The Looming Age Wave
A societal tidal wave will sweep over developed nations during the next several decades, potentially changing everything from the way individuals retire to the world’s economic balance of power.
The components of this wave are straightforward: people are living longer, having fewer children, retiring earlier and depending heavily on government-supported pensions. In addition, a large demographic age group, the Baby Boomers, is fast approaching retirement in various developed countries. In those nations, the major force of the wave will hit when the Boomers -- those born in the years immediately following World War II -- start retiring en masse and collecting their pensions. This economic burden may fall particularly hard on tax-paying workers and employers.
All developed nations will feel (or are already feeling) the impact of this age wave, but some will be hit harder than others. As the Washington Post reports, when compared with the difficulties faced by the U.S., “European countries -- especially Italy, Germany and France -- are in far bigger trouble and have been slower to enact reforms.” One of the huge challenges faced by European nations is that people are so dependent on the government-provided pensions. Private funds such as corporate pensions or 401(k)s remain scarce in Europe. In fact, just 7% of European Union workers are covered by corporate pensions and only about 1% are covered by plans equivalent to 401(k)s, reports Merrill Lynch.
This dependence on government funds makes it nearly impossible to cut government spending at a time when there will be fewer workers to support retirees. Whereas in the U.S., where there will be one person older than 65 for every three of working age in 2030, in Italy and Germany the ratio will be one to two, according to International Monetary Fund estimates. Actually, the situation may be even worse than that because so many Europeans retire early.
The age wave may have an impact on Europe’s new single currency, which essentially locks together the economies of 11 European nations. For example, if just one of these nations dramatically raises government spending to pay its pensioners, then the general inflation rate throughout all the euro-based nations could rise, even among the countries that have managed to control pension spending. “The bottom line is that generational imbalances across the euro zone gravely threaten the single currency’s medium-term viability,” Foreign Affairs recently reported. But Europe will not be the only region facing the potential for economic trouble. Peter G. Peterson, author of Gray Dawn: How the Coming Age Wave Will Transform America -- and the World, warns that virtually all developed nations could go hopelessly into debt, ruining the world’s leading economic and political powers.
What will these nations do to cope with the age wave? They will try -- in some cases are already trying -- a variety of strategies, with different nations taking different paths. Among the possibilities are running budget deficits to pay for pensions, cutting other types of government spending, raising taxes, raising the age at which people can retire, using tax incentives to encourage people to work past retirement age, reducing pensions or means-testing them, raising immigration rates to increase the number of workers per retiree, and creating new pension schemes to increase private savings. Strategies will depend on the political will to institute reforms, which may become harder to muster as the elderly gain growing political clout with their increasing numbers.
Employers will, of course, be deeply affected by these trends. Not only may they be taxed to pay for social spending on retiree health care and pensions, they will have to face the loss of many retiring skilled workers, cope with more employee eldercare concerns, look into providing benefits such as long-term care, and participate in government reform programs.
Some companies are already developing strategies that may pay off when the age wave hits hardest. One strategy is phased retirement. Firms such as Pharmacia Corp. and SBC Communications, for example, have phased retirement for some employees. In fact, about 16% of 400 companies recently polled by benefits consultant Watson Wyatt Worldwide offer phased retirement, and many more are interested in it. Now that Social Security earnings limits have been lifted in the U.S., both employer and retiree interest groups are urging politicians to reform pension and tax rules. These rules currently discourage employers from letting older workers voluntarily reduce their workload while making up pay with partial pensions.
Today, aerospace companies, which rely heavily on highly skilled labor, are more likely to focus on retention and "rehirement" options to draw retirees back for consultation and short-term projects. The Los Angeles Times reports that at The Aerospace Corporation of El Segundo, CA, the average age of scientists designing space systems, satellites and launch vehicles is 47. Many Aerospace workers are over 70 and serve as part-time consultants. "As the workforce ages, we'll be in a good position," the general manager of HR is reported as saying. "We sell experience. Gray hair is good around here."
