The Effects of Baby Boomers Retiring Will Have on the Economy - Research Paper Example

? The Effects of Baby Boomers’ Retiring Will Have on the Economy All through its life, the generation that was born following the World War II (baby boomers) has had a great impact on the workplace, public policy, and the society. This generation of approximately seventy-five million children was born in the period between 1946 and 1964. Today, the United States has a baby boom generation of about eighty-three million, comprising of those born in other countries but are now living in the US. At each stage, of its life cycle, the baby boom generation has changed the market for many products, altered the demand for public services, as well as the nature of the labor force. This paper delves into the effects the baby boomers’ retiring will have on the economy of the United States over the next 20 years. Introduction In the world’s history, baby boomers (who represent 28% of all the United States’ adult population) have been one of the most productive generations. This generation took advantage of subsidized scholarships and school loans from the government, which enabled them to get proper education, which in turn helped them to secure high paying jobs in all sectors of the US economy with tremendous added gains from globalization and newer technologies (Talbott, 2010). Social scientists, analysts, and policymakers have developed a great interest regarding the effects of the retirement of baby boomers on the economy of the US and the nation at large. The year 2005 marked the commencement of the exodus of baby boomers from the labor force. Since then, every seven seconds, a baby boomer attains the retirement age of sixty years, and this process will continue for the next twenty years. These retirements foreshadow a diminution of workplace knowledge as well as knowledge-based experience at a time when such experience and knowledge are more and more vital to the economy of the US as well as to the organizations that comprise it (Beazley, Boenich, and Harden, 2002). Estimates by the Employment Policy Foundation indicate that with baby boomers reaching the age of retirement, by the year 2012, businesses will experience a severe shortage of six million employees, and this number will increase to thirty-five million employees by the year 2030. Slower workforce growth implies that there will be slower rate of growth of the economy, and consequently, the living standards of everybody in the nation will be lower. Essentially, the baby boom generation’s retirement threatens to limit the potential of the economy of the United States, reducing the speed limit on how fast it can grow. Economists projects a considerable decline in the growth of the US economy to 2.2% by the year 2015, compared with a typical growth of about 3.2% during the last forty years (The special committee on aging, 2007). According to Gordon (2005), over the next next twenty years, a great number of baby boomers, roughly seventy million baby boomers, some highly skilled, will start leaving the job market of the United States of America gradually, with only forty million employees coming in. Following this retirement, skill shortages throughout the whole economy will get to critical levels. Woodruff (2011) points out that reports from the Pew Research Center indicate that for the next twenty years, over ten thousand baby boomers will be retiring daily. This retirement will have a remarkable effect on everybody and on all measures of the United States’ economic output (Talbott, 2010). For instance, it will lead to a slowdown of about 0.5% in the growth rate of in the workforce every year from its average 1.6% per annum since 1950-2007. The decline in the growth of the workforce in the United States is an indication that the nation’s labor supply may be inadequate to sustain the standards of living (Jarvik, 1980). The special committee on aging (2007) reports the fact that the aging and retirement of baby boomers will have potential impacts on the economy of the United States. The US will have less labor force to produce goods and services and therefore, there will be no major increase in productivity, resulting in slower economic growth as well as slower growth of federal revenues. This will consecutively heighten the overall pressure of the federal budget, which will be weighed down by increased claims for seniors’ benefits for instance, Social Security and Medicare, with relatively fewer employees paying into the benefits systems. The massive retirement will also mean that the baby boomer generation, which is one of the wealthiest generations, will slow down in purchasing consumer goods of all kinds, homes and cars, as it passes its ultimate earning years and retire. Although this could hurt the economy, the federal government could experience a financial disaster as the baby boomers stop paying taxes and shift into Medicare and social security and begin to collect benefits to these two programs (Angle, 2011). In twenty years, the number of individuals enrolled in Social Security is likely to rise to 73 million people from 44 million people, while those enrolled in Medicare may grow to approximately 80 million people from 47 million people in the year 2010. However, the percentage of labor force paying taxes to sustain these programs will definitely drop concurrently (Woodruff, 2011). Talbott (2010) adds to this point and argues that as baby boomers retire, their enormous productivity will be lost to the economy. Moreover, it is only natural to presume that there will be a dramatic decline in