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    The Future of Life Expectancy and Government Benefits

    The average life expectancy in Canada has been increasing steadily for over a century. This is due largely to improvements in living conditions and the remarkable advancements in medicine during that time. According to Statistics Canada, the average life span at birth in 1920 was approximately 60 years, and it has now risen to over 80. With a baby boom cohort and a typical retirement age of 65, the pressure on pension programs is starting to mount.  However, the situation may not be as dire as it seems.

    The United States has frequently been cited as having $87 trillion dollars in unfunded liabilities with respect to various entitlement programs. This is a dubious figure, as it based on the projected shortfall over a 75 year period. Over such a long time period it is virtually impossible to predict any of the variables associated with such a calculation, including life expectancy. Baring extreme technological breakthroughs, it is unlikely that increases in life expectancy will continue to increase at a significant rate, and may in fact begin to decrease.

    The problem with most projections of life expectancy is that they are extrapolations of past increases, which happen to form a nearly straight line, with that line being assumed to continue. A better method is to focus on the current health status of various groups of people, and the impact that has on survival. The obesity epidemic has led researchers to conclude that life expectancy will soon begin to decrease due to cardiovascular disease.

    Further research is also showing the emergence of two distinct groups with respect to life expectancy: those with higher education and those without. Higher education is associated with higher income, better access to health care and healthier lifestyles, all of which improve life expectancy. With higher income this group will also have better access to new medical technology.

    Projections of shortfalls in retirement programs may therefore be overstated. Means tested benefits such as Old Age Security would be doubly impacted. Improvements in life expectancy will be concentrated amongst people who will receive little or no benefits. Those who do receive the benefits will on average have lower life expectancy, reducing the projected payouts.

    The recent increase to the OAS eligibility age reflects known increases to life expectancy and was necessary to keep the program affordable. This will undoubtedly not be the last cost cutting measure; if cost projections are based on an overestimate of life expectancy, the additional cuts will be excessive. The impact of reduced life expectancy on government expenditures will not be noticed until long after the reductions have occurred.

    Of course the future is unknown, as the best projections, data, and expert opinions, cannot account for politicians.

    Ryan Wall

    The MONEY® Network