Work Long and Save--The Key to Aging Societies

The lamentation in every society that has an aging population is--how are we going to afford all of these older people? Now, setting aside the youthful bias that somehow people become useless old fogies as they age, societies do have to cope with the very welcome benefits of higher life expectancy, accompanied by a drop in the birth rate that means, in the aggregate, that we are less likely as a species to outrun our resources. Between this week's Economist and today's New York Times, we have stories that provide, in the rough, the answers to the question. The Economist reports on a conference held at the London School of Economics last month that addressed some of these issues [side note--I was at a Conference at LSE last month on the topic of health inequalities and I cannot find any reference to a conference dealing with aging per se--but I digress]. The main point is that workers need to stay in the labor force longer, as I have noted before. Interestingly enough, one suggestion was that the young-old should stay in the labor force longer in order to help care for the old-old. This also means that people continue to pay into health care schemes for longer, thus lowering the tax burden on the younger workers. The alternative is to bring in low-wage immigrants to take those jobs, and that is not always viewed favorably.

Those elderly voters who are tempted to vote for anti-immigrant parties may want to pause; some day soon they may be dependent on the kindness of strangers.

A closely related question is about pensions (whereas the health care costs are separate) and the NY Times reviews the Dutch pension system in which people are paying into a pension plan designed to give them 70% of their salary when they retire.

Imagine a place where pensions were not an ever-deepening quagmire, where the numbers told the whole story and where workers could count on a decent retirement.

Imagine a place where regulators existed to make sure everyone followed the rules. 

That place might just be the Netherlands. And it could provide an example for America’s troubled cities, or for states like Illinois and New Jersey that have promised more in pension benefits than they can deliver. 

Accomplishing this feat — solid workplace pensions for most citizens — isn’t easy. For one thing, it’s expensive. Dutch workers typically sock away nearly 18 percent of their pay, most of it in diversified, professionally run pension funds. That compares with 16.4 percent for American workers, but most of that is for Social Security, which is intended to provide just 40 percent of a middle-class worker’s income in retirement.

The key is an honest and open accounting of how much is needed and where the money is going. This is not an easy thing to accomplish, as the story notes. Furthermore, the goals of the young (investment growth through risk) and the older population (preserving wealth) are not always compatible. But, as the story notes, every country needs to have a public debate about these issues.