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Retirement of Baby Boomers

The United States Census Bureau issued a 2014 report stating that between 2012 and 2050, the US will experience considerable growth in its older population. The proportion of people aged 65 or older in the United States population has already begun to grow.

https://fivethirtyeight.com/features/what-baby-boomers-retirement-means-for-the-u-s-economy

As the generation of baby boomers, those born between 1940s to the 1960s, reach retirement age, America faces an oncoming labor shortage. The FRED graph below shows the decline in civilian labor participation rate starting in 2000, which can be partly attributed to the baby boomer generation retiring.

https://fred.stlouisfed.org/series/CIVPART

A steadily declining population can bode poorly for a highly advanced economy such as the United States. People above the age of 65 are typically in retirement and therefore do not contribute much to the economy. They are only contributing minimally to productivity and do not spend or consume as much as their younger counterparts. They also are less likely to be able to support themselves, leading to their dependence on others, whether it be on the government, on families, or on both.

But does the decline in population actually stunt the economy?

The main effect on the economy caused by their retirement of the baby boomers is a labor shortage, which leads to dozens of more economic problems. As the baby boomers begin to retire, they are leaving the labor force much smaller than it was in their day, and while this may seem like a good thing because of the possibility of reduced unemployment, there are many downsides to a smaller labor force. To begin with, as more people retire, a larger percent of the population will be reliant on the government for support, meaning more social security and medicare. This is especially true as a large portion of baby boomers are not financially prepared for retirement.

Another effect of the retirement of baby boomers is less knowledge and expertise in the workplace. As of now, the baby boomers have spent the longest time in the workforce and therefore have the most experience and expertise in their fields of work. As they retire, new and inexperienced workers will enter the workforce with less mentors. The decrease in the level of expertise will lead to a decrease in labor productivity and  will have a very large impact on the growth of the economy considering rising productivity is key to long-term economic growth.  

With this being said, some economists still argue for the benefits that population growth presents for an economy, particularly in developing nations.  

We have listed just two examples of how the economy will be affected by the retirement of the baby boomers. What are the rest of the effects? For example, the real estate market and investment spending will both be affected, but in what ways? Will families be negatively affected? What about society as a whole?

 

Written by Annie Gianakos and Liza Lanier.

 

Sources:

https://www.census.gov/prod/2014pubs/p25-1140.pdf

https://fivethirtyeight.com/features/what-baby-boomers-retirement-means-for-the-u-s-economy/

https://www.thoughtco.com/the-baby-boom-and-the-future-of-the-economy-1147532

https://www.youtube.com/watch?v=GN_saD60VY4

15 thoughts on “Retirement of Baby Boomers

  1. moodyj20

    I disagree with the statement that the increased retirement of baby boomers leads to a decrease in expertise in the workplace and a decrease in productivity. I think that people are retiring makes room for younger, brighter minds who might be even more productive than the previous generation of workers. I think that although some of these retirees would have provided mentorship for new workers, the argument could also be made that since they are getting older, their minds are not as sharp as they once were and they aren't as productive in the workplace as their younger replacements.
    The real estate market might be affected by recent retirees buying new homes: either downsizing because they no longer have a steady income or buying a home in a new, more retirement-friendly location. The increase in retirement of baby boomers could also lead to more people of this age selling their houses to move into retirement homes or assisted living facilities.
    I think that baby boomer retirement levels have increased because people have become better at saving and planning out their retirement in the last 20 years. As 401k's and ROTH accounts become more popular, people save more and more and don't necessarily have to continue working into their old age in order to get by. For this reason, I think families will be positively affected because children won't have to provide for their retirement-age parents anymore, and everyone will be saving more money.

    Reply
    1. the prof

      An empirical issue:

      Data don't support Americans becoming better at saving – few people have Roths, and the amounts in them aren't high. There are many aspects, including the challenge of thinking through to how much retirement savings will allow maintaining the pre-retirement lifestyle. Indeed, aggregate housing savings have been falling over time.

      In contrast, very few workplaces fund pension programs, which was not true in the 1960s. Habits change slowly. Your employer used to save on your behalf, but no longer does.

      Reply
  2. Ruofan Shen

    I also disagree with the second effect and probably based on the same reason. Younger generation is the new blood of industry especially in today's fast-paced society.

    One of the main downside effects brought by the aging of population is the increasing social burden. Government is supposed to spend more on supporting elder people, which as a result, requires more tax from the younger people. Population aging increase the social burden of the pension insurance system to enable countries facing difficulties, sense of security has become a real problem of great concern to all countries.

