Stanford experts propose new ideas for governments dealing with old age

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Elderly athletes listen to instructions before a competition in Taibei, Dec. 2007. Flickr user Ivan Yeh

From Shanghai to São Paulo, people around the world are living longer than ever, challenging long-held ideas about retirement and well-established national retirement systems. Stanford health economists Karen Eggleston and Victor R. Fuchs offer an innovative view of the global aging phenomenon in an article published recently in the Journal of Economic Perspectives.

Drawing on a century of demographic data from 17 countries, Eggleston and Fuchs show that the share of increases in life expectancy realized after age 65 was only about 20 percent at the beginning of the 20th century but close to 80 percent by the dawn of the 21st century. Expected lifetime labor force participation as a percent of life expectancy is now declining. Eggleston and Fuchs share four interrelated responses to the economic and social challenges posed by this “new demographic transition:”

  • Increase the retirement age.
  • Encourage savings.
  • Strengthen education.
  • Emphasize healthy lifestyles early to ensure productivity in old age.

Eggleston is director of the Asia Health Policy Program at the Shorenstein Asia-Pacific Research Center. Fuchs is Henry J. Kaiser, Jr., Professor Emeritus, in Stanford’s Department of Economics and Department of Health Research and Policy, and a senior fellow at FSI and SIEPR.

Of the four policy responses the article proposes, is one especially critical?

Fuchs: The most important solution in terms of its potential impact would be people changing their attitudes toward retirement. This would mean people postponing retirement and saving more during their working years. If you work five years longer, for example, you would have greater savings and a shorter period of time when you would need the money.

We tend to think of the solutions as being interrelated. To address this longstanding and inevitable global demographic transition, organizations and policy structures need to support changes in individual behavior. In the case of the retirement age in the United States and European countries, policymakers need to change the many incentives that encourage people to retire younger.

What do you most hope policymakers will take away from the article?

Fuchs: We hope they will recognize the absolute need for individuals and organizations to plan for later retirement.

What are the special challenges faced by China and India, the world’s largest populations?

Eggleston: Longer lives in China and India contribute to improved human development, yet population aging also brings special challenges. China’s population is aging more rapidly than India’s and both countries need to invest more in the education and health of their young people, especially in poor rural areas.

In India, nutrition and education will help to reap a one-time boost to economic growth if the large cohorts of the working age population can be productively employed, while building a foundation for sustained improvement of living standards. China’s youth need to be as productive as possible to support the elderly while continuing to improve the national living standard.

The coming decade will be crucial in China, as the country transitions into a new economic phase and expands its fledging social protection system. The goal should be to ameliorate disparities and protect the vulnerable, while maintaining a financially sustainable and culturally appropriate balance of government and family responsibility for old-age support.