Tuesday, March 18, 2008

A really good ad

I love this ad. While in the tradition of ads you see in Washington, DC, where you're not exactly sure what they're selling, the statistic that Hallmark sold 85,000 100th birthday cards last year is a great heads-up to people planning for retirement that there's a non-trivial chance of living a long time. (Oh, now I get it -- Allstate sells annuities...). You can download the ad in pdf form here.

For those wanting more details, I've calculated the likelihoods that at least one member of a 65-year old couple will survive to a given age:

Age 70: 99.27%
Age 75: 95.83%
Age 80: 86.87%
Age 85: 69.15%
Age 90: 43.46%
Age 95: 18.74%
Age 100: 4.66%.

This is an area where I and many of those who have favored Social Security personal accounts were -- how shall I put this? -- wrong. While there is no reason account holders couldn't purchase annuities at retirement, one attribute of personal accounts that was often promoted was the ability to "unwind" the Social Security annuity to allow for periodic withdrawals or bequests. Annuities provide very valuable insurance against outliving your assets -- a standard finding is that you'd need around $150,000 in a world without annuities to provide the income security of an annuity costing $100,000. While accounts have a number of other strong points, unwinding the Social Security annuity isn't really one of them.


Arne said...

The need to be able to plan for living to 100 is one one the things that convinces me that an all-encompassing retirement insurance is such a good idea. Pooling our resources allows each person to get by on far less than would be needed otherwise.

Anonymous said...

i hope what arne is saying

is that social security will keep paying benefits until your hundredth birthday, or 110th, or 120th

and if we all start living that long, social security can be configured to pay that too. though it would probably require a tax raise or a benefit cut, depending on what made sense at the time.

one thing, it will be gradual coming on and we will have a long time to make adjustments.

personally i have my doubts about ENRON stock guaranteeing that we all live like millionaires from our early retirements to our hundredth birthday.

or has it been lost on everyone that supporting a hundred million retired millionaires will be more of a "burden on the young" than supporting a hundred million social security recipients?