====================================================
For information on a Watson Wyatt study on global aging, go to
http://www.i4cp.com/8wjzRo
Watson Wyatt also has information on phased retirement at
http://www.i4cp.com/hy77SR
For those who wish to become more engaged in seminars on global
aging, information about The Center for Strategic and International Studies' Global Aging Initiative can be found at
http://www.i4cp.com/aWFuH3
The components of this wave are straightforward: people are living longer, having fewer children, retiring earlier and depending heavily on government-supported pensions. In addition, a large demographic age group, the Baby Boomers, is fast approaching retirement in various developed countries. In those nations, the major force of the wave will hit when the Boomers -- those born in the years immediately following World War II -- start retiring en masse and collecting their pensions. This economic burden may fall particularly hard on tax-paying workers and employers.
All developed nations will feel (or are already feeling) the impact of this age wave, but some will be hit harder than others. As the Washington Post reports, when compared with the difficulties faced by the U.S., “European countries -- especially Italy, Germany and France -- are in far bigger trouble and have been slower to enact reforms.” One of the huge challenges faced by European nations is that people are so dependent on the government-provided pensions. Private funds such as corporate pensions or 401(k)s remain scarce in Europe. In fact, just 7% of European Union workers are covered by corporate pensions and only about 1% are covered by plans equivalent to 401(k)s, reports Merrill Lynch.
This dependence on government funds makes it nearly impossible to cut government spending at a time when there will be fewer workers to support retirees. Whereas in the U.S., where there will be one person older than 65 for every three of working age in 2030, in Italy and Germany the ratio will be one to two, according to International Monetary Fund estimates. Actually, the situation may be even worse than that because so many Europeans retire early.
The age wave may have an impact on Europe’s new single currency, which essentially locks together the economies of 11 European nations. For example, if just one of these nations dramatically raises government spending to pay its pensioners, then the general inflation rate throughout all the euro-based nations could rise, even among the countries that have managed to control pension spending. “The bottom line is that generational imbalances across the euro zone gravely threaten the single currency’s medium-term viability,” Foreign Affairs recently reported. But Europe will not be the only region facing the potential for economic trouble. Peter G. Peterson, author of Gray Dawn: How the Coming Age Wave Will Transform America -- and the World, warns that virtually all developed nations could go hopelessly into debt, ruining the world’s leading economic and political powers.
What will these nations do to cope with the age wave? They will try -- in some cases are already trying -- a variety of strategies, with different nations taking different paths. Among the possibilities are running budget deficits to pay for pensions, cutting other types of government spending, raising taxes, raising the age at which people can retire, using tax incentives to encourage people to work past retirement age, reducing pensions or means-testing them, raising immigration rates to increase the number of workers per retiree, and creating new pension schemes to increase private savings. Strategies will depend on the political will to institute reforms, which may become harder to muster as the elderly gain growing political clout with their increasing numbers.
Employers will, of course, be deeply affected by these trends. Not only may they be taxed to pay for social spending on retiree health care and pensions, they will have to face the loss of many retiring skilled workers, cope with more employee eldercare concerns, look into providing benefits such as long-term care, and participate in government reform programs.
Some companies are already developing strategies that may pay off when the age wave hits hardest. One strategy is phased retirement. Firms such as Pharmacia Corp. and SBC Communications, for example, have phased retirement for some employees. In fact, about 16% of 400 companies recently polled by benefits consultant Watson Wyatt Worldwide offer phased retirement, and many more are interested in it. Now that Social Security earnings limits have been lifted in the U.S., both employer and retiree interest groups are urging politicians to reform pension and tax rules. These rules currently discourage employers from letting older workers voluntarily reduce their workload while making up pay with partial pensions.
Today, aerospace companies, which rely heavily on highly skilled labor, are more likely to focus on retention and "rehirement" options to draw retirees back for consultation and short-term projects. The Los Angeles Times reports that at The Aerospace Corporation of El Segundo, CA, the average age of scientists designing space systems, satellites and launch vehicles is 47. Many Aerospace workers are over 70 and serve as part-time consultants. "As the workforce ages, we'll be in a good position," the general manager of HR is reported as saying. "We sell experience. Gray hair is good around here."
====================================================
For information on a Watson Wyatt study on global aging, go to
http://www.i4cp.com/8wjzRo
Watson Wyatt also has information on phased retirement at
http://www.i4cp.com/hy77SR
For those who wish to become more engaged in seminars on global
aging, information about The Center for Strategic and International Studies' Global Aging Initiative can be found at
http://www.i4cp.com/aWFuH3