By Beth Burnham Mace, Chief Economist, NIC
The long-anticipated increase of the age 65+ population has started, thanks to the aging baby boomer generation, lower birth rates, and improved longevity—and it’s only expected to continue. By 2030, 21% of the population, an estimated 74 million people, will be past retirement age.
This growing demographic will have serious and long-lasting implications for the U.S. economy, from a potentially shrinking workforce that will limit economic growth, to how our country will support and pay for the care and housing needs of seniors.
Implication #1: The Labor Force and Economic Growth
Periods of prosperity can lead to population growth spurts, as we saw with the baby boomers following World War II. Conversely, periods of economic strain, such as the Great Depression or 2007’s Great Recession, can cause birth rates to drop.
Source: U.S. Census Bureau
With 34,000 boomers reaching age 65 each week from now through 2030, the labor force is aging, and younger generations do not have the strength in numbers to replace retirees. This aging workforce is leading many to predict an expansion of the labor force by only 0.5% to 0.6% per year on average between now and 2050—only one-third of the 1.7% pace experienced over the past 35 years. Unless the smaller labor pool can be offset by an advance in labor productivity, predictions point to a slowing of economic growth and a slip of inflation-adjusted GDP.
Implication #2: Fiscal Impact
As the labor force shrinks—and as older, typically higher-paid workers retire—tax revenue is expected to drop. That, combined with a growing population of retirees in need of support, could lead to reduced funding for government programs such as Social Security and Medicare.
The aging population, in short, affects the dependency ratio, which is the number of working-aged persons in the U.S. for every retiree. In 2010, this ratio was 4.8 workers for each retiree. The dependency ratio is predicted to shrink to 2.7 by 2040, leading to potential shortages in revenue to pay for entitlement programs. As a result, younger workers could expect their take-home pay to be affected dramatically in order to provide enough support to the older population, or these programs will have to be pared back or adjusted.
Implication #3: Care and Housing for Seniors
Just as the labor force is predicted to shrink, so too is the number of caregivers—from 7:1 in 2016, to 3:1 by 2050. With fewer caregivers available to support elderly relatives and friends, alternative housing and care options will need to be expanded and created.
Today’s seniors housing inventory is expanding by approximately 22,000 per year, yet the penetration rate is limited. As the population of older Americans grows, this inventory must grow significantly. Co-housing and home-based options will also become more important.
Stay Tuned
Despite the predictions, the baby boomer generation never does things the way their parents did, so the future is still very much in the air. But what is not in doubt that this massive, aging population will continue to affect the economy, social structures, and housing and care services in the country.
Want to learn more? Check out the 2016 Fall Conference programming and upcoming NIC Insider Newsletter for expanded research into aging, retirement, and the U.S. economy.