The idea of a well-earned and funded retirement at age 65 has powerful appeal, but it is on the way out. What can replace it?
Switzerland is a unique European country. Landlocked in central Europe, the country boosts stunning landscapes including Alpine peaks, four official languages, a high standard of living, an unrivalled private banking network, famous watches, and delicious chocolate. In addition, the country has not fought a foreign foe for 500 years.
The federated model also gives its citizens a direct voice in government policy through referendums. The last two votes indicate the Swiss are not following the trend in Europe regarding retirement. Almost 75% of voters in one referendum rejected an initiative to raise the retirement age from 65 to 66. In the second vote, over 58% backed an additional monthly payment for pensioners who are struggling due to the rising cost of living, swissinfo.ch reports.
Earlier, an attempt in the US to raise the mandatory retirement age for airline pilots from 65 to 67 failed to take off in the Senate. Critics expressed concern that the hike would put the US above international piloting standards and that there was not sufficient safety data.
These are among the few instances where 65 has retained its status as the moment to start receiving full public retirement benefits. Internationally, the trend is to raise the age as we are living longer on average than ever before, and lower birth rates are reducing the size of the workforce that faces having to fund longer retirement for older generations. Our state-backed retirement systems are geared towards funding a handful of twilight years rather than a couple of decades. Countries are grappling with the financial challenges of aging populations and an increasing number who are eligible for benefits for longer. At the same time, there are fewer younger workers to pay sufficient contributions to shore up those creaking systems.
How did we get to 65?
Why 65? We could blame Otto von Bismarck, the archconservative “Iron Duke” of Prussia who sparked wars with Denmark (1864), Austria (1866), and France (1870), leading to his unification of Germany. While Bismarck opposed the rising tide of socialism in Europe, to maintain the loyalty of workers, he enacted important social reforms, including an old-age national retirement system.
The story goes that the wily old statesperson pegged the retirement age at 65, knowing that workers would never grow that old. In fact, Bismarck set the retirement age at 70. It was reduced to 65 during the First World War.
US: the Peak 65 Zone
By the 1930s, the US was the only industrial country without a national social security system. The unemployment and poverty stemming from the Great Depression led to the game-changing introduction of the Social Security Act by the US Congress in 1935. An important aspect was a monthly benefit for retired workers aged 65 and older. This was partly to encourage older workers to leave the workforce, creating vacancies for younger people.
Interestingly, the average life expectancy in the US at the time was 58 years. It reached 77 years in 2020, according to the Center for Disease Control and Prevention (CDC), before declining to 76.1 years – the lowest level since 1996. Nevertheless, more people than ever are turning 65. A recent report published by the nonprofit Alliance for Lifetime Income’s research institute said America has entered the “Peak 65 Zone,” with the largest surge of retirees in America’s history. The report estimates 11,200 people will turn 65 every day from 2024 to 2027.
The main official response to longevity in the US has been to seek to gradually increase the full retirement age for Social Security benefits: from 65 to 67 for those born in 1960 or later. However, various groups have concerns about the impact on vulnerable groups and those in physically demanding jobs. This has prompted legislative moves in recent years to help Americans save more for retirement and reduce inequality. For instance, the Secure Act 2.0, was passed in 2022. Expanding on 2019 legislation, the 2022 Act makes it easier for small company to offer retirement plans to their employees and allows retirement benefits to be extended to long-term, part-time employees.
UK: Back to 1909
The UK has also adjusted its retirement age. This has sparked a debate about keeping the system solvent and fair for everyone. The retirement age now stands at 66, increasing to 67 by 2028 and to 68 by 2044. In early February, a specialist UK think tank, the International Longevity Centre, warned that the state pension age would have to increase to 71 by 2050 to balance public finances.
France: Vive la Révolution
The traditional retirement age for a full public pension in Germany was 65. Reforms will see this rise to 67 by the 2030s. In France, the government faced down widespread protests in 2010 to increase the retirement age from 60 to 62. More recently, a million angry protestors hit the streets of Paris to oppose President Emmanuel Macron’s latest reforms.
China: Looking forward to 65
China is also facing adjusting the minimum age upwards. Outlining the situation, the Global Times reports that statutory retirement ages in China are among the lowest of the big economies: 60 for men, 55 for white-collar women and 50 for women who work in factories.
These levels were set in the 1950s when average life expectancy was just over 43.7 years. This has risen to 78.1 by 2021. While China’s economy has boomed over recent decades, the workforce is expected to shrink in the coming years due to the declining birth rate.
A 2023 report by the Chinese Academy of Social Sciences, according to the Global Times, suggests, “the introduction of a delayed retirement policy is imminent and the eventual statutory retirement age after the adjustment might be 65.” China announced in 2020 and 2021 in official policies, Reuters reports, that the statutory retirement age would be raised. To date no further details have emerged.
Positive longevity
Retirement systems need to modernize to deal with various challenges. But it may not solely be down to retirement age. What if we took a more positive and hopeful approach to the debate, flipping it from ‘older for longer’ to ‘younger for longer’?
At Aegon, we believe this far the best time in human history to be alive. While there are challenges, people have greater access than ever before to education, information, wealth, and opportunity. Increasing longevity is the gift of more time to spend and contribute to a more sustainable world. A major cultural shift is required. An education gained before the age of 25 is unlikely to sustain an individual through a 60-year career. Various generations working side-by-side is becoming the norm. For most of us, 40 years of inactivity after retiring is as unsustainable as it is undesirable.
Laws and norms that enable people to work for longer can have positive implications for their financial security and well-being. By extending their working lives, individuals can continue to earn income, build savings, and maintain social connections, all of which contribute to a fulfilling and dignified retirement overall.
Lynda Gratton and Andrew Scott detail the concept of the multi-stage life in their book, The 100-Year Life. The authors argue we may have two or more careers in our lifetime, interspersed with periods of retraining, continuing education, or to raise a family or care for loved ones. Everyone’s journey will be unique, and there will be many more options at 65.