Age Transition + Economic Transition = Retirement Transition

In richer countries (and, indeed, in China as well) there is a lot of concern about the effects of the age transition in which low fertility and low mortality in the absence of a lot of immigration produces an older population that must be "cared for." The latter category includes financial support for those not working and health care in general because we tend to need more of that as we age. The biggest policy focus has been on financial support--on pensions for the older population. Most richer countries have a PAYGO system (pay as you go--the younger subsidize the elderly who, of course, subsidized the elderly when they were younger--this isn't a completely one way street...). But more older people relative to the younger population creates problems. I have repeatedly noted the answer: work longer and save more.

Most countries are, in fact, pushing workers to stay in the labor force longer, although this can create some social inequalities because some people can do that more easily than others. This point was made in an article just published in the European Journal of Aging. Two Swiss researchers looked at data from that country and concluded that people with higher education and higher incomes when young are, somewhat paradoxically, better able to continue working past "normal" retirement age than others in the population. This suggests that structural reforms in planning for retirement need to start at a pretty young age. Saving for your retirement is key to success in this regard.

Now, here's a new wrinkle to the save more issue. Today's governments and central bank planners seem to think that the economy is all about spending and not at all about saving. So, we have zero or even negative interest rates that discourage safe saving and encourage either reckless investment or just spending your money and don't worry about the consequences. As the Economist pointed out last week, we need a concerted effort among governments and central bankers to infuse economies with enough cash to simultaneously encourage investment and create jobs. Infrastructure spending is likely the answer, as it has been in the past. It should be a way to help lower the levels of income inequality that are, in many ways, at the heart of the economic difficulties that the world faces.