Ageing is a far bigger market issue than just Biden

AGEING and mortality apply to all of us. That is among many reasons why the crisis around Joe Biden, who has now made the painful decision not to run for the presidency, has gripped the world. The difficulty that we all have in coping with those issues, or even addressing them, is central to the dreadful mess that has become the US election.

We’ve gotten very good at dealing with the risk of dying too young. Even in the world’s poorest countries, life expectancy is surging. Medicine has improved, as has sanitation, and public health initiatives have curbed smoking. Life insurance can cheaply and easily cover the financial risks of an untimely end.

Biden’s abdication rams home, however, that we’re no good at dealing with the risks created by greater longevity. We don’t have the institutions, medical techniques, financial products or – it now appears – political structures to deal with the problems that can come with longer lives. The evolution has been slow and imperfect. Companies that started out to provide life insurance, for example, have tried to adapt to offering pensions instead.

That has been difficult. Funding the guarantees made to pensioners when far fewer of them seemed likely to make it to advanced old age is proving agonisingly difficult, as a series of flash points around the world should make clear. The implosion of former British prime minister Liz Truss in 2022 as a sharp rise in bond yields brought pension funds to their knees as they resorted to desperate financial engineering to meet their obligations showed a problem that lingers.

So did the breakdown in civil order in Chile in 2019, as the populace rebelled at the disappointing returns from a much-admired pension system installed in the 1970s. In France, President Emmanuel Macron’s decision to raise the retirement age from 62 to 64 has sparked social discontent. The main attempt to deal with this issue has often been to make pensioners, rather than providers, take market risks. That brings its own dangers.

The problem will not go away. The proportion of over-65s in the US is set to rise. And while the focus at present is on America, the country is younger than its counterparts among the wealthiest nations. The median age is still below 40.

In Japan, it has reached 50, with Italy projected to follow by the end of this decade.

Can societies possibly continue to make generous guarantees to the elderly when they now comprise such a large share of the population? Retreating from this is politically so difficult that it’s unlikely to happen until long after crisis has hit. That in turn implies deeper issues of intergenerational injustice as younger people work increasingly to support the elderly. None of these issues is new; by their nature, demographic problems can be seen coming from a long way away, as I wrote elsewhere back in 2016. But it’s also true that issues so long-term can always be delayed for another day.

There is a growing body of research on ways for investors to profit from longevity, particularly through the growth in long-term care. However, the performance of Bloomberg’s index of the real-estate investment trusts that hold nursing homes and long-term care facilities shows that investors aren’t yet convinced. It’s actually fallen over the past decade. It’s still far cheaper for the very elderly to stay in their homes (which exacerbates the problem the younger generations have in finding housing). Solving this problem will be crucial.

Then there is the issue of public service. The elderly need to retake driving tests and pay more for insurance, but there are minimal guidelines for when people in powerful positions should stand down. Sumner Redstone famously stayed on at the head of Viacom past the age of 90, declaring “I’m not going to die” (he passed at age 97).

US political institutions seem to make the same assumption. There is a minimum age to be president, 35, but no maximum. Nor is there for members of Congress or Supreme Court justices. The 25th Amendment added in 1967 allows for the replacement of an incapacitated president – in corporate terms, removed by the board – but remains untested.

Mandatory retirement ages, maybe 80, would be a solution but difficult to achieve for a good reason. The rising number of older people who are still able to perform in stressful jobs will object, strenuously. And ultimately, there is a natural human respect for the elderly that will confront any indiscriminate attempt at reform.

Dignity in old age matters. If Biden’s historic but necessary decision to stand down does nothing else, may it at last force us all to confront the problem that goes far beyond just him. BLOOMBERG