Living longer

He may originally have been pointing out the irrelevance of the "long run" to immediate economic problems, but his remark is commonly now taken as an expression of fatalism. Birth is nothing more than an extended death sentence. But the time between the two is?– at least statistically – getting longer for most of us.

We are getting older. In the UK, plans are afoot to gradually increase the state retirement age to 68 – more than double the 33 years the average British adult was expected to survive in the Middle Ages. The longer people live, the longer they will probably have to work – whether by choice or government policy. This has enormous influence on how each of us spends money, saves and invests – and structural implications for the world economy, business?– and finance.

But has our life expectancy peaked? It does not look like it. Aging trends show that, over the last 160 years, maxi­mum life expectancy has increased by three months – every year. If in 1840 the Swedes topped the expectancy scale by living to 45 on average, now it is Japan, where women live to 85. The problem now is that a number of different – and conflicting – trends are beginning to intersect. We continue to make significant advances in medicine, a key reason for our current longevity, just as the baby boom generation starts to retire. At the same time, couples are having fewer children. Countless studies have examined the implications of all this – and the results are sobering. In Japan, if things continue, the country will soon be in a position where each working person is paying for the retirement of one retiree.

A simple way out of this might be to "import" labor from elsewhere. It is not, however, very realistic – given the ­sustained high rates of immigration needed. Gains in worker productivity in mature economies may be able to compensate for some of the aging effect – but it looks like the expected decline in worker numbers – and output – will lead to lower growth, at least at first.

What will this do to corporations in industrialized countries? Some of them will simply shrink with the working population. Many, however, will tackle the future positively by diversifying geographically, making their earnings less dependent on their home countries. According to studies carried out by UBS, European companies already generate 35% of their income outside Europe, while in the US 40% of corporate earnings come from direct investments in emerging economies, where populations continue to grow and there are few limits on growth. Partly for this reason, European corporate earnings have grown strongly in recent years – despite the relatively sluggish overall economic growth rates on the continent.

National governments are in a more difficult position. State pension systems are becoming unaffordable, and politicians in many countries are increasingly vocal about pension reform, with most calling for higher levels of individual contributions. The pension, asset management and investment fund sector should benefit from this. As individuals become less confident in the ability of governments to provide for them in old age, they will take their retirement provision into their own hands. This will most likely lead to higher savings rates and increased demand for a broad range of private pension and investment products.

A demographically induced slowdown in growth in developed countries will mean that investors seeking adequate returns will increasingly have to turn to parts of the world that are more risky. In the past, emerging economies had a higher share of primary industries, such as mining. Now, though, emerging economies drive much of the world's growth in secondary industrial production. This is bringing about wide-ranging changes in investment behavior. Emerging markets securities were previously an investment option. Now, they are becoming obligatory components of any well-diversified portfolio.

Numerous sectors, among them healthcare, will grow faster as the population ages. Products formerly only available in hospitals, such as electronic blood pressure monitors, will continue to make their way to the consumer market. Automatic external defibrillators are another example. Previously confined to emergency rooms and ambulances, these small, easy-to-handle devices that can save lives in the event of cardiac arrest are commonplace in offices and factories.

Entertainment software manufacturer Nintendo has developed a video game for its handheld console, the Nintendo DS, to help players counteract the effects of aging. Called "Dr Kawashima's Brain Training: How Old is Your Brain?," the game has proven popular among senior citizens – an impressive achievement for anyone in the video game industry. According to Nintendo, the quick and challenging exercises in the game, based on easy to execute mathematical, cognitive and language-based tasks, helps stimulate the brain and keep it active. Indeed, it is increasingly being used in doctor's waiting rooms in Japan for patients to practice while waiting for their appointment, and it is enjoying growing popularity in other parts of the world.

In fact, it may be the old themselves who do the most to counteract the ­societal effects of aging. More of them say they want to work past retirement age, as it gives them the satisfaction of being involved in something useful and keeps them active. A survey conducted by UBS in the US recently revealed that 77% of those polled expect to work part-time after they have retired in ­order to supplement their income. A decade earlier, that figure was 70%.