Effect of Retiring Baby Boomers on the US Economy - Research Paper Example

? Effect of Retiring Baby Boomers to US Economy Effect of Retiring Baby Boomers to US Economy Introduction Aging population is posing a lot of challenges to several countries globally1. This has been the case in most industrialized nations in the world with low birth rates and high life expectancy. Some of the countries facing the challenge of the aging population include Japan, Italy, Germany, China, Mexico, India, the U.K., and the U.S. among others. Research indicates the world’s population is aging very fast such that it has been projected that the elderly people above the age of 65 years will soon outnumber children below the age of five years, which will be a history in the making2. In this regard, it has been projected that the world will have about 1 billion elderly people by the year 2030, which accounts for about 33% of the world population3. As earlier stated, the U.S. is one among the countries facing the challenge of an aging population. This is because its population has been aging very fast though as fast as that of Japan. Research indicates that the U.S. aging population increased to 13.1% in 2010 up from 8.3% in 19504. The growth is projected to reach around 19.9% by 2030 and 21.2% by the year 2050. However, the research also found out that as the aging population continues to increase, the population consisting of children and the working class will decline in a few decades to come. Projections suggest that the U.S. aging population will increase by double digits in the next forty years. In this regard, the elderly age group above 65 years will increase to about 88.5 by the year 2050 up from 40.2 million in 2010. The United States is currently worried with the rate at which the aging population is increasing. This is because it implies that it will soon retire many baby boomers that have been very important to the U.S. economy5. In this regard, many U.S. citizens including economic analysts in the country claim that retiring baby boomers might adversely affect the U.S. economy being that it is currently struggling to recover from recession. However, not everyone is of opinion as some are skeptical arguing that retiring baby boomers may not affect the economy in a negative way. Baby boomers are basically those born between 1946 to about 1960s6. Mathematically, people born during this time are approaching their retirement age as per U.S. labor laws where the retirement age stands at 65 years of age. Mckinsey Global Institute reveals that the latest census report on America’s population found out that there are about 78 million baby boomers in the U.S. born somewhere between 1946 and 19647. This implies that a very huge number of baby boomers are likely to be retired in the near future, something that will most likely affect the economy in one way or the other. The objective of this paper is to examine the impacts that retiring baby boomers may have on the U.S. economy. To begin with, retiring baby boomers will impacts on the U.S. economy in different ways both positively and negatively. Currently baby boomers form the majority of workforce in the U.S. In fact, the baby boomers have contributed greatly to the growth of the United States something that cannot be denied8. This is evident from the kind of development that the America has experienced since 1946 to date. Research indicates that the American baby boomers numbering about 79 million according to a census report have earned huge amount of incomes, created wealth, which in turn spurred economic growth9. Therefore, retiring this population will most likely leave a big vacuum in the workforce, as there will be a reduction in the skilled workforce to help restore the economy of the U.S. to where it was before the financial crisis of 2007/2008. However, since the U.S. economy is still struggling to recover from the recent financial meltdown, retiring baby boomers may worsen the situation according to some economic pundits. This is because there will be little expertise to help in revamping the economy since the workforce will only be full of young and less experienced people that cannot turnaround the U.S. economy with the speed required10. It is a matter of fact that not all baby boomers have saved enough for their retirements. This implies that retiring them will create a big problem as they will have to struggle financially to make ends meet. This will affect charities that have been so helpful for the U.S. economy over the years. Most charities have depended on financial aid from the baby boomers. Therefore, retiring baby boomers who are already struggling to pay their bills will have very little if any to give for charities. At the same time, the few who may have little to give in the form of charities may have to stop once they reach the retirement age. This may affect the U.S. economy negatively as the large of U.S. citizens who depend on charities to make their live better may have nowhere to turn to. At the same time, this may force the government to allocate more money for charities so as to help the needy in society11. Retiring baby boomers will also increase the number of the elderly in the society, which in turn exert a lot of pressure on the existing health systems12. Currently, two tax-taxpayer funded health care programs are available in the U.S. upon which the American elderly depend on namely Medicare and Social Security. Medicare is a type of a universal health care insurance scheme created to ensure that the elderly, the disabled, and the poor in the society get equal access to quality and affordable health care services13. The program usually pays for the medical services provided to the poor, the disabled and the elderly, in society. Medicare is from two sources namely the Health Insurance Trust Fund and the Supplementary Medical Insurance (SMI) trust fund. The Health Insurance Trust Fund caters for skilled nursing care, inpatient health care services, the hospice, and home health. The Supplementary Medical Insurance (SMI) trust fund, on the other hand, caters for services of a physician, preventive services, and outpatient services. Report shows that Medicare provided $516 billion to 47.5 million elderly and disabled persons. Out of this amount, $39.6 was paid towards the services of the elderly while the disabled persons got $7.9 million14. Social security program is concerned with the provision of the retirement, survivor and disability benefits to qualified employees, and their families. Social security is funded from two trust funds namely the Disability Insurance (DI) trust fund and the Old Age and Survivors Insurance (OASI) trust fund. Report indicates that about 54 million Americans