Life Expectancy and Retirement Planning

Managing retirement funds for yourself or for another is a challenge.   Part of challenge of answering “do I have enough money” or “how much money can I withdrawal each year” lies in knowing how long the person will live.   Its a very impolite and seemingly immoral question to ponder “When are you ( or I ) going to die ?”   In truth no one could answer it anyway.   But it lies at the very heart of planning.

One approach is to simply look at the average life expectancy by birth year and gender.  This information is available via the Social Security Administration, CDC and various online sources.   The IRS relies on expected life expectancy to calculate your required minimum distributions.  These of course are just averages.  People live longer, lots longer.  I believe the current average age at death is 83 years presently.   I know, and have known, several to live into their 90s.   I’ve known some to die much earlier.

The moral questions for funds you may manage for another center on, “Have I maximized the amount of money available to them during their life ?”.   If a longer than actual life expectancy is chosen as a budget basis the result will be excess money left over unused.  If a shorter than actual life expectancy is chosen the result will be running out of money in retirement and the pain of a drastic life style adjustment that goes with that.

Generally I believe that estimating high on life expectancy is the right path.   Its what I plan for myself and it is what I would suggest anyone plan on.  It also is the more palatable option than saying “Ya I think you ( or I ) are going to die much younger than we hope.”



Zero and Negative Yield Opportunity

As negative interest rates spread, Germany is also now offering negative bonds, an opportunity is created.   The longer rates stay near, at or below, zero the more a sovereign nation can finance its debt at zero interest.    Unlike consumers the sovereigns can than, to the extent debt is financed in their own currency, kick the inflation option full speed ahead after they get enough debt at 0% and make a lot of their current debt vanish through inflation.  To the extent doing that is in the interest of more than one nation, and it would be, that suggest a real possibility of a soon and sudden pivot back to inflation.

Article 50 or Hotel California

To leave the EU a nation, such as England, is to invoke Article 50.  This is the clause that allows a nation a pathway to leave the EU.   My understanding of Article 50, limited as it is, suggests this is mostly window dressing as it does not in fact define an actual pathway.

Upon invoking Article 50 the EU and the nation begin negotiating the terms of the exit.  This is key because it means how the exit happens is as yet undefined.   The EU will undoubtedly make the terms less then pleasant for the exiting nation.  They will also create a long term process of negotiation to chew up the clock as much as possible.  If at the end of the first two year period the exit is not in fact fully negotiated and executed, the 2 year period can be extended as needed.   This can in fact be a never ending process or one so unfavorable the nation won’t wish to take it.

A nation can reject the authority of the EU and stop cooperating during this exit process.  However its probable that doing so will subject them to any number of penalties as part of their existing membership in the treaties that make up the EU.   A nation attempting to ignore the EU on this will encounter a focused headwind.

Ultimately the EU’s path will likely be the same as they ran with Greece.   They will drag it out, make it unpleasant, and try to cause pain for England that is associated with the exit in the hopes it displaces the upstart political movement attempting to exit.   If they can succeed at that then the exit can be reversed and the union preserved.

To let England successfully leave is to leave the EU toothless.   Other nations would then believe it is possible to leave any time they felt like.  That would make the EU a paper tiger.   Every possible leverage point will be utilized to make sure England, despite this vote, doesn’t actually leave.

Ultimately you can checkout any time you like but you can never leave.

Will London Fire On Fort Sumter ?


A union of states was created, and over time more and more states were added.  Eighty four years later some of those states tired of the union and attempted to leave it.  In time Confederate forces fired on Fort Sumter in South Carolina and the game was on.

A union of states was created and states were added.  Now twenty three years on from the founding England has decided to leave the union.   Unlike what the US went through the underlying cause for Europe is very different.  Also unlike what the US went through the European Union has an escape clause, namely Article 50.   There have been, I believe, a few smaller states leave the EU but nothing on the scale of England.

Will this start a economic war on the continent ?  Very possibly.   Especially if England decides it is not bound by Article 50 and decides when it wants to leave it does so on its own terms.

The parallel to the US crisis when states tried to leave the union is that, on the other side of strife, a stronger and larger Union emerged.   One can hope that is the same outcome for the EU.

Gold Coinage Can Still Cause Inflation

There is a certain myth that if we valued our money in gold instead of fiat it would have a stable value.   The history of coinage and minting shows that this is not true.   Consider this short summary of coinage history from Adam Smith in the 1700s.

