We're all getting older
We all know that we're not getting any younger. In 2011 baby boomers will start to retire en masse as they reach 65 and with them will go not only their ability to produce but a lot of expertise that they have accumulated over the past 4 decades.
And the number of baby boomers retiring will bring significant changes to society and the way that governments and society will have to deal with these issues.
Australia can thank Paul Keating for introducing mandatory superannuation contributions in 1992 and that has mean that since 1993 many more Australians will have enough superannuation to at least partly subsidise their retirement. Otherwise Australia would be like the USA and some European countries with huge future debts as they struggle to support their burgeoning aged population.
Japan is at the forefront of this, with an older population that peaked in the 1990’s and since that time the country’s economy has struggled, with the Nikkei index being one of the worst performing bourses over the past 20 years. In 1990 the Nikkei 225 was trading around 35,000 points, in July 2011 it is struggling to get over 10,000 points, which is where the index was trading in 1985!
So effectively since 1990 the Nikkei has consistently fallen and it is in part to the aging Japanese population, the losing of skilled personnel and ability to compete on international markets.
Japan is a very insular country and actively discourages immigration and so they have not been attracting talented immigrants who can take up the positions lost to retiring specialists.
A very powerful website is http://www.nationmaster.com/countr/ja/Age_distribution
Which shows the population of distributions of Japan from 1990 to the future projections and the largest population segment in 1990 was the 40-44 age group. Now it is 21 years on and that age group is in the 61-65 age group and about to retire.
The scary pyramids for Japan are from 2020 onwards when they will have over 13 million people over 80 alone, so it is as well that the Japanese are good savers, they are going to need every yen they have.
So is this our fate and if so what can we do about it?
Well Australia does have some advantages, we have been taking in immigrants from around the world and that has meant that they have been able to provide the next generation.
Many of the migrants from 3rd world countries have had slightly larger families which means that the Australian population pyramid looks much better than the Japanese equivalent.
But the number of pension aged Australians will inevitably increase over the years and that will mean strains on an already stressed medical and social services industry.
One option is to increase immigration and take in young families with children who will grow up to be the tax payers of the 2030’s. At the moment the government is taking an intermediate course by taking some immigrants, but also allowing industry to bring in ‘specialists’ under temporary visas.
The Peter Costello option is to have two children for mum and dad and then have another one for Australia. By doing so giving Australia a population growth trajectory.
Another option is to force the aged to work longer, we have already done that to women, by lifting the retirement age from 60 to 65. In Europe many countries are now lifting the retirement age to 67 and beyond. It could be possible that by the time Generation Y are getting old, the retirement age in Australia will be 70.
Find out how investors can benefit from Australia's Ageing Population