from simply swiping it all away is the foresight of Helen Kinney and Henry Green who gave us a pension protection clause in 1970. 

And Mayetta?  Sometimes the view changes when we look the other way back through telescope.  Let’s say she was a teacher, just for speculative purposes.  In 1950, when she might have retired, she would have been making about 75% of her final average salary, which would have been around $4500 annually.  With a compounded COLA (which of course did not start until we all began paying for it in 1990), she might have been receiving $11,009.38 (http://www.online-utility.org/math/compound_interest_calculator.jsp?principal=3375&years=40&interest_rate=3).  With the “new math” provided by Rep. Cassidy, it would be $3625 this last year. 

Stinkin’ Zombies.



No comments:

Post a Comment