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Reaching 65

First published: The Economist, 16/06/2009

In the beginning, as we might say, there was no retirement. Even in 1800, life expectancy at birth in richer countries was only 30-40 years. By the time Bismarck introduced retirement pensions in 1883—for those few lucky enough to reach the age of 65—life expectancy was still only 40-50 years. The rest, as they say, is history.

By 1995, the retirement age in OECD countries had fallen to 60-62 years, while life expectancy had risen to 70 years. Today, many countries plan to increase the retirement age to 65-68 years in the next decade, but life expectancy is already 77-80 years and expected to approach 85-87 by 2050. If you make it to 55 or 65, your life expectancy is about 3-5 years longer. In short, most people retiring at age 65 can expect to depend on their pensions or income from other assets for about 20 years, and more by 2050. No one envisaged such an outcome in the last century, or what the financial implications would be for companies or the state. The whole notion of what is known as cliff-edge retirement is outdated, inefficient and needs to be rethought, for four reasons.

First, forced or mandatory retirement at 60 or 65 discriminates against older citizens who wish to continue working. This is not to argue that society should force people to work until they are 70 or older. However, improvements in health and the greater capacity of older people to work beyond the statutory retirement age mean …more