Plus, why TIAA has it all wrong
Ric Edelman: It's Tuesday, January 24th, and today at noon Eastern time, I'm presenting a 90-minute webinar for the Museum of American Finance and the New York Public Library. My topic, Financial Planning in the Age of Longevity. The webinar's open to the public. You can register for free (or watch a replay) at TheTruthAYF.com/MOAF.
Changing Demographics Creating Havoc with Pensions and SS in US and Abroad
One of the webinar topics I'm going to be discussing is our Social Security system. You’ve likely heard that the trust fund is being depleted. I've been talking about this a lot on this program over the years. By 2031, the trust fund will be gone. Why? Because we only have three workers for every retiree in this country. Back when the Social Security system was founded, we had 135 workers for every retiree. I mean, the notion was you'd work until you were 62 and you'd be dead by 65. With so many people paying into the system and so few taking money out, the trust fund would be fat and happy for a very long indefinite period.
But the demographics in our nation have changed. We're now at the situation where we don't have 135 workers for every retiree. We only have three workers for every retiree. So the trust fund is needed because we no longer are collecting enough payroll taxes to pay all the benefits that the retirees are receiving. People aren't retiring at 62 and dying at 65. They're retiring at 65 and they're living to 85. The system was never designed to support so many people for so many years. As a result, we are depleting the trust fund and 10 years from now, eight years from now, the trust fund will be gone. And oh, by the way, this isn't news; we've known about this for years, decades.
And by the way, our demographic shift, that's not a US thing. This is a global thing. It's not just the United States Social Security system that's in trouble. Germany's pension system is on the verge of collapse as well. It's going to default not in eight years like ours. Theirs is going to default in five years for the very same reason. Too few workers, too many retirees. By 2030, all the baby boomers in the world are going to be over 65 years of age. Soon, in Germany, there are going to be more retirees than children. They only have two workers for every retiree and one of their proposals to solve the problem is they want to raise the retirement age from 67, where it is now, to 68. They just want to move it up one year.
In France, the situation is even worse because in France, people there retire at 62. The president of France, Emmanuel Macron, he wants to raise the retirement age in France to 64. Yeah, it's only 62. Right now, people in France retire at 62. He wants to bump it up to 64. And he wants to do this by 2030. So this is not a big deal, right? I mean, my goodness gracious, they're already retiring at 62. What's the big deal? Retiring at 64, seven years from now? Well, this proposal is hugely unpopular.
Last week, 1 million people across the country protested; 200 demonstrations all throughout France. 77% of the country opposes this idea, including, as you might expect, every union in the country. Right now, the average worker retires at 60 and they live 25 years on average in retirement. France is spending 14% of its GDP on pension benefits, twice the European average. By the end of the decade, the French pension system is going to be paying $15 billion more than it's collecting in taxes. And so Macron wants to solve the problem - have people delay their retirement. The result, a million people protesting. And his approval rating is at 36%.
Does that sound familiar? Everybody everywhere is in denial about this. We can't keep having people retire at 60 or 62 or 67. Your retirement age has to be in context with your life expectancy. There's no way that the amount of money we're putting into the system can afford to pay us benefits for as many years as we're retiring, and especially if we're going to live for 30 or 40 more years, which is exactly what's happening right now with retirees. We've got to start telling people that they need to plan on working well into their 70s, even into their 80s, because you're going to live into your 100s. Nobody wants to hear this, though, and most don't even know that this is what they need to hear.
Even the so-called experts don't want to understand this. Let me give you one example. TIAA. That's the big annuity company. TIAA has been in business for 100 years. People have bought nearly $200 billion in annuities from them and TIAA is still behaving the way they did 100 years ago. They think that people are going to die at the ages that people have been dying at over the past hundred years. I'm not kidding.
TIAA wanted to prove that people are financially illiterate, so they did a survey. And the results showed that it's not Americans who are stupid, it's TIAA. They asked 3,500 adults a question. They gave them three multiple choice answers, and every one of these three choices were wrong. And then TIAA issued a press release saying that two thirds failed the test and woe is us because everybody's got financial illiteracy and our situation is terrible.
If there's any financial illiteracy anywhere, it's TIAA that's illiterate, not the people who took the test. Here's the question that TIAA asked, because I know you want to know what the question was. Here's the question: What is the life expectancy among 60-year-old men in the United States? Now, here are the choices that they gave you: 60-year-old men are going to live to age 76, age 82 or age 88. 37% said that men who are 60 years old today would live to age 82. And TIAA says that's the right answer. Therefore, they said two thirds of the people are wrong. That's crazy. TIAA is the one who got it wrong. All three of these answers is wrong.
Why We’re Living Longer – to 100 and Beyond
If you're 60 today and you're alive in 2030, when you're 67, you're probably going to live to age 100, not 82. I know this is hard to believe. We keep hearing of celebrities dying in their 70s and 80s. Jeff Beck - God rest his soul - died last week at age 78. David Crosby, may he rest in peace, died at age 81.
We all love their music so much. But we've got to make sure that we don't anchor ourselves. There's something called a 1/N heuristic (AKA equity heuristic). We take a whole population. We place it with the experience of just one person because we can't relate to millions, but we can understand one. Like 13 billion COVID shots have been administered worldwide. I said this to a guy I know who is not vaccinated. You know what he said? “Well, I know a guy who got the shot and died.” Really like, even assuming that claim is true, which I doubt he's using the experience of one guy he knows instead of literally billions of people he doesn't know as his anchoring data set. That's just stupid.
