The optimal delayed retirement age in aging China: Determination and impact analysis

Facing a deepening aging population, nations like China are calling for a gradually delayed retirement policy urgently. Based on the dynamic model of Miyazaki (2014), this paper first examines the difference between the agent's labor productivities in youth and old age (the age difference in labor productivity as defined below). We then establish an agent's optimal consumption model under the background of delayed retirement, and derive formulas to calculate the steady-state output per labor, wage rate, and rate of capital return. Based on the model, we propose a formula to determine the optimal delayed retirement age, which can optimize the government's delaying retirement policy. Moreover, we provide theoretical demonstrations and perform numerical simulations about how delayed retirement ages affect key variables such as the agent's optimal consumption and steady-state output per labor in the context of deepening population aging, and further analyze how the Chinese government determines the optimal delayed retirement age. Results are as follows: Firstly, extending the delayed retirement age will reduce the agent's optimal youth consumption, but increase the agent's optimal old-age consumption, life-time consumption, and the total consumption of economy in the current period. Secondly, the aging population problem is affected by both changes in the birth rate and the survival probability. From 2020 to 2100, the former is constantly declining in China, while the latter is gradually rising. Although these two drivers have different influences on the optimal delayed retirement age, the influence of a higher survival probability is greater, so aging postpones the optimal delayed retirement age in China. Thirdly, the degree of population aging and the agent's labor productivity of the elderly are two main factors affecting the optimal delayed retirement age. Although both factors present an increasing trend from 2020 to 2100, they have opposite implications: the former dominates the latter until 2075 and increases the optimal delayed retirement age. On the other hand, the inhibitory effect of the latter gradually increases and eventually dominates the former from 2075. Fourthly, under the cross influence of the above two factors, the optimal delayed retirement age in China shows an inverted U-shaped trend of rising initially and then decreasing after reaching the peak in 2075. Fifthly, we estimate that if the delayed retirement policy is adopted from 2025, it is reasonable to set the average annual delayed retirement time to two to three months. Finally, we propose measures and suggestions to mitigate the possible negative impacts of delayed retirement.