the consumption of the retired baby boomers. This means that not only will the US economy their productive capacity, but also the demand for other services as well as products that others currently provide in the economy will be much less. The secondary impacts of the loss of such a great proportion of the labor force as well as the overall productive output will be enormous. Unfortunately, the government does not have sufficient money of paying the benefits to these programs to all its retirees as promised. Paying Medicare and social security benefits would cost the government a fortune – according to experts, if the government were to pay all the retiring baby boomers their benefits, it would require one out of every three dollars that the working population earn to support Medicare and social security only. According to Charles Blahous, one of the trustees of Medicare and Social Security, the federal government will use a great share of the paychecks of youthful Americans not only to take care of the federal budget generally, but also exclusively entitlement plans for the old. Each year, more seniors are put on the rolls, thus, their benefits become politically unaffected. This means that more the solution must largely originate from increased taxes. Young people are made to suffer at the expense of those whose age is greater than sixty-five, just because these elderly citizens are the most dependable and resolute voters, and lawmakers are therefore cautious against robbing them anything (Angle, 2011). Talbott (2010) explains another direct impact of the aging and retiring baby boomers – the fact that every year, more and more Americans will face health difficulties due to aging. Although modern medicine helps them live longer, it is an expensive proposition for the nation. He argues that the consumption of pharmaceuticals and health services is expected to increase in the future, but since most people have lost their wealth because of the crisis, more and more Americans will not be in a position to cater for their medical care. As the baby boomers live longer and drain their life savings, there will be wards of the state and the general population will be forced to pick up their considerable health-care expenses. The Bureau of Labor Statistics (2007) has tried estimating the number of retirements of baby boomers that will hit the private sector every year in addition to making out industries that will be most affected. For instance, the bureau predicted that by the year 2008, 19% baby boomers holding executive, managerial, and administrative positions would leave. This comprises roughly one out of five management titles. However, some sectors will be hit even harder. Estimates indicate that that by the year 2010, about sixty percent of the skilled management workforce in the gas and oil industry were expected to retire even though a variety of ‘golden handcuff’ inducements would be set off to retain possibly twenty percent of the group. Other reports from the Society of Petroleum Engineers indicated that between 2000 and 2010, the industry would lose 44% of its petroleum engineers, a loss of 231,000 years of cumulative experience. Projections from a human resources consulting firm known as Development Dimensions International, which is based in Pittsburgh indicaed that between 2000-2005, about 40-50% of some companies’ executives would have retired, a management decimation that would leave an emptiness of knowledge of unmatched percentages. Over the last number of years, the United States’ government has set up or modified an extensive range of federal programs and policies in an attempt to persuade baby boomers to remain in the workforce. For instance, the government has changed the Social Security system, increasing the official retirement age. It has also made changes to benefit and pension regulations, removing several discouragements to go on working beyond the age of sixty-five years. Moreover, the government had endorsed laws that forbid age discrimination in the work place (Beazley, Boenich, and Harden, 2002). Currently, the Baby Boom generation is very morose. In the present day, eighty percent of the baby boom generation claim to be fully discontented with the direction that the country has taken. This is in contrast to sixty percent of the Millennials (people falling in the age group of between eighteen years and twenty-nine years, sixty-nine percent of Generation Xers (people falling in the age group of between thirty to forty-five years, and seventy-six percent of the Silent and Greatest Generations (people falling in the age group of sixty-five years and above). This is in accordance with a survey carried out by the Pew Research Center. In addition, compared to other adults, baby boomers are more downbeat compared to other adults with regard to the long-standing path of their lives together with the lives of their children. A Pew Research survey conducted in May 2010 reveals that twenty-one percent of the baby boom generation confesses to the fact that their own living standard is far much lower than that of their parents' when they were their current age, while only fourteen percent of all the non-Boomer adults share the same feelings. According to the same survey, thirty-four percent of Boomers are of the opinion that their children’s standard of living will not be as good a as their very own (Cohn and Taylor, 2010). At around the year 2000, a great number of baby boomers, especially in the executive and management positions, had plans of retiring before attaining the age of sixty, thereby fore-shortening the retirement