The golden years have arrived for Héctor Muñoz.
A 69-year-old salesman for a paper products company in Santiago, Chile, Muñoz is the sole breadwinner for a family that includes his wife Eugenia, 61, and his mother-in-law María Josefa, 90. For the moment he is also supporting his daughter Graciela, a 36-year-old divorcee who was laid off three years ago, and her 10-year-old son Ariel. Another daughter, 38-year-old Noemí, has emigrated to the United States, where she works as a graphic artist.
In theory, Muñoz is retired. At age 52, after working for 38 years for Chile’s largest paper company, he took an early retirement package promoted by the government. He is among the last generation of Chileans still receiving a pension paid by the state. Chile has since adopted a private pension system in which workers chose for-profit fund managers to handle retirement contributions that are deducted from their paychecks.
But Muñoz’s retirement has been indistinguishable from his working years. The day after he left his old job Muñoz took a commissions-only sales position with a smaller paper company because, as he puts it, “the pension is not enough to cover our bills.” Eugenia, who stayed home after her first daughter was born, has no retirement income at all. And María Josefa, who worked in a textile mill for 30 years, receives a monthly pension of around $120 from a labor union.
And yet Muñoz considers himself fortunate. He and his wife own their three-bedroom apartment in the middle-class Santiago neighborhood of Ñuñoa, and they have paid off two economy cars. He can afford to pay for private health insurance and an emergency ambulance service. These are essential for Muñoz because he is diabetic and has chronic heart trouble. However, the system does not cover the $150 in prescription drugs that he must take each month, and it only partially covers doctor visits and hospital care, such as a recent angioplasty. These out-of-pocket health expenses, and those incurred by the rest of his family, consume a large part of his income.
In his spare time, Muñoz enjoys listening to his collection of tango music CDs—one of his few indulgences. Recently he and his wife visited their daughter in the United States for the first time. It was the sort of luxury he had hoped to be able to afford much more frequently at this stage of his life.
Welcome to the future. The challenges faced by Muñoz and his family (names have been changed for this article) are not new. What is changing is the proportion of families in Latin America who match their profile.
Thirty years ago the average Latin American woman gave birth to six children and died in her early sixties. Today, she will probably have less than three children and live into her mid seventies, and possibly much longer. Life expectancy for men, though lower than for women, has also risen markedly. These two changes—a nearly 50 percent reduction in fertility and a full decade of additional life expectancy (to an average 72 years for both sexes)—are producing a demographic shift that will have profound consequences for Latin American societies in the years ahead.
Today an estimated 7.8 percent of Latin Americans, or 42 million people, are over the age of 60. In 25 years that proportion will have almost doubled, to 14 percent, for a total of almost 98 million people. In some of the region’s countries, notably Uruguay, Argentina, Chile, Costa Rica and Cuba, the percentage of older adults will grow much more rapidly. (See graph). The same can be said for the nations of the Caribbean as a whole. By 2025, the Caribbean will have approximately 7.4 million citizens above age 60, representing 17 percent of the population.
The effects of this demographic shift have been apparent in industrialized countries for a number of years. Older adults have more frequent and more expensive medical problems that must ultimately be paid by society, either through private insurance schemes or subsidized public services. In countries that have defined-benefit public pension and health systems, these additional expenses can gradually cut into the budget for other public services, generating deficits and requiring tax increases.
This grim forecast has become a media staple in recent years, feeding the popular tendency to view old age in general as a social liability. But as participants at a two-day “Inter-regional Consultation on Active Aging” held last June at the IDB’s Washington, D.C., headquarters pointed out, there are more productive ways to think about older adults. At the meeting, experts on aging from around the world described a growing body of medical and behavioral evidence showing that older adults can function fully for much longer that was traditionally assumed. “What we are finding, based largely on the experience of Northern Hemisphere countries, is that old age is not a disease,” says Tomás Engler, an IDB health expert who organized the meeting. “In fact, only a minority of older people are disabled or with limitations on function or capacity. The majority are active or have the potential to be active.”
