70 is the new 50: What are the implications?

The International Monetary Fund (IMF) recently stated that 70 is the new 50. Multiple studies show that older adults are sharper and fitter than they were 25 years ago. What are the economic implications of this? Charles Kalshoven, macroeconomist and expert strategist at APG, discusses the ‘figure of the week'.

The IMF does not delve deeply into the reasons why the average 70-year-old today has the same cognitive abilities as a 53-year-old in 2000. Kalshoven suspects that it is at least partly due to the decrease in alcohol and tobacco use. "Also, in the 1960s, higher education was democratized in many countries, allowing many more people to study than before. Research shows that higher-educated individuals remain healthy longer, including cognitively. This is because they generally continue to engage in activities that keep their cognitive abilities relatively intact, such as continuing to work part-time after retirement."

In this context, Kalshoven refers to neuropsychology professor Erik Scherder, who advocates for staying active and challenging oneself as much as possible. "If you stay healthy longer, you can work longer, but according to Scherder, the reverse is also true: staying active – such as working longer – is good for your brain and thus your health. This only applies to cognitive tasks, of course. For a construction worker, the work would be too physically demanding at age 70."

Early retirement
Since the Netherlands has a service economy, many people will be able to work longer. "The age at which people actually retire has been increasing for several years. When the early retirement scheme (VUT) existed, it was common for someone in their late fifties to retire. That rarely happens anymore."

One of the reasons behind the VUT scheme was that early retirement of older workers would create jobs for younger people during a time of high youth unemployment. Kalshoven: "It was assumed that there was a fixed amount of labor available that could be redistributed. In summary, the conclusion was that 'old folks need to go,' as comedians Van Kooten & De Bie put it. However, this turned out to be a misconception. When more people enter the labor market than there are vacancies, it drives down wages, which eventually increases the demand for labor. The supply of labor is a factor that structurally influences and can support economic growth. With the current tight labor market, it is only beneficial for older adults to work longer, as long as they enjoy it, it keeps them healthy, and they benefit financially. They don't have to worry about denying a job to a young person just entering the labor market."

Pension assets
Aging still puts pressure on economic growth, as we will eventually have a shrinking workforce, Kalshoven continues. "But it's less severe than we initially thought." At the end of last year, the Dutch Scientific Council for Government Policy (WRR) released a report on aging in Europe. "The core of the report was that the Netherlands, with its relatively slow aging and large, capital-funded pension assets, is an exception within Europe. The Netherlands may be affected by economic policies in France or Germany, where the population has saved less for pensions and the government pays the pensions. But if fitter Germans and French people want to work longer – which is not a given – it could mitigate this risk."

Politically sensitive
According to Marnix van Rij, former state secretary and now an IMF executive, Dutch people will need to work longer to maintain the current level of prosperity, he told ANP. Kalshoven questions whether the retirement age here really needs to be raised further: "A mandatory increase is politically sensitive. Moreover, the state pension age in the Netherlands is already linked to life expectancy, and the average retirement age follows the state pension age."

"IMF figures also show that the increased healthy life expectancy does not apply to everyone, and there are significant differences between and even within countries. '70 is the new 50' mainly applies to higher-educated individuals, more to wealthy than emerging countries, and more to urban than rural areas. It's important to keep this in mind. But for those who can and want to, it's certainly fine, and the economy and society will benefit from it. It certainly doesn't hurt to make working longer as attractive as possible." This can be achieved by allowing employees to retire later than the state pension age or by investing in the education of older workers. "Employees remain cognitively capable for longer. The costs of education can therefore be amortized over a longer period. It can be worthwhile to take a course at age 60, keeping your brain healthy and staying fit longer."