Planning for an Aging World

The U.S. Census recently published an excellent and detailed volume on "An Aging World: 2015." This should be required reading for everyone (it is a nice supplement to my Chapter 8, for example), and one person who has read it and ruminated on it is John Mauldin, whose free newsletter I subscribe to. I don't always agree with his perspective, but he is one of those people who is constantly trying to figure out how the world works, and where we are going. His motives are largely economic (he sells investment advice, for example), but that may simply sharpen his thinking. In all events, his latest newsletter combs the Census report and brings in other sources to contemplate the consequences of an increasingly aging population. 

As Mauldin notes, an aging population would not be overly problematic if it weren't for retirement. I have mentioned this before, of course, but it bears continual repeating. Retirement is a new concept in human society. For most of history, people worked until they dropped because they couldn't afford anything else and, on top of that, life was short anyway. Improved health has meant that more people live to old age and people live to ever older ages. Since better health is associated with higher standards of living, societies have had the option, at least for a while, of paying the elderly not to work. Most people don't save enough for retirement, and most people don't have children who are able to willing to support them. So, without government subsidies, there isn't much retirement for the average person. What to do? Work longer, save more when young, and tax workers a bit more to make up for the fact that there are fewer workers per older people than there used to be. Of those three options, working longer is probably the easiest to accomplish. Europeans, in particular, have resisted that, and Mauldin comments on this fact:

Much of Europe is going to be going through dramatic changes in their entitlement and retirement programs as budgets and debt get blown out in the coming five years. Ask a retiree in Greece how life is going. Greece’s situation is going to be visited on more than a few countries in Europe. And if the United States doesn’t get its fiscal act together, sometime in the middle of the next decade a very nasty reality will come crashing down upon us.

Greece was even more egregious than most other European countries in terms of allowing early retirement, despite a low birth rate and rising life expectancy. More than five years ago, as the Greece financial crisis was heating up, I commented on the demographic winter in Greece created by the average age at retirement of 61. That is an object lesson for all us. As Mauldin says, we (meaning everyone, not just the U.S.) need to get real about the consequences of population aging and what we can do about them.