The Death and Pensions Crisis Revisited

PERSPECTIVE-I wrote an article in January 2014. It covered the ever-increasing human life span in this country (if not most of the developed world) and what it meant to projecting post-retirement benefit costs.   

A recent report by CNBC cites the projections of respected financial advisers regarding life spans and retirement planning. 

“The first person to reach age 150 has already been born,” exclaimed Ric Edelman,chairman and CEO of Edelman Financial Services. 

Obviously, while 150 will be the exception rather than the norm, 120 is within the reach of anyone under 40 with decent health care and a semi-active lifestyle. The number of people making it to their 90s tripled between 1980 and 2010; it is expected to quadruple between 2010 and 2050.    

No complaints about living longer, assuming we can avoid undue pain and suffering, but think of the effect on Social Security and public pensions, both defined benefit plans. 

Governments are thinking about it. They are just not doing anything about it. 

California, Los Angeles and all other cities in the state will face dire consequences as pension and healthcare contributions will have to be increased much faster than revenue growth to just stay above water. There is only so much the taxpayers will be able to afford. For that matter, we are already contributing too much while public employees provide too little. 

In a city like Los Angeles, for every year a retiree lives beyond mortality expectations, the combined cost of health and pension costs could easily exceed $100,000 per year. A thousand retirees exceeding actuarial estimates of life expectancy would cost the city $100 million extra per year. 

A court decision that exposes public pension benefits to cuts from municipal bankruptcy will undoubtedly loom larger in the years to come.  

(Paul Hatfield is a CPA and serves as  President of the Valley Village Homeowners Association.  Heblogs at Village to Village and contributes to CityWatch.The views presented are those of Mr. Hatfield and his alone. They should not be construed to represent the opinions of the VVHA or the residents of Valley Village, individually or as a group. He can be reached at: [email protected]. )

–cw

 

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