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As the Baby Boomers continue to enter retirement, the U.S. faces one of the most dramatic demographic shifts in its history. The baby boom ran from 1946 to 1960, during which time the fertility rate in the United States was nearly twice its 20th century average. Because a high proportion -- slightly under a quarter -- of the current population was born in that period, their age has a strong influence on the average of the population. Thus the U.S. is, on average, growing older because of the baby boomers. This shift has strong implications for factors that depend on the age distribution of the population, like per-person productivity, health care costs, the savings rate, and social security funding.
[edit] Who Benefits from an Aging PopulationFor all its difficulties, the Boomers’ retirement will have very definite benefits for some aspects of the U.S. economy. On the whole, the leisure, health care, and financial industries are likely to benefit most.
[edit] Impact on Medicare and Social SecurityMost immediately, the Boomers will begin to draw government benefits such as Social Security and Medicare. Both entitlement programs will be exceedingly costly. In 2006, Social Security cost U.S. taxpayers about 4.2% of GDP, or approximately $554 billion. This figure is expected to increase to 6.2% of GDP by 2030, and to continue rising. Meanwhile, the potential long-term costs of Medicare are even more severe. Currently, Medicare costs U.S. taxpayers about $230 billion per year, or 3.1% of GDP. However, these figures are expected to rise dramatically over the next 20 years as more Boomers pass age 75. In fact, government analysts estimate that by 2018, Medicare will have surpassed Social Security in terms of its annual cost. Given these figures, the Social Security and Medicare Boards of Trustees stated in their 2007 Annual Report that, “…currently projected long-run growth rates [for the programs] are not sustainable under current financing arrangements.” Translation: Either long-term-benefits must decrease, or taxes must increase if benefits are to continue at their current levels. [edit] Dependence on Foreign CountriesThis quandary poses several difficulties for the U.S. government and for taxpayers. If current budget deficit levels persist, the federal government will be forced to pay for Social Security and Medicare by issuing new debt in the form of U.S. Treasury bonds. While this may lend long-term support to the price of the U.S. dollar, it will also allow foreign buyers—mostly Chinese and Japanese—to exert greater control over long-term U.S. interest rates. Such a situation could become precarious if foreign buyers perceive that Treasuries no longer represent the best investment for their export-driven foreign currency reserves. For example, if euro-denominated government bonds become more attractive on a long-term basis, foreign buyers may liquidate Treasuries in large numbers, in which case long-term U.S. interest rates would soar. The resulting impact on U.S. credit and real estate markets could be severe. [edit] Labor Burden on Younger WorkersFor taxpayers, the Boomers’ retirement means that younger workers will have to bear a much larger burden in order to support the burgeoning ranks of retirees. Currently, there are 3.3 U.S. workers to support each retiree, but by 2030, this number will fall to only two. Given the political clout that seniors have and are likely to retain in the future, an increase in payroll taxes to support the Boomers’ needs seems entirely plausible. Extrapolated over a 10 to 20-year period, such an increase could represent a significant drag on U.S. economic growth. While increases in per-worker productivity may offset some of this burden, it remains to be seen how the U.S. will deal with what is arguably one of the most difficult financial burdens it has ever faced. Categories: Concept Pages | Health | Policy | Mature |
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