The Retiring Baby Boomers
In most of the developed nations there is a large of number of people in the Baby Boom generation who are getting ready to retire from the workplace. This will have a significant impact on the fiscal health of these countries.
78 million Americans are in the Baby Boom generation, and they have just begun to retire. Spending on retirement and medical benefits for them is about 7% of US economic output today. It will increase to 13% by year 2030.
In the graph above, the bulge in the middle represents the 78 million Baby Boomers, and because there are a lot more of them in the generations that follow, when they retire there will be fewer workers active in the work force to cover the cost of retiree health care and pensions.
Federal Reserve Chairmen Ben Bernanke refers to this as a ‘vicious cycle’ that will result in rising government deficits and interest rates. Since the cost of health care for older persons is often much higher than for other age groups, the financial burden will be significant.
As in Japan, this is potentially a significant source of inter-generational conflict about social priorities and government spending. It will have a large impact on government policy in taxation, health care, immigration , and in all the financial services industries.