He Fan: Why the Young Are More Concerned About Retirement Than the Elderly 2023-07-20

Everyone is aware that China is rapidly aging and that the issue of elderly care will become a significant challenge affecting not only the future of China's economy but also every individual's life. However, an interesting phenomenon I've observed is that, compared to the elderly, the younger generation is more concerned about their own old age.


Intuitively, retirement should be a matter of concern for the elderly. But as it stands now, many seniors, especially those living in cities and receiving steady pensions, do not seem to be worried. They have worked hard all their lives and are now interested in how to enjoy life. The city parks and public transportation are dominated by the elderly. Apart from school holidays and weekends, the elderly are the main tourists. An estate agent once told me that he often dances with the elderly women in the square. Despite their appearances, many of these women are wealthy, with assets worth tens of millions.


This generation of seniors, who have endured hardships in their youth and later caught up with the era of rapid economic growth, is enjoying a happier old age. This is not unique to China. The post-war "dankai generation" in Japan and the "baby boomers" in the United States also caught up with their respective economic booms, all sharing characteristics of optimism and a love for life.


However, the situation is different for the generation born in the 1980s. This generation is sandwiched between aging parents and their own children. Never before have parents invested so much in their children's education, and never after have offspring shouldered such a heavy burden in caring for their aging parents. They are the most hardworking generation. But what about their own retirement? Will they be as carefree?


China experienced three birth peaks: the first from the founding of the People's Republic of China in 1949 to 1958, with 230 million births; the second from 1963 to 1972, with 282 million births; and the third from around 1986 to 1990, with 110 million births over five years.


As these three cohorts gradually age, the degree of aging in China continues to deepen. You may think that these peaks and troughs are like undulating mountains, with highs and lows. In reality, the cumulative effect of these three population birth peaks will create a plateau. That is to say, the problem of aging will persist throughout the 21st century. According to different calculations, by 2089 or 2100, China's elderly population will remain above 30%.

When will this plateau arrive? It will be when those born from 1986 to 1990 enter old age.


Starting in 2050, China will enter the peak of its aging society. Almost one in every three people will be elderly. By 2059, China is expected to have 400 million people over the age of 65, reaching the peak of the elderly population.


The rapid change in the dependency ratio will also start when this generation ages. Between 2050 and 2060, the elderly population's dependency ratio in China will jump from over 40% to over 60%, meaning 100 working-age people will have to support more than 60 elderly people.


Thus, when those born from 1986 to 1990 reach the age of 60 and officially begin their elderly life, they may witness a society where the elderly form a majority. Just as they experienced during their school, house buying, and child-rearing years, they may find that gaining entry into a quality retirement home could require a lottery system. At the same time, some social norms and order are changing. Perhaps there will be fewer benefits for the elderly, and society may become less friendly to them. Considering the heavier burden on the young, the elderly of the future might feel somewhat overwhelmed.


This is a very real problem.


There is a theory in economics called the life cycle hypothesis. In youth, when income is low and expenditure is high, one incurs negative savings, relying on parental support. In middle age, one has the highest income but dare not spend too much, needing to save for parents' old age, children's education, and one's future. This period is the peak of savings in life. In retirement, one goes back into negative savings, spending the money saved to live out their old age.


This sounds simple, but once the expected lifespan of the population changes, so must the lifecycle.


Let's take an example. Let's call a person born in 1965 in China, "old Zhang." old Zhang went to university at 18 and started working at 22. Let's say he had a child at 25. According to the one-child policy of the time, he could only have one child. When the child goes to university, old Zhang is 43 years old. old Zhang starts saving for his retirement at 45, so he has 15 years to save for his post-retirement life. By 2025, old Zhang is 60 and should retire. At this time, the average life expectancy of Chinese males is approximately 75 years. By this calculation, old Zhang has 15 years to spend his savings, so retirement does not put much pressure on him.


Let's turn our attention to old Zhang's child. Suppose she is a girl, born in 1990. Let's call her Xiao Zhang. Xiao Zhang, compared to old Zhang, is set to establish her family and career somewhat later. By 2021, Xiao Zhang is 31 years old. At this time, she has finished university, changed jobs several times, switched boyfriends a few times, just completed her MBA, got married, and jumped to her current company. Isn't there a saying "established at thirty?" Xiao Zhang is just over thirty, and her life and career are on the right track.


In a few more years, Xiao Zhang might consider having a child. Suppose she has a child at 35. By the time her child is university-age, Xiao Zhang will be 53 years old. Xiao Zhang can't afford to be as leisurely as old Zhang. Nearing retirement, she has a university-going child at home, dramatically increasing her financial burden. Yet, she's also reaching the age of retirement. Though Xiao Zhang has worked hard, time relentlessly pressures her.


What about after retirement? With improvements in healthcare, Xiao Zhang may well live to be a hundred. Even if she doesn't live that long, let's say she lives into her eighties. The question then arises: where will the money come from to cover her expenses for over 20 years after retirement?


What does this imply? It suggests that the existing pay-as-you-go pension system and the fixed mandatory retirement age system are unsustainable in the future, and significant adjustments will be necessary. It implies that the younger generation must prepare according to their life cycle, saving for a rainy day.


You might argue, isn't this just peddling anxiety?


Is there a need to peddle anxiety? Anxiety already exceeds supply. Besides the tangible problem of retirement, don't forget, with changes in the population age structure, a decrease in the workforce will lead to rising labor costs. Rising labor costs mean future inflationary pressures will increase. Future inflation could be higher than it is now, but economic growth may be slower. This implies asset prices might struggle to maintain strength, making it harder than before to earn money through investments to secure one's old age.


Therefore, the severe challenges faced by the "post-80s" generation are significantly underestimated by society as a whole. Once, biologist Wang Liming, a member of the "post-80s," told me he felt his generation was a "twisted" one. Given such a backdrop, they indeed face significant hardship, but people can't stay in such a state forever. Perhaps after such stress, unique innovations could be stimulated.


One day, the "post-80s" generation will have the opportunity to shape China's destiny. Then, they can alter the course of history.