The denominations of those coins seem originally to have expressed the weight or quantity of metal contained in them. In the time of Servius Tullius, who first coined money at Rome, the Roman as or pondo contained a Roman pound of good copper. It was divided, in the same manner as our Troyes pound, into twelve ounces, each of which contained a real ounce of good copper. The English pound sterling, in the time of Edward I. contained a pound, Tower weight, of silver of a known fineness. The Tower pound seems to have been something more than the Roman pound, and something less than the Troyes pound. This last was not introduced into the mint of England till the 18th of Henry the VIII. The French livre contained, in the time of Charlemagne, a pound, Troyes weight, of silver of a known fineness. The fair of Troyes in Champaign was at that time frequented by all the nations of Europe, and the weights and measures of so famous a market were generally known and esteemed. The Scots money pound contained, from the time of Alexander the First to that of Robert Bruce, a pound of silver of the same weight and fineness with the English pound sterling. English, French, and Scots pennies, too, contained all of them originally a real penny-weight of silver, the twentieth part of an ounce, and the two hundred-and-fortieth part of a pound. The shilling, too, seems originally to have been the denomination of a weight. “When wheat is at twelve shillings the quarter,” says an ancient statute of Henry III. “then wastel bread of a farthing shall weigh eleven shillings and fourpence”. The proportion, however, between the shilling, and either the penny on the one hand, or the pound on the other, seems not to have been so constant and uniform as that between the penny and the pound. During the first race of the kings of France, the French sou or shilling appears upon different occasions to have contained five, twelve, twenty, and forty pennies. Among the ancient Saxons, a shilling appears at one time to have contained only five pennies, and it is not improbable that it may have been as variable among them as among their neighbours, the ancient Franks. From the time of Charlemagne among the French, and from that of William the Conqueror among the English, the proportion between the pound, the shilling, and the penny, seems to have been uniformly the same as at present, though the value of each has been very different; for in every country of the world, I believe, the avarice and injustice of princes and sovereign states, abusing the confidence of their subjects, have by degrees diminished the real quantity of metal, which had been originally contained in their coins. The Roman as, in the latter ages of the republic, was reduced to the twenty-fourth part of its original value, and, instead of weighing a pound, came to weigh only half an ounce. The English pound and penny contain at present about a third only; the Scots pound and penny about a thirty-sixth; and the French pound and penny about a sixty-sixth part of their original value. By means of those operations, the princes and sovereign states which performed them were enabled, in appearance, to pay their debts and fulfil their engagements with a smaller quantity of silver than would otherwise have been requisite. It was indeed in appearance only; for their creditors were really defrauded of a part of what was due to them. All other debtors in the state were allowed the same privilege, and might pay with the same nominal sum of the new and debased coin whatever they had borrowed in the old. Such operations, therefore, have always proved favourable to the debtor, and ruinous to the creditor, and have sometimes produced a greater and more universal revolution in the fortunes of private persons, than could have been occasioned by a very great public calamity. — Adam Smith, Wealth of Nations, Book I Chapter IV The Origin and Use of Money

Apparently when official stamping of coins began it was taken solely as evidence of the quality of the metal contained, the purity, but the coins were still weighed.  Once the move to counting the tally of the coin only it became possible for kingdoms to intentionally erode the value of their currency, and they did.

Everything old is new again.  There is nothing new under the sun.

The thing to really ponder in the above is the line “Such operations, therefore, have always proved favourable to the debtor, and ruinous to the creditor…”.   Leverage is powerful but it is dangerous in a retraction.   Kings have always borrowed money.  Banking though, fractional banking, is both borrowing and lending.   Taking deposits, which are essentially loans to the bank from the depositor, and lending that back out to others, the banker making their money on the spreads.  No conclusion is reached here but it certainly is something to ponder if you have nothing else to do on a rainy day.

Not Cut To Absurd Levels


“This is why I have said elsewhere that we would not take it to absurdly low levels.”, is the quote widely reported today and attributed to Benoît Cœuré, ECB Executive Board Member.

The question of course is “what is an absurdly low level”.  Currently rates stand at -0.4% which until very recently every banker and financial person would have thought was an absurdly low level.  Negative rates were simply unimaginable.   How much lower must the rate go before its an “absurdly low level” ?

In one sense negative rates can be understood as always existing, take for instance low balance checking accounts that yielded almost no interest and were subject to fees.  Negative interest is simply the taking of principal which is the same as fees.  Only the foolish had such accounts, or those who had no ability to bank elsewhere due to what banks were available in their location, or those without enough principal to get a better deal.

How does ECB and Bank of Japan among others get away with negative rates when those depositors and bond buyers can simply bank elsewhere ?  The US still has positive interest.  Why therefore would anyone go to Japan with their money ?  The answer, at least partly, has to do with understanding the currency fluctuations, which also factor into what real gains or losses are.

China Is A Lagging Economy

Over the last month or so the impact of China on global equities markets has blunted.   Even though yesterdays disappointing trade data out of China is resulting in a slight drop in equities the volatility is much lower than it was a few months ago.    Part of the reason for this, I believe, is the continued strengthening of the US economy.  In particular unemployment continues to fall, over the last period the percent of population in the work force has begun to increase.   Employers are starting to feel some slight wage pressure, and minimum wages are rising.

The US led the way into the global malaise, its consumption dropped, the rest of the worlds consumption likewise.  China is substantially an exporter as I understand it.  So the success of China’s economy depends substantially on the US and other importing nations economies.   If these other economies recover then China will too.  Its recovery will be later by a few quarters though.


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