Sissi Li (9) | STAFF REPORTER
As modern medicine and health care systems develop, the average life expectancy in developed countries has also increased. Since 1940, the average life expectancy in the US has increased more than 15 years for both men and women, from 62 to 77 years. The question is, as the longevity of humans increases, should the retirement age be bumped up as well? The answer is yes.
Demographic aging results raise many economic challenges as the spending of the elderly rises faster than the income of the working population. It puts pressure on public finances, funds, and programs as elderly care expenses rise with a longer lifespan – a long time in retirement. Many countries use a pay-as-you-go scheme where the money earned by the working population covers the retirement of the elderly. If there is an increase in the amount of elderly without a similar rise in the working population, the balance is staggered and the system crippled. Essentially, there won’t be enough money to support the elderly and problems will arise in the labor market.
Faced with this problem, the issue could be resolved in three ways, by increasing the contribution rate, decreasing the benefit rate or increasing the retirement age. Increasing the contribution rate would mean decreasing the immediate salary of the worker, to be stored for retirement. This can put more financial pressure on the present while retirement might not even last that long. Also, the expenses during retirement are significantly less than the expenses in one’s working life. Decreasing the benefit rate would mean a tighter budget in retirement while transferring more money to the present workers. Both of the options are not the most ideal because there is only a transfer of existing money but no new income, thus not solving the problem at its roots. Out of the three options, raising the retirement age is the most optimal as it increases the labor supply and income and lessens the burden of the retired population.
Certain countries are already introducing indexation schemes so that the retirement age rises along with the average life expectancy. An example is Denmark, which introduced a welfare reform in 2006 and a retirement reform in 2011, deciding to increase the official pension age to 68 years, with further changes expected in the future. This agreement has reduced the pressure on public finances and the labor market, bringing about positive changes.
In conclusion, the retirement age should be increased as life expectancy increases.
