Panos Prevedouros, PHD

BY PANOS PREVEDOUROS PHD – In 1940, an American enjoyed 12 years of life upon retirement, on the average. In 2007, an American is expected to enjoy over 17.5 years upon retirement. This long retirement period of 17.5 years is both the good news and the bad news.

The good news is of course that we all wish to live long lives and the outlook is good. The bad news is that retirement systems worldwide cannot support so many retirees living for so long.
This is one area where indeed Hawaii is not alone, but its government employee retirement system is among the five most troublesome in the U.S. George Berish, an expert in the field, has explained this in a series of articles in the Civil Beat: http://www.civilbeat.com/articles/2011/02/17/9023-a-way-to-save-hawaiis-government-employees-retirement-system/

The critical measure for the future health of a state’s or country’s overall retirement system health is the Support Ratio. This is the number that shows how many working people support one retiree.
In 1970 the U.S. had 5.3 workers supporting one retiree. In 2010 the number of workers per retiree dropped to 4.6.

This is alarming enough but it gets much worse. In 2050 the estimation is that there will be only 2.6 workers per retiree, so over 25% of their earnings will have to go to the retirement fund to support retirees. At that point overall taxation will surpass 60%, and in theory it is best to move to another country.
Not so fast!  Do not move to Greece where in 2050 only 1.6 workers will be supporting one retiree. Japan is even worse at 1.2. France, Italy, Germany, Spain are like Greece at around 1.6. Australia, New Zealand, Mexico, Britain, Denmark are like the U.S. at around 2.5. So the geographic escape to another first world country will not work.

This is an exploding international problem. The solution of over-taxing future workers to provide meager support to future retirees is not sustainable. So what’s the solution?

Change the definition of old!  A person retires because he or she is too old to work safely and productively. This is a modern social benefit. Throughout history retirement was absent. Most people worked till their death. Germany introduced retirement in the 1880s.

Who said 65 is old?  It may have been old in 1940 but in terms of health and well being we are many times better off in the 21st century. But even in the 1940s 65 years of age was not very old. Winston Churchill became Prime Minister at age 65!

The solution is simple. Move the retirement age to 70. Or as The Economist put it in its April 9 issue “70 or Bust!”
This is easier said than done as huge demonstrations in France made it clear. France is the only developed country with retirement age at 60 and average retirement age at 59. Their pension system is being crushed, and government is struggling against union opposition to raise the limit to 65.

Raising retirement age to 70 will be an uphill battle for most countries. It would be helpful if the United Nations declared that countries with annual per capita GDP (1) over $20,000 should use a retirement age of 70 (with medical exceptions for specific professions and jobs.)

(1) Based on 2009 GDP levels reported in International Monetary Fund 2010 World Database.

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