The problems of an ageing population - January 29, 2020

The problems of an ageing population

Global population is aging fast. According to OECD, by 2060 there will be 9 seniors for 10 working-age people in some countries. This will lead to serious socio-economic changes and pension problems. To get through them, higher taxes and private pensions may be inevitable.

By 2060 there will be countries with 9 seniors for 10 working-age people – according to a Visual Capitalist article based on OECD data. This will put rather serious strains on the pension systems and on the whole economy.

An ageing and growing population

In the last decades, thanks to an ever-evolving health care, child mortality is dropping while life expectancy is growing. This is a great achievement for humanity, but it also causes serious shifts in the global population.

According to the United Nations, by 2050, there will be 10 billion people on earth while the number of elders will grow greatly: in 1980 there was 20 retired people for a 100 working-age people, by 2060 there will be 58. This means that if nothing changes, on average, 100 people will have to generate enough money to support 58 people’s pensions.

Economic effects

Ageing population has effect on the economy as well, not just through the pension system. Less workforce may influence the GDP growth in a negative way. Elders need higher medical attention, which also rises costs. World Economic Forum believes that in the US this may lead to a rather hard question of increasing tax rates or to shrink (or eliminate) Medicare and Medicaid in the future. (While WEF sees these problems, they also underline that elders can and often create value with non-market activities like taking care of grandchildren.)

Pension systems must change

All these problems will be impossible to tackle without serious changes to the pension systems of today. First of all, these systems were designed at a time when life expectancy was a lot shorter and pensions had to be maintained for only 5 years. Now pensioners live for around 10 years, and in some countries even 16 years, on their pensions. (See: A pension crisis seems inevitable.)

The Global Pension Index has some ideas how to solve these problems, but those include painful changes. They believe that governments should increase retirement age. They should also “increase the level of savings, both inside and outside pension funds”. And private pensions should be more important for the retired in the future.

Self-care and cautious investments will help

Global Pension Index also underlines the importance of “private pensions”. We believe that a great way to create such a private pension might be to find a well-balanced and diversified investment portfolio. This is especially a good idea nowadays, when due to close to zero or negative interest rates, money kept on a bank account may even lose its value instead of generating returns.

It’s hard to say how long this zero-rate era will last, but for 2020 we believe that it will remain the same. We also wrote about how this year might still be good for gold and the stock markets at the same time.

To learn more about these topics read our former posts: Keep an eye on gold in 2020 and Will S&P 500 hit record highs this year again?

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.