Russell Beland, a Navy analyst, posted a Washington Post article yesterday that explained why the idea that the Baby Boomers’ retirement will put the economy in dire straits is a myth.
Here are his points:
1. As boomers quit working and ease into their golden years, they could break the backs of the younger workers who will have to support them.
Not so. Even at the peak of boomer retirement, around 2030, most of the population will still be of prime working age, between 20 and 64. Not only will a larger portion of the population be of working age than in the past (because of women in the workforce), but a much higher percentage of that group will be available to provide goods and services. Future labor markets are likely to be tighter than they are today, but there’s no danger of running out of workers.
The way it’s looking now, we may well have too many workers–and too few domestic jobs for them to fill, at least in the short- to medium-term.
2. We’re running out of time to fix senior-citizen entitlement programs before a crisis strikes.
Actually, we’re out of time. There may be some minor changes in the way benefits are taxed or adjusted for inflation, but it’s already too late for any big fix. Some older baby boomers are already retired, and many more are getting close. Social Security and Medicare benefits are part of their financial planning, and we can’t reduce them significantly now without a major breach of faith.
This doesn’t give anyone still in the workforce reason to feel better.
3. Boomers’ retirement will be bad for the economy.
Not really. It’ll be bad for the federal budget, sure, but it will actually be good for the economy as a whole. As retirees, the boomers will continue to buy goods and services, but they won’t be competing for jobs. This will tend to push wages up, keep unemployment low and boost demand across the board. The demand for drivers, cooks, gardeners and others will increase as the baby boomers age.
Those Boomers had better be ordering a lot of personal services to keep this country’s ever-increasing number of unemployed people occupied.
4. The politicians know what needs to be done; they just lack the will to do it.
They may lack the will, but they almost certainly have no idea what needs to be done. Estimates of future Social Security and Medicare spending are based on complex economic and demographic models that are quite sensitive to even modest changes in key assumptions. No one really knows the size of the problem facing the federal budget, and very few people understand all the moving parts.
If there’s an easy solution, it’s to pull exaggerated defense funds out of foreign policy power-plays, such as “force protection” in Iran and AFRICOM. Then use those funds to rebuild the federal budget.
5. Saving the budget will require either major reductions in the old-age entitlement programs or major tax increases — or both.
Actually, probably none of the above. Unless there are major changes in benefit rules or in the population, spending on Social Security and Medicare will grow dramatically over the next few decades. But many economic changes are likely to mitigate the effects on the budget. For example, as the workforce shrinks, the demand for labor will grow, pushing up wages and thus increasing payroll taxes, giving the government more income. Higher wages mean that more people are likely to choose to work, and to work longer before retiring.
This would be a boon to the economy–if the United States were an isolated system. It’s not. Even though fuel prices are up, we’re still outsourcing jobs. If demand for workers increases, those workers can easily be found abroad. Citing the Boomers as the sole source of long-term wage stagnation is simplistic. Retiring Boomers isn’t going to solve the wage problem.
The author’s conclusion:
Don’t be too scared. Yes, the baby boom’s retirement will strain the budget. But natural economic forces will take over, and combined with modest revisions in benefits and taxes, they should make it possible to keep those baby boomers grazing and the rest of us going in relative comfort and peace of mind.
Every time I hear the words “natural economic forces” used, I get nervous. Didn’t “natural economic forces” result in the subprime crisis?
With an already-taxed healthcare system facing even more burden, a national budget that’s been frittered away on a war that has lead to no visible positive outcomes, and Bush’s unstable 401K alternatives, I have one conclusion.
I’m still scared.