World elderly ageing

The world's population is aging at an accelerated rate. Declining fertility rates combined with steady improvements in life expectancy over the latter half of the 20th century have produced dramatic growth in the world's elderly population.
People aged 65 and over now comprise a greater share of the world's population than ever before, and this proportion will increase during the 21st century. This trend has immense implications for many countries around the globe because of its potential to overburden existing social institutions for the elderly.
One popular view envisions global aging as a looming catastrophe, as populations top-heavy with frail, retired elderly drain pension and social security funds, overwhelm health care systems, and rely for support on a dwindling working-age population.
Population aging refers to an increase in the percentage of elderly people (65 and older). The number of elderly increased more than threefold since 1950, from approximately 130 million (about 4 percent of global population) to 419 million (6.9 percent) in 2000. The number of elderly is now increasing by 8 million per year; by 2030, this increase will reach 24 million per year. The most rapid acceleration in aging will occur after 2010, when the large post World War II baby boom cohorts begin to reach age 65.
The elderly population itself is also growing older. The "oldest old" (80 and older) population is the fastest-growing group among the elderly. Levels of illness and disability among this group far exceed those for other age groups, and thus the needs of this group are likely to increase substantially in the 21st century.
 Aging populations in the developed world will result in increasing dependency ratios and shrinking workforces, thereby confronting the world economy with significant challenges. According to the World Bank's Global Economic Prospects for 2007, we can expect a declining savings rate as well as decreased investment demand.
The life-cycle theory of consumption argues that saving rates are low during your adulthood to provide for children, rise as individuals save for retirement and then fall as retirees live off of their accumulated assets.
This theory is subject to significant qualifications, as individuals also save to provide a bequest for their children and to maintain a stock of wealth to deal with adverse shocks.
Saving rates also are influenced by a host of macroeconomic factors, including growth, interest rates, inflation, borrowing constraints, fiscal policy, pension systems and income distribution.
Economic estimates have provided mixed support for the view that savings behavior is governed by life-cycle considerations. On balance, decline in savings can be expected as elderly dependency ratios increase.
This simple theory of individual behavior, in conjunction with demographic trends set off by the baby boom after World War II and the impressive increases in longevity in the developing world, has dramatic implications for the global economy.
For Europe, Japan and East Asia, which have relatively high saving rates and supply a large share of global financial flows, the rise in dependency ratios should lead to a decline in savings. By contrast, the very low saving rates in sub-Saharan Africa may be at least partially explained by the region’s very high youth dependency ratios. Saving rates should rise as these young people move into the workforce, boosting investment and growth.
The decline in saving rates is not expected to follow a smooth trend over the next 25 years. In industrial countries, saving rates should rise in the near future, as the bulk of the baby boom generation remains in the workforce during peak saving years.
However, over the next 20 years this generation will retire and saving rates will go down. Russia and some of the other countries of the former Soviet Union are likely to see a decline in the labor force and thus savings, owing to rising elderly dependency ratios.
Latin America and South Asia may see some effect of rising elderly dependency by the end of the forecast period. By contrast, sub-Saharan Africa, the Middle East and North Africa have relatively young populations and should see increasing labor force participation and savings through 2030.
Overall, the forecast drop in global saving is quite substantial, from 21.6% on income in the first half of the decade of this century to 19.9% by 2030.
Demographic influences also imply a decline in investment demand, as fewer workers are available for each unit of investment. Other aspects of aging may boost investment demand. For example, aging may spur investments in human capital to compensate for reduced numbers of workers.
The decline in the labor force is likely to lead to higher wages, thus increasing investments that save on labor, either in productive processes or in the supply of services at the household level.
Similarly, aging may accelerate technical progress by increasing incentives to innovate. On balance, it is likely that investment will decline in regions where elderly dependency ratios are rising, but not by as much as savings, leading to a decline in these countries’ current account surplus (or a rise in their deficit), along with a rise in global interest rates. For more info and in depth analysis, please consult the World Bank Global Economic Prospects 2007.