    While the aging problem mainly happens in high-income countries, Asia and Europe are the two regions where a significant number of countries face population ageing in the near future. China is now considering extend the retirement age and french workers have begun another round of strikes in protest against President Nicolas Sarkozy’s proposals to extend the minimum retirement age to 62.

    But in my opinion, although lots of countries are taking action and carrying out certain policies to tackle the aging problem, giving impetus to industrial transformation is the most important thing to do to solve this problem.

    Reply
    1. Ruofan Shen

      Also, although the aging of population may be a problem to a labor-intensive industry, it shouldn't be as for a high-tech industry. The rapid growth of technology has taken us into a brand new era, in which labor is no longer the main factor for economic growth. As AI and other technology are gradually taking place of cheap labor force, aging of population will no longer be the main concern for economic development. The quality of labor force is more important than the quantity of it.

      Reply
  3. richardsonw20

    While the baby boomers continue to retire, I do not think that this will result in a very large loss of expertise in the work place. Education in today's world is much different than it was while the baby boomer's were going through college and grad school. It is a much more competitive environment where I believe the younger generations are receiving plenty of knowledge and expertise to replace that of their elders. The problems that I foresee with the retirement of the baby boomers comes with the burden that will be placed on the rest of the working class to support the baby boomers that rely on government subsidies to survive. This could lead to an increase in taxes to ensure that the government is able to provide for those who cannot provide for themselves.

    Reply
  4. Kaitlyn Fitzsimmons

    When considering the costs of retirement my mind goes straight to higher health care costs, which already make-up approximately 1/5 of US costs. The other is costs of social security, a huge threat to US economy and government spending. I haven’t considered the threat of labor in the U.S. shortage yet, but this seems logical. I've heard worries of the Japanese population suffering from this decrease in labor force, but didn’t think that U.S. was also susceptible. As an Environmental Studies major I’ve always considered a flattening out, or decreasing rate of population as a positive to the human race and energy consumption, but there's definitely this economic perspective to consider.

    One positive that can be attributed to the retirement of baby boomers would be the opening of job opportunities for the next generation, but there is a gap in knowledge between those retiring and the new workers that could be worrisome. I hope that the internet and increasing technology can offset the threat of expertise in the workplace, especially since lowered productivity is a death sentence for the economy.

    A jeopardized labor force could also mean increased wages in order to attract workers. This could mean a stress on importing labor and increasing visas for cheaper wages.

    One way this shift in population could affect families is an increase in the multi-generational workplace. It may become more and more common to see grandchildren working amongst their grandparents and even surpassing them in rank. This could be an uncomfortable situation for aging workers.

    Reply
  5. mcconnellm20

    While I agree that there will be a labor shortage as more of the baby boomer population retires, I think there are ways in today's society that help to counteract that consequence. For example, technology is always increasing, so some businesses might not even need as many workers because technology replaces some of those positions. I disagree with the fact that the retirement in the baby boomer population leads to a decrease in the expertise and knowledge in the work place. The new workers in the population are being educated just as the baby boomer population was. The workers in the baby boomer population were, at one time, in the same position as those who are just now entering the work force. I do not think that families will be negatively affected by this. Parents will have been saving money for retirement for as long as they have worked. They should not have to rely on government benefits any more than any other generation has. I think that the real estate market could see some growth because older people are now more likely to use their savings on a new house or other things for themselves since they no longer have children to support.

    Reply
  6. Ellie Bradach

    I think that the retirement of the baby boomers will have both positive and negative effects on the economy as a whole. I think that a mass exit in the labor force could be a good thing. With big improvements in technology and higher unemployment due to the Great Recession, more people will be able to find work after the baby boomers leave, and therefore more households will be better off. Those who are currently qualified but unable to get or stay employed due to a shortages of jobs will be much better off after the retirement of the baby boomers. On the flip side, the cost of the Social Security for the boomers will be massive. Maybe if Social Security was reduced to each individual or the retirement age was raised, the Baby Boomers would need less Social Security money. This would also allow the more experienced workers to be in the labor force a little bit longer so they could teach more younger workers.

    Reply
  7. murrayc20

    I disagree with the statement that the retirement of baby boomers decreases workplace expertise. Even if a mass majority of older individuals retire and there are not as many young people to fill thier spots, does not necessarily mean companies would do poorly. If fact, young indivuals are more likely to be educated on new innovative technology, which in turn can increase productivity. If there are less young people in the work force compared to the retiring baby boomers, companies can increase wages to those young individuals, which in turn can also stimulate the economy because people will have more disposable income. More disposable income for young people means new investments and new incentives to buy homes.

