Saturday, April 9, 2011

Don't Plan to Retire Until Age 70

That is the message of a special section of this week's Economist, written by Philip Coggan. And, in fact, it is virtually impossible to argue with the idea that as life expectancy in the older ages keeps going up, it does not automatically mean that we should have more years of retirement. As you know, of course, this would not be such a big issue were it not for the fact that in virtually all of the richer countries with high life expectancy the birth rate is below replacement level. 
THIS SPECIAL REPORT has shown how the cost of providing pensions is rising across the developed world as the baby-boomers retire. Rich countries now face difficult trade-offs. They must keep costs in check without condemning many elderly people to decades of poverty. And if they move from a tax-funded system to one dependent on the performance of the stockmarket, more risks and costs will pass to the workers.
The best way of reducing the overall pensions burden, almost everyone now agrees, is for people to work longer. They will get paid for the extra years, national output will be boosted and the cost of pensions will fall. Reforms are already pushing workers in that direction. Thanks to the steady demise of defined-benefit schemes in the private sector, employees will be more prepared to do so because they need to build up higher pensions in defined-contribution schemes. And as the supply of younger workers dries up, employers will become more willing to use older ones. With rising life expectancy, the pension age across the board is probably heading for 70.
This is actually a fairly complicated issue and the Economist has put together a very nice short video to explain the demographics and economics behind the argument that 70 has to be the new target age at which people retire.


One could say that the timing of this argument is "interesting" in that the idea that people should work longer is being made at the same time that unemployment is high and everyone is talking about the need to create jobs. Even more jobs will have to be created if people work longer, and thus jobs turn over less frequently. There is no easy way out of this demographic situation.

1 comment:

  1. I recently read an interesting article in Utne magazine about no-growth economics. The Economist would rather turn over in their graves than take a look at this type of option, but I for one find it pretty interesting as a potential solution both for trying to increase fertility and deal with the issue of jobs and retirement. There are other measures of success beyond GDP, for example England's new plan to measure happiness in the country along with other measures of growth. The article from Utne can be found here:

    http://www.utne.com/Politics/Nothing-Grows-Forever-Endless-Growth-Economy.aspx

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