received social security benefit. Of those who received the benefits, 69 % were the elderly while the remaining 31% were the deceased survivors. In this year, a total of $701.6 billion were paid in the form of social security15. This kind of revelation shows how the government spends a lot on money on the American elderly. However, with the pending increase in baby boomers over the next few decades, it is expected that the taxpayers will have to dig deeper into their pockets to fund the programs. This will lead to a decline in the economic growth in the country, taking into consideration the fact that America is still struggling to recover from the recession, which has affected the country following the recent financial crisis. In fact, imposing more tax on people who are already struggling to make ends meet will only be worsening the situation16. Research also indicates that the elderly are prone to certain diseases, which affects them once they become old. The effects of these diseases impact on the welfare of the elderly, which also affects the economy of the country. One such disease, which affects mostly the elderly, is the Alzheimer's disease. Presently about 5.4 million Americans of all age groups suffer from Alzheimer's disease, the government spending more than $200 billion. Estimates also show that about 15 million Americans could suffer from the diseases by the year 2050. What is acknowledged is that diseases require a huge amount of money to prevent and treat. However, with the state of the economy, any additional expenditure on such diseases will only continue affected the economy in a negative way17. The retiring of baby boomers in the country will also affect the nature of investment, which in turn will affect the economy. This is because currently there are many baby boomers that are working full time and earning high salaries, which they use to invest in long-term growth. In fact, findings show that a majority of big investors in the U.S. are baby boomers. This shows how their being part of the workforce contributes to the economy of the country. This is because the government is able to obtain taxes from their investments that are used for the development of the country. In addition, such investments help in job creation especially at this point when the U.S. is struggling to create more jobs for its growing population. As such, retiring this part of the working force, will hugely affect the level of investment in the country, as many current baby boomers who invest in the country will tend to be more risk averse thereby reducing their risk in the investment portfolio. As a result, many retired baby boomers will also begin pooling out their investments from the stock market, which would definitely affect the economy and a whole. This is because there would be few stocks to trade on the security market, which will scare aware many investors in the country18. Research also reveals that about two-thirds of early baby boomers between the age of 50 and 60 years are not yet prepared financially to retire. This is because they have not yet saved enough money that can maintain their lifestyle once they retire. As a result, retiring baby boomers will mean that the government will spend huge sums of money in trying to assist the baby boomers. At the same time, forcing baby boomers to retire will increase the dependency level in society, which is unhealthy for economic growth and prosperity. Research currently shows that the dependency level among the elder stands at five to one. This implies that this ratio is likely to increase with the impending high number of baby boomers expected to retire in the coming years19. Baby boomers are also reported having accumulated a huge amount of debts over the years, they have been working. These debts run at the tune of millions of dollars, which have remained unpaid for several years now. In fact, many banking institutions and companies have been affected by the huge amount of debts owed by some baby boomers that have not been able to pay. Therefore, this implies that retiring these baby boomers might result in total default of these debts, which might affect the liquidity position of many banks and companies. This may worsen the economy of the United States taking into consideration that fact that the country is currently struggling to recover from the recession that has been witnessed in the recent times occasioned by the recent financial meltdown that hit the United States. Therefore, some economic pundits suggest that the retiring baby boomers should be added more years to continue working so as to give them more time to service their debts20. However, apart from the many negative impacts that retiring baby boomers may have on the U.S. economy, retiring this age group has also been associated with a number of positive impacts that this may have on the struggling United States economy. This is because the U.S. economy has been struggling to recover from the impacts of the financial crisis of 2007 and 2008 that affected the economy drastically leading to unemployment among other economic issues. Therefore, some pundits have argued that retiring baby boomers will help solve some of the economic problems facing the country at the moment. Firstly, the economic pundits argue that retiring baby boomers will result in job creation for the American youths. Research indicates that the unemployment rates have increased significantly in the U.S. since 2007 following the financial crisis that affected the U.S. economy. The impact of the crisis saw some companies downsize in order to cut down labor cost leaving many youths without jobs. At the save tie, the spate of the economic crisis affected the U.S. growth and development, which has made it had the U.S. to create more jobs for its young population, which continue to flock the labor market. The high level of unemployment among the youths has also affected the U.S. economic growth. As a result, the answer appear to lie with the retiring of baby boomers, who are supposed to be sent home to give room for younger people to take up the jobs and help drive the U.S. economy to greater heights21. For instance, in case baby boomers are left to stay for longer on their jobs, this will mean that there will be fewer job opportunities for the youthful population to take up. As a result, the young talented American youths may opt to look for jobs in foreign countries with more job opportunities. The main dangers of this are that the talented Americans will use their talents in other countries to spur economic growth rather than in their own country. In fact, many American youths are already getting frustrated for luck of employment due to the country’s economic growth. These youths are