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We say things like "YOLO" and carpe diem so often because the world's real message, the one that's sunk in deeper than any slogan or acronym, is, no, don't actually do that. Plan for your retirement, save as much as possible from every paycheck, and generally live like a miser so that you don't have to eat cat food after retirement. And maybe if you were really smart about thinking long-term, you can travel around in an RV looking at things that you're too old to experience. YOLO, hardly.
What financial planners and/or parents never say is that there's a pretty decent chance that any given young person is going to die, if not soon, then sooner than retirement or anything like old age. It could be cancer or it could be a bread truck running a red light, but youth or relative youth is no guarantee of safety, even in the hypersafe environments of the developed world. A paper out this week in the Journal of Mathematical Economics puts this fact into formal terms, modeling early death as an economic loss just like any other economic loss, whether it's a sunk IRA or hurricane-strafed beachfront home. The finding? Saving earnings for old age is its own kind of risk, and one that should be taken seriously in individual financial planning. So, yeah, YOLO.
From the abstract for the paper, "Compensating the Dead":
An early death is, undoubtedly, a serious disadvantage. However, the compensation of short-lived individuals has remained so far largely unexplored, probably because it appears infeasible. Indeed, short-lived agents can hardly be identified ex ante, and cannot be compensated ex post. We argue that, despite those difficulties, a compensation can be carried out by encouraging early consumption in the life cycle.
The researchers, based at Princeton University's Woodrow Wilson School, looked at data corresponding to four different socio-economic groups in France: clerks, executives, professionals, and blue-collar workers, all between the ages of 20 and 100. If members of these groups all live the same amount of time, the largest total relative loss is shouldered by clerks, who have the lowest income and will have made about 30 percent less than the professionals. But if members of those four groups all were to die at age 55, they all would have lost about 40 percent of potential income, compared to if they died at 85.
The point of using the different class-groups is to show that the total average loss from dying young is about equivalent to the total average loss resulting from being in a lower socio-economic category. Death is the great equalizer, even in formal economic terms. "The only way in which inequalities between short- and long-lived can be attenuated is by having everyone spend a little more and work a little less early in life," said lead author Marc Fleurbaey in a statement.
"That way, for those who are unlucky and die prematurely," he continued, "their life is not as bad economically as it would be if they had planned to enjoy more consumption and leisure later."
The authors note that the risks of old-age are far more neutral than they were just a century ago, as a result of rising affluence in the developed world and of safety nets like social security. Not having a ton of cash banked at retirement typically doesn't mean the same "grinding poverty" as it once did. This rising affluence changes the risk from freezing to death to dying with unspent financial reserves. Every 25 year old thinks they'll live forever, relatively, but death lurks.
"Saving a little less may be good for some, as it curbs the inequality that exists between the short- and long-lived," said Fleurbaey. "Likewise, the tradition of encouraging savings, which comes from an era of scarcity but remains strong today, appears somewhat ill-adapted in the context of affluence. Suppose you spend your whole life saving and saving for retirement, but you die the year before you retire. On an individual level, you might have been better off if you consumed more, earlier in life."