timeframe and intensifying the threat of the retirement of the generation of baby boomers. Reports from the John J. Heidrich Center for Workforce Development at Rutgers University indicated that during that time, about 76% of the baby boomers looked forward to retire before attaining the age of 50 years (Beazley, Boenich, and Harden, 2002). However, this trend has changed over the years and according to surveys, baby boomers have re-defined retirement. Between two-thirds and three-quarters of the baby boomer generation plans of going on with work even in their retirement years. A survey conducted by AARP revealed that more than half of employees who are between the age of fifty and seventy anticipate continuing working until they attain the age of seventy years. According to focus groups carried out by the Center of Aging and Work/Workplace Flexibility, older workers habitually referred to retirement as the ‘R-word’ since they held the feelings that it has very many negative connotations. Amusingly, it is usual to hear baby boomers talking about their retirement jobs, something that was hardly imaginable five years ago (The special committee on aging, 2007). Baby boomers also confess the fact that the reason as to why they want to go on working even after attaining the age of retirement is that employment provides them with invaluable quality-of-life benefits. Older workers believe that being employed provides them with ‘something to do,’ a sense of purpose and accomplishment, intellectual stimulation, and access to the much needed social support system (The special committee on aging, 2007). Talbott (2010) however argues that although later retirement of baby boomers may help the arithmetic that holds the solvency of the Social Security program, it does little other than delay the negative economic impacts of their retirement. He doubts if they will indeed retire later arguing that they may end up retiring sooner than their plans. According to him, although the value of their homes as well as the retirement assets have been considerably diminished due to the housing and economic crisis, their motivation for working has also diminished. He also believes that this serious impending recession will lead to many baby boomers losing their jobs and that it is usual for companies to sack the oldest workers first seeing that they often pay them the highest. If a baby boomer is sacked in a recessionary environment, chances that he/she will get the motivation or that he/she will succeed to look for a new job are low. Because few employers will offer benefits to a baby boomer applicant, he/she experiences a considerable decrease in gross pay including his/her benefits. The baby boomers may therefore decide not to take part in the productive economy at all. Another problem arises in the fact that even if baby boomers go on working later than earlier generations, chances that most of them will not remain in the same job. They will most probably opt for different part-time of full-time careers that will make use of their knowledge while at the same time granting them the chance to do more of what they want to do. Either way, they will have retired from their primary organizations, taking their skill with them, which can yield disastrous results (Beazley, Boenich, and Harden, 2002). Bernard (2012) explains a major problem posed by delayed retirement. Although it will without doubt improve individual baby boomers’ finances, delayed retirement could as well culminate into intergenerational conflict. Older workers may end up staying on the job for longer periods than expected and they could be seen as hindering younger employees who are looking forward to getting the opportunity of their contributing to the economy of the society and make a living. In addition, there could be unhealthy competition between senior workers in far lower positions than their levels of experience and recent graduates and students who are in search of a first job. He also argues that as people who are more elderly remain active in or re-enter the labor force, older workers will report to younger supervisors more and more, and this can also lead to tension especially if there is no effective communication between the two groups. Lack of sensitivity on the two groups as well as a willingness to collaborate may yield conflict, which jeopardizes the company’s welfare. Unfortunately, a great number of baby boomers do not have enough money for retirement (adequate savings) for the twenty years or more of their retirement. A recent Retirement Confidence Survey carried out by Employee Benefits Institute indicated that seventy-four percent of workers aged fifty-five years and above revealed that their savings are not more than 249,999 dollars. This is an indication that if baby boomers retire completely, most of them will face insecure financial situations. A great number of these baby boomers will live longer than their savings. According to reports from Boston College’s Center for Retirement Research, thirty-five percent of Early Boomers (baby boomers who were born between 1945 and 1954) and forty-four percent of late boomers will lack sufficient retirement income because of insufficient retirement resources as well as increasing longevity (The special committee on aging, 2007). Once the aging baby boomers retire, their living arrangements mostly change, therefore having an effect on their friends and family since some of them are not likely to stay sufficiently healthy and adequately independent to take proper care of themselves or even manage home ownership responsibilities. They