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How will Artificial Intelligence impact finances and financial planning? Part Three – predicted changes to longevity.

Ray Kurzweil is a computer scientist and futurist with 60 years of working experience with AI. He has been at the forefront of every step towards what we are witnessing today, and the neural networks that form the basis for AI.

He presents charts and graphs which clearly show the exponential nature of this developing tech, and often makes the point alongside these, that the charts don’t change if you are not aware of them or don’t understand their meaning.

His predictions are based on these charts, not on some excitable thought about what may happen. He is telling us, showing us, with absolute clarity what is coming. The good news is he is generally, but not exclusively, optimistic.

One of his predictions is that in 2029, we will have developed so quickly that medical science will offer each of us 12 months back for each extra year we live. He estimates this ratio is currently 4 months/extra year.

He describes this developing position as “longevity escape velocity”. If you read part one of this series of articles you may recall the analogy of the sports stadium filling with water, and that when things are moving so fast (i.e. high rate of exponential growth), all the “action” comes at the end, so it is not surprising there could be an exceptional growth in longevity possibilities very quickly.

His number crunching informs him that the 2029 prediction is reliable, he is monitoring the trend, along the line, and his confidence is high.

What does this mean, that we will all live forever? No, but we will on average all live a lot longer and longevity numbers will change out of all recognition.

He cites, as a practical example of this trend, the Moderna covid vaccine, which was created in just a matter of days, in the most unconventional way imaginable, nothing was tested or trialled in any ‘normal’ way, the vaccine was made based on synthetic simulations.  By most accounts, of the vaccines developed this has been the most effective. It has saved many lives, and is a little forerunner of what is possible if one combines fast computer speeds and AI analysis, as the machines can learn what works, through forms of testing based on simulations. This has profound implications for treating all diseases.

If he is right, and there is no reason to think he is not, then from 2029 onwards longevity numbers will change.

In the money world this also has profound implications, many of them. One more obvious one is that it would impact annuity rates. Let’s say you can buy an income for life today, and you are age 68. The value of that deal is very much dependent on how long you live, you get better value if you live a long time, than if you don’t. The rate you are given, which is often fixed for life, is based on the insurance company’s expectation of how long you will live. So, the short lived people pay for the long lived people. A typical 68 year-old is estimated to live to, say, 89. If the 12 months back/extra year formula starts to apply, then this number could sky rocket, so a 68 year old may suddenly find they are estimated to live (on average) to 98.  If anything like this starts to occur, then it will create havoc within money markets.

If all the numbers start to change, and more and more people start living longer and longer, then those with annuities based on the earlier numbers start to look very smart, as they will have a much higher income than the next generation who come along wanting a lifetime income.

Also, if more people live for longer, then this would have an impact on market rates for all sorts of other things, including government bonds. People tend to decumulate later in life, meaning they spend down their money and this doesn’t lend itself to buying shares, but investing in stable income areas, such as government bonds. If retirement periods get stretched then the yields will change, as the bond market will have to adjust. Likewise the supply/demand of company shares will alter as fewer people will invest for growth, and take the risks involved, preferring certainty and long-term income.

State pensions will become more expensive to the taxpayer and so on.

The general effect is that a completely new picture could emerge of how efficient, or otherwise, different models of retirement planning work, and how to allocate your money accordingly. There is a direct line from the rapidly developing AI general impact, and our financial planning.

Our parents or grandparents retirement experiences will have been in a different era, and their efficient models may become very inefficient for us, and vice versa.

The point is that this one prediction, if correct, is not going to move the goalposts, it will take us onto a new pitch. It may have unintended consequences, unforeseeable aspects (let’s not forget that radio was supposedly finished when music video came along, yet radio has blossomed since), and could surprise us with what it entails. The point is not to try and second guess what will follow, but to be aware that the background position is shifting, wildly.

We must be aware of this and seek to work out how this may impact us, we cannot simply assume “business as usual”. Our financial planning models are going to change.

In part four we will tackle this thinking further.

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