NCPA - National Center for Policy Analysis


September 20, 2006

Over the next two decades, many in the developed world will leave the labor force expecting a long and comfortable retirement, but this may not be the case, says Jeremy Siegel, professor of finance at the University of Pennsylvania.

The latest data from the U.N. Demographic Commission clearly show the aging of the developed world:

  • In the United States, in 1950 there were seven people of working age (20-65) for every retiree, and even today, there are almost five.
  • But by 2030, when the last of the baby boom generation retires, that ratio will fall by nearly one-half, down below 3 to 1.
  • In Japan, by mid-century the ratio of workers aged 20-65 to retirees will fall to just over one-for-one.
  • At that time the most populated five-year age segment in Japan will be those ages 75-80; the same will be true in Italy, Spain, Greece and other European countries.

However, instead of an easy retirement, many retirees will find a future marked by bankrupt government social programs and declining asset values that will quickly deplete their nest eggs.  As a result, average retirement age would have to be raised beyond life expectancy in many countries just to keep pace.

There is, however, a solution that can help aging economies.  The developing world has a much younger age profile than the developed world.  This difference in age establishes an opportunity to make a trade: Goods produced by the younger developing world can be exchanged for assets of the older developed world.

Inflow of goods and services produced abroad in exchange for capital can have dramatic effects, reducing the projected retirement age in the United States from the mid-70s to the upper 60s, says Siegel.  Integration of the world's economies and capital markets may be the key to our future well-being.

Source: Jeremy Siegel, "Gray World," Wall Street Journal, September 20, 2006.

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