What Baby Boomers’ Retirement Means For the U.S. Economy
After talking about it for years upon years, the baby boomers are finally starting to retire.
According to a recent article, “every month, more than a quarter-million Americans turn 65.” Since retirees do not contribute to the economy as much as workers do, this can only mean one thing: economic disaster.
Baby boomers make up more than 75 million people in this country. In their prime (1990’s), baby boomers stimulated the economy to all-time highs increasing home-ownership, consumer spending and employment rates. But what goes up, must come down.
“In 2003, 82 percent of boomers were part of the labor force; a decade later, that number has declined to 66 percent, and it will only continue to fall.”
In short, a decline in workers means a decline in economic growth.
The “dependency ratio,” (the number of people outside working age – under 18 or over 64), shows us the relationship between workers and economic growth. The higher the ratio the worse it is. Though this ratio has been decreasing over the last few decades, we are projected to go right back to where we were in 1980. What’s worse is that by 2030 we are projected to be at an all-time high.
Keep in mind that not everyone retires at age 65 and the longer one lives, the longer they work. Although baby boomers might not retire at age 65 all at once, they will definitely not be working past age 85. In fact, 4% of the population will be 85 years old in 2050 which is double the percentage of today. Again, less workers means less economic growth.
BUT don’t forget the baby boomers’ offspring. As the baby boomers retire, their children will help (but not fully) offset the decline in work force.
“…for many young people, mom and dad can’t retire soon enough; some experts argue that boomers, by staying in the workforce longer than past generations, are essentially clogging the usual professional pathways, leaving few opportunities for people beginning their careers.”
Doesn’t sound like a great situation, does it? But compared to the rest of the world the U.S. is in far better shape economically now and in the future.
“In 2050, about 21 percent of the U.S. population will be 65 or older compared to more than 30 percent in much of Western Europe and an incredible 40 percent in Japan. China, as a result of its ‘one child’ policy, faces its own, somewhat different, demographic crisis.”
One reason why the U.S. is in better shape than the rest of the world is the high immigration rate. Younger people tend to migrate which brings down the population age as a whole and immigrants in the U.S. tend to have a higher birth rate than U.S. natives. (Read here for more information on this.)
So what is your plan? Do you have a set financial plan that you can count on to be there when you need it most? Don’t think for a second that the baby boomers and their effects on the economy are a one time occurrence. Once the baby boomers and their children are gone, the cycle will start all over again and become a vicious cycle. This is why it is very important that you have a retirement/financial plan that you can count on.
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