frustrated because they have been kept waiting for too long without employment because the country is creating very few opportunities for its population. As a result, their hope now lies on retiring of baby boomers so as to give room for them to contribute in economic development of the country22. Retiring baby boomers are also said to be of great benefit for the struggling economy like one of the U.S. This is because baby boomers are the leading investors in the country and purchasers of homes as was witnessed during the real estate crash. They also have a tendency of reinvesting in the market once they retire because they have a lot of money accumulated during their working time. United States Government Accountability Office reported that baby boomers are the main group of America’s population that seeks for financial advice on investments from financial management experts. Such kind of investments is very important because they contribute to the growth of the financial markets as well as the country’s economy. This is because the stronger the financial market, the stronger will be the investor confidence in the country. Once the investors have confidence in the country, they will seek for investment permits, which certainly results in economic development and job creation, which the U.S. is currently in need of in order to experience meaningful economic growth23. Research indicates that a majority of baby boomers are being wealthy. This is because reports indicate that this general earned more than any other generation. However, as they age, they tend to be in need of lavish lifestyles such as staying at the beaches and hotels. This is a good prospect of the economy since it will see many hotels and beaches become pack up to full capacity with the elderly, baby boomers that are willing and ready to spend part of the income they have accumulated over the years. Therefore, retiring baby boomers will most likely promote investments in hotels and beach resorts in the country which will help in wealth creation for the currently. Presently, a majority of those at the beach are the younger generation with little disposable income to spend. In fact, research indicates that most beaches aim the U.S. are sometimes empty without the local people as only the international tourists are the ones seen waltzing along the beaches. However, with the aging population increasing very fast, the beaches will soon be full of baby boomers24. Research also indicates that as people get older, they become vulnerable to quite a number of diseases. The main reason behind this according to medical experts is lack of proper exercise. However, evidence has shown that many baby boomers would not want to undergo what their predecessors went through. As a result, they have been seen to value performing exercise as a way of keeping fit and active, which is very important for their health. In this regard, it is projected that the country will be in dire need of more physical facilities where the retiring baby boomers can perform exercise to keep fit. Currently it is the young population that uses most of the physical facilities in the country, a scenario that is expected to change25. The fact that the country will invest in the physical facilities is good for the economy of the country. This is because a majority of baby boomers has a lot of disposable income to spend, which will be paid for the use of the physical facilities. The money spent by the retiring baby boomer on the physical facilities will be taxed by the government and used toward the country’s development. In addition, the increased use of the physical facilities will also lead to job creation to the youthful population that are currently facing a big problem of unemployment. Therefore, as much as some people may feel that baby boomers need to be added more years to continue working so as to accumulate more wealth, retiring them will be a good move to the country and the economy at large26. Conclusion It is beyond doubt that the world population is aging very fast - a scenario that is posing a major challenge to many countries particularly those adversely affected such as Japan, Italy, Germany, and the U.S. This is because their aging affects the economy in one way or the other. The U.S. is one of the countries that are facing a big challenge with its aging population, particularly the baby boomers most of whom are approaching their retirement age, putting the country in a dilemma as to whether they should be added more time to continue working beyond the mandatory retirement age of 65 years or not. However, it is certain that retiring baby boomer will have both positive and negative impacts to the U.S. economy. Some of the positive impacts that the U.S. will gain by retiring the baby boomers include job creation for the younger generation, which has been a problem, increased investment from baby boomers, and the development of beach and leisure facilities in the country, which might spur growth and development. The negative impacts that have been the main concern include lack of expertise in the job market, increased pressure on the health insurance systems such as Medicare and Social Security, increased poverty levels in society since some baby boomers are not yet prepared for retirement among others. Therefore, based on the fact that retiring baby boomers will have both positive and negative impacts on the economy, it will be a better move if the government adds few more years to baby boomers in order to restore the economy back to growth before retiring them. However, as the government does this, it should also ensure that more jobs are created for youths in the country so as to ensure that youths are not kept too long out in the cold waiting for employment. Certainly doing this will help spur economic growth and development in the country. Bibliography Congressional Budget Office. “Baby Boomer’ Retirement Prospects: An Overview.” Congressional Budget Office, November 2003. Hecker, Daniel E. “Occupational Employment Projections to 2014.” Monthly Labor Review, November 2005. United States Government Accountability Office. “Baby Boom Generation: Retirement of Baby Boomers is likely to Precipitate Dramatic Decline in Market Returns, but Broader Risks Threaten Retirement Security.” GAO-06-718, July 2006. Wolff, Edward N. “The Retirement Wealth of the Baby Boom Generation.” Journal of Monetary Economics, Vol. 54, No.1 (2007), pp. 1-40. First Consulting Group. “When I’m 64: How Boomers will Change Heath Care.” American Hospital Association and First Consulting Group, May 2007. Mckinsey Global Institute. Talkin’ ‘Bout my Generation: The Economic Impact of Aging U.S. Baby Boomers. (Mckinsey & Company, 2008), pp. 2-187. Read More