Think You'll Live Long? Think Again

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The findings could affect calculations that determine Social Security payments, life insurance premiums, retirement savings strategies and more.
Corbis

THE GIST

- Contrary to longstanding assumptions, death rates do not drop off once people reach their 80s.

- No matter how old you are, your chance of dying doubles every eight years.

- Revised mortality rate assumptions could affect the pricing of all kinds of financial products, including life insurance and Social Security checks.

Despite great medical advances that have lengthened human life spans, your chances of living a very long life may be lower than you'd hoped.

That's the conclusion of a study by two longevity experts who reviewed the standard models that predict mortality rates and turned up a major error. Instead of confirming that death rates drop once people reach their 80s or 90s – as experts have assumed for many decades -- results showed that the risk of dying continues to increase each year, no matter how old people are.

The findings, if confirmed, could affect calculations that determine Social Security payments, life insurance premiums, retirement savings strategies and more.

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"It all started as routine work on validation of previous studies, with more reliable data and methods. No discoveries were expected," said Leonid Gavrilov, who studies aging, mortality and longevity at the University of Chicago. "We were very much surprised [by the results], and for this reason, we delayed our scientific publication for almost seven years, trying to find mistakes and flaws in our approach."

In 1825, British actuary and mathematician Benjamin Gompertz made an interesting discovery: Starting at age 30, a person's chances of dying doubles every eight years. In 1939, economists revised Gompertz's law to accommodate people older than 80, whose rate of mortality seemed to level off. Ever since, actuarial tables and calculations have depended on that assumption.

In an attempt to refine estimates of death rates in very old age, Gavrilov and colleague Natalia Gavrilova compiled data from the Social Security Administration Death Master File for about nine million Americans born between 1881 and 1895.

After creating life tables and calculating death rates for each age, the researchers reported in The North American Actuarial Journal that Gompertz law applies at least to the age of 106. That means that reaching an old age does not increase the likelihood of reaching an even older age. No matter how old people are, their rate of mortality continues to double every eight years.

Potential implications of the new findings are far-reaching, said Anne Zissu, an expert in securitization and senior life settlement products at the Polytechnic Institute of New York University.

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If people are going to die sooner than models have predicted, pricing formulas will likely change for life insurance policies, reverse mortgages, senior life settlements (which allow people to sell off their life insurance policies) and other products that depend on estimates of how long people will live.

Life insurance, for example, might become more expensive, because a company's chances of having to pay out on a policy grow when people die sooner. But more deaths happening earlier in life could also mean more money than expected left behind in the Social Security system, which could prove to be good news for our country as a whole.

"I'm sure this will have a major impact, at least from the financial perspective," Zissu said. "It should have an impact on pricing all of these financial products which are a function of longevity risk."

The findings might not make much of a difference to the average senior citizen, Zissu added, as most people have never heard of the Gompertz law in the first place. But your financial planner might want to take note, as an earlier expected death might free you up to take out more money earlier -- and enjoy one last dream vacation sooner rather than later.

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