may be forced to move in with their friends or relatives, thereby transferring these responsibilities to them, which might prove strenuous and even impossible in the current economic crisis. When baby boomers call for more attention than their friend and family members can provide effectively, extended care facilities and nursing homes may be the next option. For families that are already facing financial challenges, this can be cruel. A Genworth Financial survey revealed that on average, assisted facilities offering practical personal care to such people who do not require the full-time coverage that a nursing home provides cost around 3,261 dollars every month. Nursing homes with private rooms charge 6,390 dollars every month while those with semi-private rooms charge 5,790 dollars every month (Bernard 2012). Abrupt retirement of a great number of baby boomers into full-time retirement is also likely to result into inadequate employees to fill the jobs in some occupations and professions that depend on experienced workers could face challenges. Such specific industry sectors as health care may be particularly affected by the anticipated workforce replacement needs. For instance, ten out of twenty fastest growing occupations are concentrated in health services. They include home health aides (forty-eight percent growth), medical assistants (fifty-nine percent growth), medical records and health information technicians (forty-seven percent growth), and physician assistants (forty-nine percent growth) (Bureau of Labor Statistics. (2007). It is important to note that as discussed earlier, the pension plans of the private sector are simultaneously being unsuccessful. The Social Security scheme is as well headed to total and absolute catastrophe – although scores of younger Americans just think that Social Security is a sufficient amount of meeting the elderly Americans’ needs, this is not the case. Moreover, from place to place, pension plans of hundreds of local and state government are sadly underfunded.  A very big wave of humankind is historically striking the age of retirement at a time when the economy of the United States is falling apart at the joints.  The nation does not have the reserves to fulfill the promises that it promised to the Baby Boomer generation, and a great number of baby boomers do not have sufficient grounding for retirement.  An enormous chaos lies on the hands of the nation, and the retiring Baby Boomers are bound to finding retirement very painful and very bitter (Michael, 2012). Conclusion Apparently, the retirement of baby boomers is going to be overwhelming to the economy of the United States for the next twenty years and the government needs to work hand in hand with companies to come up with an immediate solution. As Gordon (2005) explains, employers will need to take the steps of retraining and retaining their current employees, in addition to getting ready and hiring the next generation labor force. There are younger willing workers who are energetic, capable and willing to step up and fill the productive shoes of the baby boomers in the economy. However, as discussed in this paper, the younger workers are fewer than the baby boomers and therefore, there is going to be a decline in Gross Domestic Product. Employers could use such incentives as better wages, encouraging workers to postpone retirement through giving them more flexible employment, for instance work-at-home arrangements, part-time positions, and job sharing. Moreover, there will be dire need for businesses to adopt technology programs that promote more productivity per worker. On its part, the government can encourage immigration in order to add to its labor force. The retirement of baby boomers does not therefore mean that that the economy of the United States of America ceases existing. References Angle, Jim (2011). Baby Boomers Could Force Economic Catastrophe. Retrieved from http://politics.blogs.foxnews.com/2011/01/11/baby-boomers-could-force-economic-catastrophe Beazley, H., Boenich, J., and Harden, D. (2002). Continuity Management: Preserving Corporate Knowledge and Productivity When Employees Leave. New York: John Wiley & Sons. Bernard, D. (2012). The Baby Boomer Number Game. Retrieved from http://money.usnews.com/money/blogs/On-Retirement/2012/03/23/the-baby-boomer-number-game Bureau of Labor Statistics. (2007). Labor Force (Demographic) Data. Retrieved from http://www.bls.gov/emp/emplab1.htm Cohn, D. and Taylor, P. (2010). Baby Boomers Approach Age 65 – Glumly. Retrieved from http://pewresearch.org/pubs/1834/baby-boomers-old-age-downbeat-pessimism Gordon, E. E. (2005). The 2010 Meltdown: Solving the Impending Jobs Crisis. Westport, Connecticut: Greenwood Publishing Group. Jarvik, E. (1980). Handbook of Aging and the Social Sciences. Waltham, Massachusetts:Academic Press. Michael. (2012). 25 Bitter And Painful Facts About The Coming Baby Boomer Retirement Crisis That Will Blow Your Mind. Retrieved from http://theeconomiccollapseblog.com/archives/25-bitter-and-painful-facts-about-the-coming-baby-boomer-retirement-crisis-that-will-blow-your-mind Talbott, J. R. (2010). Contagion: The financial epidemic that is sweeping the global economy-- and how to protect yourself from it. Hoboken, N.J: John Wiley & Sons, 2010. The US Senate, special committee on aging (2007). What Does it mean for Businesses and the Economy? Darby, PA: DIANE Publishing. Woodruff, J. (2011). U.S. Faces 'Explosion of Senior Citizens': Will Baby Boomers Strain Economy? Retrieved from http://www.pbs.org/newshour/bb/social_issues/jan-june11/boomer_01-03.html Read More