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Who is old? And why does it matter so much

The who is old question needs to be seen in the context of life expectancy

Ask a 20-year-old who is old and she is likely to say anybody over 40. At 30 you are likely to shift that to maybe 50. At 40, 60 is old. Our perception of who is old keeps moving as we age. Not long ago, an 82-year-old very seriously spoke to me about “that young man of 50". But it is true that the answer to “who is old" has changed from what it was a hundred years ago. That’s because, the “who is old" question needs to be seen in the context of life expectancy, or the age at which an average person dies. World Bank data puts this number at 52.5 for the world in 1960 and at 71.8 in 2015. The generation that will live to be a 100 may have possibly already been born.

The answer of “who is old" matters in ways that have nothing to do with vanity. It matters to each of us and it matters to a world that is living longer and longer.

To the country and the world, this question is hugely important because it is linked to the age at which we retire. The current system of a retirement age fixed between 58 and 65 emerged approximately 70-80 years ago when life expectancy was in the same range. This unsaid linking of pensions to life expectancy worked fine till the human being began to live longer. But the growing burden of people living longer on state pensions is derailing national budgets, especially in the developed world that has low birth rates and rising longevity.

Pension reform in the UK has already begun to push at the boundary of the retirement age and the pension benefits that the retirees can enjoy. State pensions from 2019 will begin at age 66 and not 65. By 2028, this will be 67 with future windows to more change linked to life expectancy. Changing benefits is one of the toughest political calls and pushing forward the year in which benefits begin is not easy.

One way that could work is to benchmark change to an external parameter. India has done this fairly well in this when we changed the way the guaranteed state saving schemes’ returns are declared. Till 2016, these were announced once a year in a fairly arbitrary manner. When overall interest and inflation rates were high in the economy, these products were given a return of 12% a year. However, when inflation and interest rates came down, attempts to move the Public Provident Fund (PPF) rates down were met with protests. In 2016, the government linked the interest rates on small savings to government securities. The fight goes out of the game when such a move takes place. Governments across the world could benchmark retirement age to some measure of longevity for that country.

Another way to look at deciding the threshold of retirement and old age is to look at the average number of years left to live. If the life expectancy is 80, then old age and retirement begins at 65. For a population that will live to a 100, old age will begin at 85.

India has been ahead of the global curve in recalibration of the pension burden. In 2004, it transited most government employees (the armed forces are an exception) to a defined contribution market-linked National Pension System (NPS). The NPS allows subscribers to build a retirement kitty in a mutual fund. On retirement, they get a part of the kitty and a pension that they buy as an annuity from an annuity seller.

India moved fast to make a structural shift in its pension burden while the population is still young but the threat that this big reform gets derailed is always there. Specially in pre-election months.

A recent news report said that the Rajasthan government may go back to the old defined benefit system of pensions and dump the market-linked defined contribution NPS. If true, then this is a disaster for India. Other states and lobby groups will then want to revert to the old scheme if the road is shown by the Rajasthan government. The railway employees have already been drawing parallels between their work and that of the armed forces to get an NPS exemption. A small bunch of entitled people will make all of us, and our children, pay. Policy change and then implementation is very tough. It will be a short-sighted central government to allow one state to begin a rush to the bottom in Indian pensions.

For us as individuals, the threat of living longer than our resources is very real. This is specially true of the urban mass affluent population that will live longer than the national average by many years.

We have to rethink our lives in at least two important ways. One, intend to work much longer than the earlier retirement age of 58. Even after you formally retire, plan to work for at least 15-20 years more. These are the low on energy, but high on wisdom years. Have a few interests and skills on the back burner as you progress through your active career. Two, overestimate your retirement corpus. Medical costs will be more and you could live longer than you thought you would. A rough rule of thumb says that you need between 18 and 35 times your annual expenses at age 60 (read more about this here). That means if you spend 0 lakh a year at age 60, you will need a corpus of between 3.6 crore and crore for your retirement.

Monika Halan writes on household finance, policy and regulation. She is consulting editor Mint. She can be reached at monika.h@livemint.com

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