But that will not be possible. Because of our aging population, it is
most likely that future increases in the age of retirement will actually ex-
ceed the increase in the life expectancy and will cause—for the first time
in history—an absolute reduction in the number of years in retirement.
The Global Solution: An Opportunity to Make a Trade
There is no easy solution. To be sure, rising productivity brings higher
income, but it also brings higher benefits in retirement since benefits are
based on income earned in the last several working years. Increased im-
migration of high-income workers would ease the situation, but the
numbers would need to be prodigious to keep the retirement age from
rising.
Nevertheless, there is a solution that can help aging economies. The
developing world has a much younger age profile than the developed
world. This difference in age establishes an opportunity to make a trade:
goods produced by the younger developing world can be exchanged for
assets of the older developed world.
This trade is not new. The transfer of goods for assets has taken
place throughout history, first between family members (parents giving
to children in exchange for old-age support), and then extending to
clans, communities, and finally whole nations. Soon it can be done on a
worldwide basis. The developing world has the capability of simultane-
ously providing us with goods and acquiring our assets, filling the gap
left by our aging workers.
I call this the “Global Solution” to the age wave. How effective this
solution will be depends on two factors: the growth rate in the develop-
ing world and the degree to which world trade and capital markets are
kept open. The average retirement and life expectancy in the United
States since 1950 and projections that I have made to 2050 are shown in
Figure 8-4. Note how crucial the growth rate of the developing world is
to future retirees. If the growth in the developing world grinds to a halt,
the lack of goods will force the retirement age up to 75, and it will shrink
the time in retirement to less than 8 years from nearly 16 today. If the
growth rate rises to 2 percent, which is slightly below the rate in the de-
veloped world, this will improve matters somewhat, but if growth can
proceed at 4 percent or faster, the effect on the retirement age is dramatic.
An overall average growth rate of the developing world of 4 per-
cent is highly likely. China has been growing at 8 to 10 percent for more
than 20 years, and India is nearing that rate. Most certainly, as these
countries grow richer, their growth rates will slow. Africa and the
136 PART 2 Valuation, Style Investing, and Global Markets