Demographic Transition

The Demographic Transition Causing the Looming Retirement Crisis

With the number of retirees on the rise and the depleting Social Security fund major policy reforms are needed now more than ever

With the life expectancy of humans increasing and fertility rates falling, there has been a huge demographic shift that has major implications for the U.S. fiscal policy and creates a looming retirement crisis. The shift has been from a predominantly young working population to a predominantly older population of beneficiaries. According to “Demography is Destiny” by Joseph Giglio, the Census Bureau reported that the average American born today can expect to live dramatically longer from the average life expectancy back in 1950. With such a large increase in the average age, policies must be adjusted to promote retiree’s economic prosperity. The recent AARP Retirement Study supports this fact with finding that mid 60’s age couples biggest fear for retirement is running out of money even over the fear of dying.

According to “Demography is Destiny”, “The Census Bureau stated that 47.8 million Americans are 65 and over. This figure is projected to nearly double to 83.7 million by 2050.” With a doubling retiree population, the decrease of fertility rates, and the increase in life expectancy, there will be too many beneficiaries and too few taxpayers.

As referenced in “Demography is Destiny”, the Census indicates that in 1950, the American economy had 8.1 people of working age for each person of retirement age, which is known as the dependency ratio. By 2030, the Census Bureau estimates it will have fallen to 3-1. Providing for such a large amount of older retirees, will put serious pressure on retirement programs such as Social Security and Medicare. This could lead to significant budget cuts and tax increases. As stated in the Urban Institute Report, “At age 70, Gen Xers and Xennials are projected to allot 18 percent of their income to taxes, compared with 14 percent for pre-boomers.”

A goal of most retirees is to maintain their standard of living they had while working. Unfortunately, in the publication entitled “Generation X may end up with higher incomes — but they’ll still be poorer in retirement” by Andrew Sheeler states that the Urban Institute reports, “Nearly one-third of Xennials will see their living standards fall when they retire.” The scary truth is that the Urban Institute determined that Social Security cash reserves are expected to be depleted by 2035, which is just about when many Generation Xers will be retiring. The depleted reserve would leave many retirees in poverty. So, not only will retirees not be able to maintain their standard of living, they will have to lower their standard of living on top of that.

Policymakers need to address the real retirement crisis and the depleting Social Security fund. With most Americans relying on an average of 40% of their retirement income from Social Security, there needs to be government reforms to successfully navigate this demographic transition. The real danger is no one in Washington seems to want address these real retirement risk realities. Baby Boomers are the first generation in history that will have many living more years not working than the number of years spend working. Boomers are also the first generation where many are responsible to self-insure their own retirement. The time to act is now to safeguard one’s serious savings from higher taxation, lower benefits able to be paid out, higher Medicare and health insurance premiums and more stock market volatility.

For assistance in wealth and retirement planning we encourage you to call our Lake Mary, FL office at 407-478-1599. Our financial advisors will help you in reviewing your financials so you are better prepared for retirement.