    On the other hand, a mass amount of new retirees would put a strain on government budgets for social policies, like medicare. In order to generate this money, the government would need to increase the younger generations' tax. This would decrease their disposable income and contract the economy in that regard.

    Reply
  8. mizeo20

    Japan has faced this problem for about 20-25 years. Over the course of this time period, Japan's population has aged significantly with many individuals retiring. The problem of course is that there is no one to replace them in the workforce. Japan's economy is so advanced that workers refuse to have children to focus on their work. Thus, Japan is now faced with the problem today that there is a very low amount of new workers entering the workforce. The government is drained of its resources, and it has begun to experiment with negative interest rates to encourage investment and to stimulate growth in GDP like it saw back in the late 20th century. The US is facing this problem with the retirement of the Baby Boomers; however, I do not believe to the same extent. The US has many different policies than Japan and these other highly advanced economies. The most important being that the US has a large number of immigrants and migrant workers who continue to help stimulate the economy. The problem with this, however, is that some are illegal and thus they are untaxed.

    I think the US will see the effects of this retiring baby boomer generation, however, I do not believe it will be on the same scale as Japan, nor do I believe we will see a rapid change in rapid conditions. Social Security does have the potential to go bankrupt, if it already hasn't. I would not like to see an increase in my taxes to pay for others retirement

    Reply
  9. Chris Randall

    I also disagree that the retirement of the "baby boomers" will negatively impact the economy. Many new employees are much more educated on new technologies in their specific fields. They are able to be more productive due to their superior knowledge, and since they are more productive companies would be able to be as productive with less people, theoretically. The government would have less people to tax, and then they would have to tax the younger generation harder. This in turn would hurt the economy because there would be less consumer spending.

    Reply
    1. the prof

      Unfortunately, the data do not show our elementary schools turning 90+% of students into kids good at reading, writing and arithmetic, and those who don't receive a good foundation tend not to catch up in middle school, and are excluded from the college prep track in high school. There are few vocational options – at one time you could finish high school as a licensed electrician or carpenter, but not today. So it's not at all clear that younger workers are poised to contribute to ongoing improvements in productivity to the extent their grandparents were in the 1950s and 1960s. That was part of what made that era An Extraordinary Time.

      But our demographics are indeed more favorable than Japan, Korea and China or southern Europe (Italy, Spain, Greece).

      Reply
  10. litvaka20

    The retirement of baby boomers will have a large effect on the economy both through less consumption and also due to increased necessity of social insurance programs. While the issues of lower employment and less consumption will hurt the economy, social insurance programs will also potentially harm economic growth. This is because these programs are seen as a debt that is not counted in the overall national debt. These programs are indebted to the individuals who are retiring and must provide a certain amount of money to each person. However, as the baby boomers continue to retire, more of the money is being spent to provide them with money from Social Security and Medicare, but not enough money is being put in to replace this social spending for future generations. As the programs lessen, retirees will have less disposable income and therefore will be spending less on goods and services. This will in turn affect investment spending and firm output, which will negatively affect economic growth.

    Reply
    1. the prof

      Ah, let me use jargon: what you are saying is that the Net Present Value of future obligations is not reflected in our current debt measure. True. You can find such estimates, Lawrence Kotlikoff put together a team to do that for the US and several other countries. As with any NPV calculation, the bottom line is affected a lot by the choice of "discount rate." (Note that if you're calculating the NPV of future social security payments, you also have to calculate the NPV of future social security revenues. And future defense expenditures, income tax receipts, and so on and so on.)

      Reply
  11. bashamc20

    Another factor to consider when discussing the rising number of seniors in our society caused by the baby boom is dependency ratio. While this will not prove as strong an economic detriment as the decline in workforce participation rate likely will, it will prove impactful on our macroeconomy. The dependency ratio is the ratio of those under 14 and over 65 to those in between 14 and 65. This is key because babies are not the only people who require special care- the elderly do too. Many times, this burden falls on the family, namely, middle aged, working family members. Whether this means providing aid to for high health care expenses or taking time out of the day to personally care for the person, it entails work on behalf of the younger individuals. With more people reaching senior-citizen status, the number of people needed to care for them will increase; this could take working time away from family members and have some impact on our economy.

    Reply

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