We all find it difficult to choose between now and later. Some people have no concept of “later.” It’s always now. Others are so concerned about “later” that they never experience the present. Finding a reasonable balance between these extremes is a central issue for retirement saving and, later, for retirement living.
Most people will live to experience retirement
But here’s the reality: Most of us will live to age 60. If you don’t, you’ve definitely drawn the short straw. According to the U.S. Life Tables, 92,040 of every 100,000 born will live to age 55 and 88,729 will live to age 60. The odds are good that most people will live long enough to experience retirement. So thinking about “later” while you are younger is a good idea — even if it’s difficult.
…But how much retirement you’ll get to experience is another matter.
After 60, however, things are different. While some will still live another forty years to age 100, few actually will. Each year more of the 88,729 remaining at 60 die, rising from 795 between 60 and 61 to a peak of 3,614 between age 87 and 88. After that the number dying per year starts to decline. (This doesn’t mean you’re on a fast track to immortality, it just means the group has become so small that the fewer that die are still a higher percentage of those remaining.)
That’s statistics. But the stats have an existential message. While our collective death rate is low between birth and 60, it’s rise after age 60 tells us that it’s entirely reasonable to emphasize “now” over “later.” In effect, the life tables tell us it’s OK to eat desseert first if you are older, but not a good idea when you are younger. The question is, “How much?”
How do we measure the value of a future year?
Can we quantify that change? I think so. One way is to put a value on each future year. If we were dealing with a future sum of money, rather than life, we’d discount it by the interest rate money earns — what financial types call “discounted present value.” But with life we discount future years by the probability of being alive. This year, whatever it is, we are here. So it’s worth a lot. Next year the probability is lower, still lower the year after that, and so on.
The result is what we expect, but surprising in its power. Those early years of conventional retirement— our sixties and seventies— are precious relative to later years. Here is what I found in a 2007 column on the subject:
- The 10 years from 65 to 75 are “worth” as much as all 25 years from 76 to 100 because of the higher probability of being alive in the first 10. So go for it today.
- The 17 years from 65 to 82 are “worth” 4 times as much as the years remaining from 83 to 100.
You can read the full column here.
The results will have changed a bit over the last 11 years due to increases in life expectancy, but not dramatically.
This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.
Photo: Scott Burns
(c) Scott Burns, 2018