“Falling numbers of new entrants to the labour market cannot fund Western countries’ growing social security responsibilities.”
When German Chancellor Bismarck, with an eye to productivity, first set the retirement age at 65 in the late 1800s, it was in the knowledge that few people lived to that age. As late as 1935, when the US passed the retirement age as law, the average life expectancy was still 61,7 years. Yet today we face a demographic time bomb: fully half those born in Britain from 2007 onwards are expected to live to 103. Based on Bismarck’s model, the new retirement age should be over 100, and belatedly many governments are indeed raising it to above 65.
British gerontologist Sarah Harper recently spoke at the Financial Planning Institute (FPI) Conference on the challenges of changing demographics. She said: “Advances in medicine and healthcare mean that people all over the globe are living much longer, while mothers in many countries are having fewer babies. The combination is a demographic time bomb.”
Whereas 30 years ago overpopulation was the global concern with estimates of 28 billion people, today world population increase is expected to slow, peaking at 10 billion by 2050 and stabilising thereafter. Less-developed nations will account for 97% of that population growth with Africa’s population projected to double, Asia’s to comprise 55% of the world population, and Europe’s to decline.
Harper noted that the total fertility rate at which population numbers stabilise is 2,1 and already the US is at 2,06 while the UK, Germany, Spain, Italy and France are well below. At the lower end of the spectrum Canada’s population growth is 1,59 and China’s 1,55. Much of sub-Saharan Africa’s is over 5, India’s is 2,58 and South Africa’s 2,28.
Factors changing the dynamics of demographics and economies are improved family planning; better education, resultant careers and individual autonomy; growing infertility; and improvements in technology.
The challenge for Western economies is that falling numbers of new entrants to the labour market cannot fund their countries’ growing social security responsibilities. Old people are more costly, and already healthcare is one of the most significant and controversial issues in the US budget. Some say that more adult diapers are being sold today than those for infants. Something is going to have to change, or the outlook for these economies and their currencies and stock markets is gloomy.
Clearly, Africa will provide the labour force – and consumers – of the future, but it will require skills.
In 2050, where will the economic, investment and currency powerhouses be? Where do we need to work and for how long? Who will fund the social security debt and how? Where will healthcare be? In which economies will we invest our savings?
Harper’s presentation certainly made me rethink traditional wealth-planning strategies – perhaps you should too. ❐
Author: Mike Lledo CA(SA) is the CEO at Consolidated Financial Planning
