March 2017 Newsletter
Live Long & Prosper?
It is no breaking news that the world’s population is living longer. But in this month’s issue we will examine some of these population trends and their potential effects on the world’s economies.
A recent survey conducted by CNBC found that the respondents’ biggest financial fears about retirement were health-care costs (33 percent) and outliving their savings (32 percent). With remarkable advances in medical technology and plunging mortality rates from cancer and other top causes of death, humans are continuing to extend beyond what was once thought to be the limits of longevity.
In a new study published in the Lancet an reported on by CNN, average life expectancy at birth is expected to increase rather dramatically by 2030. As of 2015 the global life expectancy at birth was 71.4 years, with the top countries being South Korea for women (84.23 years) and Switzerland for men (80 yrs). By 2030, South Korean women are expected to break the 90 year average life expectancy mark, with many more industrialized countries’ women exceeding averages of 85 years. For men, the top averages will be in the mid 80’s.
Majid Ezzati, a professor of global environmental health at Imperial College London who led the study says that many experts believed that the average would never exceed 90 and that “This shows that even if there is a limit to longevity, we are nowhere near it.”
Figure 1: Life Expectancy at birth in 2010 and 2030
Gains are expected across the population, even in the bottom countries. By 2030 most countries will add 3-5 years to their respective expectancies.
One troubling aspect of this new data is the continued lag for the US among the world’s developed nations. By 2030, US life expectancy is expected to be 83.3 years for women and only 79.5 years for men, about the same as Mexico and Croatia. This is largely driven by a relatively high rate of mortality in the US for people in their 40’s and 50’s. The authors say there are many reasons for this, but they note that significantly higher obesity rates, homicides, and lack of a properly functioning universal health care system are primary contributory factors.
These trends will have far reaching implications for the global economy as the mean population age and percentage of the population over the age of 65 continues to rise (Figure 2).
Figure 2: Share of Population Age 65 and Over
By 2050 it is projected that a staggering 40% of Japanese citizens will be over the age of 65. The US remains one of the relatively young countries in the developed world, but will still see a large shift in average age.
In the developed nations, this means that there is a very real possibility that retirement savings will need to last 25 years or more. It will also increase the burden on our healthcare systems and on our food supply. The Food and Agricultural Organization of the United Nations (FAO) estimates that if global population reaches 9 billion by 2050, it will require an increase in global food production of 70%, and food production in the developing world will need to double. The FAO notes that this increase in production will have to overcome the depletion of underground aquifers, the continuing loss of farmland to urbanization, and an increasingly unstable climate.
One interesting result that stems from the changes in population demographics, advancement in medical technology and population growth is depicted in figure 3 from the CDC. As cancer death rates continue to precipitously fall, the actual number of cancer patients and deaths will continue to rise. It remains to be seen what the effect of this dynamic will be on the healthcare system and the cost of treating these diseases
Figure 3: Cancer Death Rates vs. Number of Cancer Deaths
The population and technology dynamics at play here present a conflicting view on cancer. While the survival rate among most types of cancer continue to rise, the aggregate number of patients and deaths are rising steadily. Source : CDC.
Our world is presented with unprecedented challenges in the 21st century, and it will remain to be seen how we are able to adapt our economies and societies around this rapidly growing and ever changing population.
Figure 4: A Growing Concern
Given variation in healthcare cost inflation from year to year, it may be prudent to assume an annual health care inflation rate of 6.5%. Source: JPMorgan’s 2017 Guide to Retirement. Data from Employee Benefit Research Institute (EBRI) as of December 31st, 2016 and Centers for Medicare and Medicaid Services Website
Chart of the Month
It is difficult to believe that the world’s population has essentially doubled since the 1970s. While the growth rates in population are expected to precipitously fall in the coming decades, most projections expect the global population to cross the 10 billion mark by the middle decades of the century.
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