The Unintended Consequences of Longer Life Expectancies, Part Two

[Ed Note: Vern follows on from yesterday’s discussion of the unintended consequences of longer life expectancies. Here’s four more trends to watch]

1: Population Forecasts

The following chart from the UN Department of Economic and Social Affairs has three different trajectories for population growth to 2300. How you project out 300 years with any accuracy is beyond me and why you even try is just as puzzling.

In 1950 the global population was 2.5 billion. Today it is around 7 billion. Consider this: it took well over two hundred thousand years to reach 2.5 billion, and in just over 60 years another 4.5 billion people have been added.

The baby boom accounts for some of this growth, but by and large, improvements in sanitation, nutrition and medical science have been major contributors to population numbers.

The UN is obviously hedging its bets on which way the world goes after 2050.  The projected range in 2300 is between 2.6 billion and 36.4 billion. Talk about covering all bases.

click to enlarge

Over the next thirty to forty years (until 2050) it is widely expected that the global population will be somewhere in the 9 to 10 billion range. A slowdown in the growth rate is expected due to lower fertility rates.

The game changer here could be if life expectancies do increase. Population numbers may then well exceed 10 billion. If so, a ‘one child policy’ could be introduced in an effort to reduce the burden on the earth’s finite resources.

The combination of baby boomers living much longer and less babies being born is bad news for Gen X&Y. With a limited supply of new tax payers in the pipeline, Gen X&Y will be forced to bear the tax cost to support the entitlement payments to boomers.

Gen X&Y could really develop a palpable loathing for boomers.

2: Inheritances Stop

 Currently baby boomers are in line to receive inheritances from their frugal parents. This is certain to be a welcome boost to their retirement capital. If boomers spend 50+ years in retirement then every extra dollar of capital will be greatly appreciated.

The real risk if boomers outlive their capital and erode the equity in their homes with a reverse mortgage, is that there will be precious little to pass onto their children. The inheritance cycle is likely to start and finish with the boomers.

3: The Earth’s Resources

The earth has a finite amount of resources to sustain its population. More people placing greater demand on those resources – especially food and water – could create cross border tensions leading to wars.

Food in particular is a major issue. Continued urbanisation is dwindling the amount of arable land. To produce more food from less land requires fertilizer.

Phosphorous is an important component of fertilizer and it is a depleting source. Phosphorous cannot be made artificially. The King of Morocco is sitting on 85% of the world’s known phosphorous reserves. The remaining 15% is shared between a few other countries.

With an increasing demand and tightly held supply what does this do to the price of fertilizer, and inevitably the cost of food?

Without phosphorous how do we grow sufficient food to feed the world?

Perhaps this is why the UN has its ‘low’ case scenario projecting a significant reduction in the global population.

From an investment perspective, commodities could be a good long-term play – only after the next credit crisis has shaken markets down to a level of extreme value.

4: The Altered Concept of Retirement

Retire at 65, collect your super and the age pension. Then 20 or so years later, shuffle off the mortal coil. This is the pretty stock standard retirement plan, give or take the odd overseas trip or caravanning holiday.

If we do live to 110 to 120 there is no way retirement can begin at 65. Think about it; you would spend more time in retirement then you did in the workforce. Mathematically this cannot happen. There is no way you can save enough in your working life to sustain a 50-year retirement.

The trend towards later retirements (into your 70’s and 80’s) will happen even without the government forcing the issue.

Some may retire at 65, only to find they need to return to the workforce to make ends meet.

Rising costs (electricity, food, water, healthcare, insurances etc.) and a more restrictive age pension payment will force/necessitate people to remain employed – either part or full time.

The world has undergone massive change since the Second World War. The industrial age delivered great prosperity to the West.

Technology followed this up and enabled science to fast track their research. We have been the beneficiaries of the new drugs, procedures and knowledge on how the body functions.

Dr. Roizen’s bold prediction is both good news and bad news. On a personal level having our loved ones with us for longer is wonderful news. However as a society there will be a cost to pay for this. And I suspect society (especially a heavily indebted one) is ill prepared to meet this cost:

  • reduced welfare
  • delayed retirement
  • higher living expenses due to greater demand for resources
  • retirees potentially outliving their capital and living their final years in a state of subsistence

Perhaps the more dire outlook described above does not happen. Perhaps we can continue to have our cake and eat it too – like we have for the past thirty years.

Perhaps we can live longer and governments can continue to meet the cost of a mushrooming welfare bill. Perhaps governments can keep printing money ad infinitum without any economic side effects.

Perhaps we do avoid the capital destroying impact of GFC Mk2 and investment markets resume paying double-digit returns on our super funds.

Or perhaps, forewarned is forearmed.

Expect life expectancies to rise.

Expect for there to be unintended consequences from more of us being around for a lot longer.

Expect there to be more strain on your capital in retirement.

Hopefully, those armed with these expectations and with a plan to manage these expectations can enjoy their increased life expectancy.


Vern Gowdie+
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Vern Gowdie has been involved in financial planning since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners. His previous firm, Gowdie Financial Planning was recognized in 2004, 2005, 2006 & 2007, by Independent Financial Adviser (IFA) magazine as one of the top five financial planning firms in Australia. He has been writing his 'Big Picture' column for regional newspapers since 2005 and has been a commentator on financial matters for Prime Radio talkback. His contrarian views often place him at odds with the financial planning profession. Vern is is Founder and Chairman of the Gowdie Family Wealth advisory service, a monthly newsletter with a clear aim: to help you build and protect wealth for future generations of your family. He is also editor of The Gowdie Letter, which aims to help you protect and grow your wealth during the great credit contraction. To have Vern’s enlightening market critique and commentary delivered straight to your inbox, take out a free subscription to Markets and Money here. Official websites and financial eletters Vern writes for:

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