Retirement may not look the same for much longer.
The world is headed for a demographic cliff. Thanks to slowing birthrates, increasing longevity and a large Baby Boomer population, much of the industrialized world is rapidly aging. In countries like the United States, birth rates hover just above what sociologists call “replacement rate,” the number of babies needed per year just to keep the population steady. In many other countries, such as Japan and Italy, that number has actually slipped even lower: there are fewer births than deaths. As a result, the population is aging rapidly.
There’ll be a lot of fallout from this Children of Men-esque situation, but one of the first to arrive will be profound changes to how societies approach the concept of retirement.
“It’s one of the megatrends of our time,” said Michael Hodin, CEO of the Global Coalition on Aging. “It’s also a situation where people are struggling with, ‘O.K., I get it, it has to do with the age of the population. What am I going to do about it?’”
At this point, more than a billion people across the planet are over the age of 60. In the United States alone, more than 13% of the population is over 65. From the perspective of retirement, these numbers have the potential to be profoundly destabilizing, both as a financial matter and a workplace issue.
Retirement as most Americans think about it has been built around reliance on demographics. Programs like Social Security spend considerably more than they take in -- contrary to the image many Americans have of simply collecting back benefits paid -- and need a young, working population considerably larger than the pool of retirees to pay for. Much the same can be said of the idea of retirement itself: in order to have Americans enjoy their so-called Golden Years, there needs to be an even larger share of workers in the population to replace senior citizens and still keep up productivity growth.
These will get harder to sustain as their demographic assumptions prove shakier, and the U.S. isn’t the only country facing a crisis.
“Japan, in the next few years, will get to a place where they’re going to have about 40% of their population over 60,” Hodin said. “You can’t keep up entitlements at that rate. China is in even in worse shape, in many ways exacerbated by their one baby policy.”
Recently former Nebraska Governor and Senator Bob Kerrey spoke on this subject at a forum hosted by Bank of America and the Museum of American Finance. In an interview with TheStreet, he described his own growing sense of alarm at the state of American retirement.
“I think the demographic trends show that we have way too many people with inadequate savings, and the program demonstrates that we don’t have the capacity to transfer our way out of the problem,” he said. “Notwithstanding some of the assertions made by Senator Sanders and others.”
The question is not if but when demographics catch up with ideas like retirement and Social Security, ones institutionalized when younger generations outnumbered the old by considerably wider margins. What will aging look like in an era defined by low birthrates and increasing longevity? The answer depends.