So please forget about the idea that you're going to die at age 82. You're far more likely to die at 102. You know, this webinar that I'm doing for the New York Public Library today and the Museum of American Finance called Financial Planning in the Age of Longevity I mentioned earlier in the show today, my whole presentation is all about the fact that everybody's actuarial data is based on historic information, and they're ignoring the advances that are being made by exponential technologies, AI, robotics, 3D printing, big data, nanotech, biotech, bioinformatics, neuroscience, and so much more.
If you look at the rise of life expectancies over the past 200 years, you'll see a trend line. Based on that historic trend line, you'll figure that today's 60-year-olds will die in 22 years. But we're curing diseases today that we were never able to cure before, diseases that were killing people in their 80s. And that means people in their 80s are going to live into their 90s and into their hundreds. Everybody studying this is in agreement with these points. It's all about the human genome.
We're sequencing our DNA. Back in 1990, it took 13 years and nearly $3 billion to sequence the DNA. Today we can do it for $400 and three weeks. By the end of the decade, it'll be a free app in your phone. This is why there's no such thing as breast cancer anymore. It's referred to as the BRCA1 gene. We're able to take everything and boil it down to the genes, to the DNA. And as a result, all cancers, all diseases are going to get renamed for their genomes.
And then, we had back in 2015, eight years ago, the breakthrough of the year in medicine - CRISPR-Cas9. This technology allows us to add missing genes to our own DNA, remove bad ones like you cut and paste in a Word document. And we're able to cure diseases while babies are still in the womb.
And then there's another technology called focused ultrasound. If you have a tumor, if you have a disease, you have an illness, they're able to treat it without surgery, no radiation, no chemo. It hits the tumors at the molecular level. You're familiar with ultrasound. Lots of us have had these tests. It's painless. It's simple. It's easy. It's cheap. Well, focused ultrasound takes these sound waves and focuses them at the molecular level, hitting the tumor. The surrounding tissue is unharmed, less risk of infection, of hemorrhage, of tissue damage, no pain or side effects. It's done on an outpatient basis, meaning you get rapid recovery.
It's already approved by the FDA for bone metastases, essential tumors, Parkinson's, prostatic hyperplasia, prostate cancer, uterine fibroids. There are medical trials underway for hundreds of diseases - cardiovascular, endocrine disorders, gastrointestinal, musculoskeletal, neurological, pulmonary ophthalmological, urological and women's health.
The list goes on and on, potentially offering treatment for hypertension, hemophilia, thyroid cancer, liver tumors, melanoma, arthritis, soft tissue injuries, depression, Alzheimer's disease, kidney tumors, vaginal tumors, endometriosis. It's really amazing.
The scientists are telling us that by 2030, we're going to cure heart disease, respiratory illness, diabetes, obesity, addictions of all sorts and even cancer itself. And you're telling me that TIAA thinks that today's 60-year-olds are going to be dead in 22 years? Really?
Let me mention three diseases for you. Pyemia, (blood poisoning) and puerperal fever (postpartum infection). Have you ever heard of any of those diseases? Neither did I till I started researching this. Those diseases were among the leading causes of death in 1850 here in the US. I've never even heard of these. Medical science eradicated them.
How about these? Dysentery, typhoid, cholera, tuberculosis, scarlet fever. Yeah, you've heard of those. But when's the last time you heard of anybody in the US dying of this? You ever hear anybody dying of cholera? In the 1950s, these were the five leading causes of death. Medical science eradicated those.
So you look at today's leading causes of death, heart disease, respiratory illness, cancer. We're going to eradicate them as well, all due to medical innovation. So for somebody to say, especially somebody like TIAA, that we're going to ignore all of that, be oblivious to all of it. We're just going to assume that people are going to die at the same ages and raids that they've died historically. That's just stupid.
Right now, 90% of all the people in world history who ever made it to age 90 are alive right now. We've never had longevity the way that we've had it today. So if anybody is financially illiterate, it's the actuarial dopes at TIAA. You need to realize that if you're alive in 2030, you're likely going to live to age 100 and beyond. You need to make sure you have the financial planning strategies in place so that your money lasts as long as you do.
How Advisors Can Win New Business Thanks to the Stupidity of TIAA
If you're a financial advisor, you need to understand the current dynamics of longevity, because if you're telling your clients what TIAA is telling theirs - that they're going to die by age 82, then your clients are going to run out of money 10 or 20 years before they die. And instead of giving your clients peace of mind from a financial plan that provides lifetime financial security, you'll be responsible for your clients becoming impoverished, dependent on Medicaid, and forcing their children to financially support them, ruining their children's lives. That's incompetence. That's negligence.
You need to fulfill your fiduciary duty of serving your client's best interests by making sure you're giving them a financial plan that accurately reflects their life expectancy far more realistically than what TIAA is saying.
It also means I would never buy an annuity from TIAA if they believe that a 60-year-old is going to be dead by 82. That means they're structuring the monthly income levels on those assumptions. What's TIAA going to do when it's annuitants are still alive at 82 and 92 and 102?
Those annuity contracts are going to blow up worthless. TIAA will never be able to honor their promises of giving their annuity buyers the monthly lifetime income they're promising. Oh, sure, they'll say, 'We can give you a monthly income for your entire lifetime if your lifetime ends at 82. But golly, it never occurred to us you might live longer than that'.
I guess that's what happens when you've been in business for 100 years and you keep doing business the way you've always done business. And it never occurs to you to consider the fact that people aren't climbing anymore into a horse drawn buggy to get to work. TIAA, I guess is old-fashioned and out of date. And I'm scared for anyone who owns a TIAA annuity.
If you own one, you need to talk to a financial advisor about your options. If you're a financial advisor, you should walk around and ask people, Do you own a TIAA annuity? If so, then we need to talk.