The very real economic dangers of an aging America

Some of the implications of the Boomers’ retirement are predictable. If medical inflation continues apace, either the government or families (or both) will face rising budget pressures to pay for increasingly expensive treatments. As retirees live longer, Social Security will have to be mildly reformed or else we’ll have to dip into general tax funds to fulfill our promise to seniors. One hopes that the transition to a service economy will allow older people to work longer than they have in the past. But one of the advantage of being old and affluent is that you don’t have to work until the day you die. Sixty- and seventy-somethings who can work desk jobs might choose not to.

The aging of the Baby Boomers could have more unpredictable effects, too. Various studies have attributed stock booms in 1980s and 1990s “to the fact that baby boomers were entering their middle ages, the prime period for accumulating financial assets,” the San Francisco Federal Reserve reported. If those studies are right — and if demographic changes aren’t already priced into the stock market — it implies that we could see worse equity performance coinciding with an unfavorable worker-retiree ratio and slower economic growth. Not a good formula for the future.