At the meeting, IDB President Enrique V. Iglesias said Latin American societies must assimilate this new evidence and find better ways “to take advantage of the extraordinary human richness of our over-60 populations.”
This notion—that older adults are an underutilized social resource instead of a passive burden—is fueling a broad public debate in wealthy countries that already have large proportions of older adults. The debate is increasingly defined by well-organized groups, such as the 33-million member AARP in the United States, who have given a powerful political voice to the interests of a population that was rarely consulted by policymakers in the past. These groups are pushing for new laws in areas as specific as workplace ergonomics and the price of prescription drugs—all with a view to creating a society where people can lead active, dynamic, and productive lives well beyond the traditional retirement age of 65.
Latin America’s challenge. Although medical and social activists in Latin America have been promoting a similar vision for years, they face considerable obstacles.
The magnitude of those obstacles became apparent at the June meeting when the IDB released the results of three studies, commissioned jointly with the Pan American Health Association, on the situation of older adults in Chile, Argentina, and Uruguay. Problems start with the widespread phenomenon of pension benefits that are too low to cover most people’s needs, and the fact that large portions of the population over 60 have no pension benefits at all. In Argentina, which has the highest per capita income in South America, 26 percent of all older adults have no retirement benefits to speak of, while 70 percent receive less than $300 per month at a time when “minimum subsistence” costs for two adults are calculated by the government to be $578 per month. In Uruguay, where the cost of living is comparable to Argentina, the median pension is $365 per month.
The situation is similar when it comes to health care benefits. An estimated 18 percent of all Argentines over age 60 have no formal health insurance or coverage. In Chile, 93 percent of older adults rely on the public health system, which has severe budg-etary constraints. Given this situation, it is easy to see why someone like Héctor Muñoz has continued to work. Surveys of men and women over age 60 conducted as part of the IDB studies indicated that 25 percent of the respondents in Argentina and 16 percent of those in Uruguay are still working; in Chile, 39 percent of the men and 17 percent of the women interviewed continue working.
The question of pensions and retirement age is given additional complexity in these three countries by the recent introduction of private, defined-contribution pension systems. People who were already at or near retirement age when the new systems came into effect generally continue to receive a state-funded pension. But many of those who were in their 40s and 50s when the change took place are caught in a uncertain situation, because they will not contribute enough to the new systems in their remaining work years to guarantee a decent retirement. Since the new systems have still not started paying out benefits to large numbers of retirees, and actual payouts will be based on the long-term performance of investments that are concentrated in government bonds, people are reluctant to make any hard assumptions about their future income.
These anxieties make it extremely difficult for politicians to recommend reforms such as raising the minimum retirement age—an urgently needed change in countries like Brazil where many categories of workers can retire long before age 60. These early retirements, combined with widespread tax evasion and high levels of informal labor, have created huge social security and pension deficits in Brazil and several Latin American countries. But until people feel more confident that their retirements will be secure, they will be reluctant to give up early retirements that end up being financial supplements to jobs they get after the fact.
Beyond pensions, the IDB studies describe a variety of challenges in the areas of health care, housing and social services. As in other parts of the world, the medical profession in these three countries has a critical shortage of specialists in gerontology and of nurses and physical therapists trained to meet the unique needs of older adults. There is also a generalized shortage of residential facilities specifically designed for the elderly. Although small, private facilities have proliferated in recent years, government inspectors and regulatory officials lack the resources to ensure that adequate sanitary and professional standards are being met in them. Even if supervision were to improve, it would not help disabled older adults who are frequently too poor to afford fee-based facilities.
Despite this sobering outlook, the IDB’s Engler believes there are reasons for optimism. “It’s important to remember that Latin America has what IDB economists have called a demographic “window of opportunity,” he says. “Most of the region’s countries still have approximately 20 years before the proportion of their population above age 60 begins to increase sharply. During this time governments will have a chance to invest more in education, health, and social services that can make a difference for older adults. We will also have an opportunity to change cultural perceptions about aging and create conditions where older adults can have dignified, active, productive and healthy lives.”