Early retirement trend doubles in Denmark, potentially impacting economy

An increasing number of people in Denmark are choosing to retire early by drawing on their pension schemes before reaching the official retirement age. In just four years, the number of Danes aged 62 to 66 who have opted for early retirement without receiving any form of benefit has doubled. In 2022, 13,500 individuals in this age group chose to retire, compared to 5,400 in 2018.

The trend is mainly observed among individuals with long educations and well-paying jobs. There are also more people in communities around Copenhagen retiring early, compared to certain communities in Jutland. In Hørsholm and Allerød, 7.6% of those aged 62-66 have retired before reaching the retirement age, compared to 1.9% in the same age group in Morsø Municipality.

Janne Gleerup, a lecturer at Roskilde University and researcher on work life, suggests that the demanding nature of work may be one reason behind this trend. Additionally, many Danes are building up a pension wealth, which gives them the financial ability to retire early. These two factors together could explain why more people are considering early retirement before their job takes a toll on them.

However, Bo Sandemann Rasmussen, a professor at the Department of Economics at Aarhus University, warns that this trend could have consequences for the economy if it continues. Currently, with 13,500 individuals on early self-funded retirement out of approximately three million employed, it is not yet a major challenge.

However, if this trend continues over the years, it could impact the economy in two ways – there would be fewer workers in the market, and there would be a decrease in tax revenues as these individuals no longer earn an income but live off their pension.

If this doubling trend continues every three to four years, it will become significant and could challenge the calculations made by the Ministry of Finance regarding the sustainability of public finances. These calculations are based on the assumption that as the retirement age increases, people will work longer. If instead, they choose to fund their own retirement, these calculations may not be as valid as believed.

Rasmussen asserts that the Ministry of Finance is likely closely monitoring this situation.