The Old Age Drag Begins

Past the downturn, population woes hit the West.

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A former editor of mine, generally mild-mannered and agreeable, would absolutely seethe about one topic: The baby boomers. To him, they embodied the worst of 60s-era excess, 80s-era greed, and an unmatched smugness. I was more sanguine, and the heat of the conversations ultimately left us both feeling like a couple of curmudgeons yelling at the kids (or in this case, our parents) to get off our lawn.

But it turns out he had a point, though it was one we largely overlooked at the time. The looming worry for younger generations isn't a boomer legacy of self-centered cultural malaise or financial misconduct. It's that there are simply too many of them.

In one of its regular surveys, The Economist says aging populations are starting to stunt growth, and the situation is only going to get worse.

The issue is simple: We're living too long (good for the individual, but not for economic growth) and not having enough children.

In a nutshell (bold is mine):

This is a slow moving but relentless development that in time will have vast economic, social and political consequences. As yet, only a few countries with already old populations are starting to notice the eff…ects. But labour forces are now beginning to shrink and numbers of pensioners are starting to rise. By about 2020 ageing will be plain for all to see. And there is no escape: barring huge natural or man-made disasters, demographic changes are much more certain than other long-term predictions (for example, of climate change). Every one of the 2 billion people who will be over 60 in 2050 has already been born.

The trend is global, but the baby-boom here means the impact on the American economy will be outsized:

The timing varied slightly from place to place, but in America-where the e…ffect was strongest-it covered roughly the 20 years from 1945, a period when nearly 80m Americans were born. The first of them are now coming up to retirement. For the next 20 years those baby-boomers will be swelling the ranks of pensioners, which will lead to a rapid drop in the working population all over the rich world.

And it's not as if they've all saved enough to retire without burdening future generations:

McKinsey, a consultancy, recently looked at the finances of a large sample of baby-boomers, due to start drawing their pensions soon, and found that about two-thirds of them had failed to make enough financial provision for their retirement to maintain their previous standard of living, even though as a group they had always earned well.

Still, give America's boomers some credit: It may seem dubious, but our largely private retirement system is actually in better shape than many others, including much of Europe. Paying for pensioners in much of the developed world threatens to hamstring growth in many economies, but the survey says funding less generous pensions in the U.S. should be "manageable." Good news, sort of.

The other good news, for America at least, is that there is a solid chance a large portion of the slowdown caused by a glut of retiring boomers can be offset by an influx of younger immigrants provided policy remains tilted toward allowing younger workers to enter and remain in the U.S. The bad news is that aging populations around the world mean reform in often intractable areas like healthcare and pensions will have to happen, and the sooner the better.

Link to a PDF version of the full survey is here.

  • Kirk Shinkle

    Kirk Shinkle is a senior editor for U.S. News Money and manages the Best Funds portal. Follow him on Twitter @KirkS or email him at kshinkle@usnews.com.

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