The data show most of the world’s population is leading much longer, healthier lives than ever before.  In China, India, and elsewhere, life expectancies have increased by more than 50 percent since 1960.  While this achievement highlights the substantial progress in human development, a number of countries confront the considerable economic and social challenges of increasingly costly, rapidly aging populations.

Longer, Healthier Lives

The world over, life expectancy at birth increased by 32.7 percent on average from 1960 to 2008.  In middle income countries, people live 21 years longer than they did just 50 years ago.  In many of the world’s most populous countries, including Algeria, Bangladesh, China, Egypt, India, Indonesia, and Nepal, life expectancy grew by 52.2 to 76.3 percent.  When grouped by income levels, increases in life expectancy at birth ranged from an average of 15.9 percent for high income countries to 43.8 percent for middle income countries.  The table below presents the changes in life expectancy at birth for selected countries and global income categories.  (Click on the image for a larger version.)

Low Fertility Rates

Not only are people living much longer, in many developed countries they are also having far fewer children than a few decades earlier.  A host of advanced economies have fertility rates well below the replacement level of 2.1 that is required to maintain a stable population in the absence of net inward migration.  The table below shows a sample of fertility rates for selected countries.  (Click on the image to see a larger version.)

Old Age Dependency Ratio

Aging populations and low fertility rates mean fewer working age people are present in the work force to support the ever-expanding pool of retirees.  The old age dependency ratio is used to assess a countries’ capacity to meet its retirement obligations by quantifying the population age 65 or older as a percentage of people of roughly working ages 15-64.  From 1950 to 2009, the world’s old age dependency ratio increased an average of about 35.6 percent, from 8.7 to 11.8.  In 2009, the ratios of most developed economies were far higher, ranging from 19.1 for the U.S. to 33.9 for Japan.  The table below shows a sample of old age dependency ratios for selected countries.  (Click on the image to see a larger version.)

The table above also suggests a pattern in the relationship between old age dependency and economic development.  Countries that developed earlier like the U.S., U.K., and France look to have reached higher levels of old age dependency earlier.  In Japan, much of the country’s increase in the portion of the population age 65 and older occurred in the last 30 years since 1980.

Other Side of Economic Development

Several other important factors contribute to the financial cost and challenge of prospering amidst a large, growing elderly population.

• Social security – state benefit systems were designed and implemented when people did not live nearly as long and drew far fewer years of social security benefits.  In 2009, only 14 percent of men age 65 or older were “economically active” in the more developed world regions according to a United Nations report.
• Corporate support – in many cases, pensions and other defined benefit programs have given way to defined contribution plans such as 401Ks.  As a result, the burden and considerable risk involved in building a sufficient retirement nest egg has shifted considerably from well-endowed organizations to individuals with limited investment knowledge and resources.
• Savings rates – personal savings rates have also declined over time.  Widespread access to easy credit, financial engineering, and insufficient oversight are at least partly to blame.  Excessive reliance on 401Ks can also lead to a false sense of security about future financial prospects in the absence of adequate savings.

Potential Policy Responses

As living standards and technology continue to improve, the world will only get older.  The UN forecasts that the portion of the world’s people who are 60 or older will double by 2050 from 11 percent in 2009 to 22 percent.  What can be done to address the economic costs and anxieties of our aging societies?

• Social security – as President Sarkozy’s French government recently determined, there seems to be little alternative to raising retirement ages to the point of being commensurate with how long people will be able to work and live in retirement.  For more on France’s battle over the minimum retirement age, see the related post French Say Non! to Change.
• Corporate support – it seems fair to say that corporations and government regulation of employment practices should take more responsibility to ensure that the labors of their rank-and-file employees are adequately compensated and those employees are not left out in the cold when their service ends.  At a minimum, this might involve providing adequate retirement planning assistance and matching retirement contributions that incentivize and reward employees for making sound financial decisions.  Better yet, these efforts would extend to employer projections and involvement that would help ensure employees’ regular, reasonable contributions will adequately support a modest retirement lifestyle.

For related articles on aging, economic development, and policy challenges, see the post 150 Year Old Japanese in Abundance and Analyzing Global Progress: Interpreting the 2010 UNDP Human Development Report and Index.

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Sources:

World Population Ageing 2009.  United Nations Department of Economic and Social Affairs, Population Division.