But, a new Goldman Sachs report gives some intellectual heft to this premise. According to a recent comprehensive study, a person who was 70 in 2022 had the same cognitive ability as a 53-year-old in 2000. Additionally, the physical frailty of a 70-year-old corresponded to that of a 56-year-old in 2000. This has important implications for an aging population. And, let’s face it: we’re aging.
Over the past 50 years, the median age in developed economies has increased from 30 to 43 years and in emerging economies from 19 to 30. Over the next 50 years (to 2075), the UN projects that the median age will reach 47 and 40 in developing and emerging economies.
Here’s an excerpt from the report:
It is also far from clear that the economic drawbacks of population aging are as intractable as they are commonly depicted. Although rising public sector pension costs remain a concern for some economies, the most effective means of counteracting the impact of aging on dependency ratios is to extend working lives. Fortunately, this trend is already in motion: while median expected life expectancy in developed economies has increased by 5% since 2000 (from 78 to 82 years), the median effective working life has risen by 12% (from 34 to 38 years) and the share of the total population in employment has increased from 46.0% to 48.3%. This trend towards extending working lives shows little sign of abating and is taking place in countries with minimal changes to pension laws, suggesting an adaptive response to increased longevity.
Many of us are lacking in longevity literacy. Life expectancy data understates the actual increase in longevity. This is because the life expectancy data that are most commonly cited aren’t really life expectancy data at all – they are a measure of the average ages that people are dying at today. This only provides an accurate picture of life expectancy if we assume there will be no improvements in longevity in the future, which has consistently proved to be an excessively pessimistic assumption.
Thus, when we state that the average life expectancy in developed economies is currently 82 years, we are essentially saying that an average individual born 82 years ago in 1943 would live to be 82. However, in 1943, the official life expectancy for developed economies was 21 years lower than it is today, at only 61 years. Only time will tell how long an average person born in a DM country today will live. But, in a likely best-case scenario, where we extrapolate the linear trend that has been underway in the frontier for the past 150 years, the average person born today would live to 110 years rather than 82 years. And, many longevity experts believe that half of kids being born into the developed world will become centenarians.
Here’s a summary of the Goldman Sachs report which sounds like it came straight from the MEA business plan:
The fact that we are not only living longer but also slowing the process of aging throughout our lives raises an important economic point. Most studies of the economic consequences of aging implicitly or explicitly assume that increases in life expectancy will extend the amount of our lives that we spend in ‘old age’, keeping everything else fixed. One implication that follows from this assumption is that there will be a higher demand for goods and services tailored to ‘old people’. However, a more accurate description is that we are extending the duration of all stages of life – ‘young’, ‘middle-aged’, and ‘old’ – which makes it less certain that demand will shift towards products and services for ‘old’ people.
-Chip