Elderly Shaping Economy

By Gary Silverman, CFP®

One part of the Federal Reserve Bank of Atlanta’s annual report is titled: Soaring Numbers of Elderly Reshaping U.S. Economy. Today we take a look at some of its highlights.

As I’ve mentioned in the past, the ratio of working-age people and retirement-age folks is getting smaller each decade. It’s a phenomenon not just of the U.S. but of most of the industrialized nations of the world. As a population gets more prosperous and better educated they tend to have fewer children in each family. They also tend to live longer lives.

Today in the U.S. a baby born can be expected to live close to 80 years. That’s a decade-and-a-half longer than those born during World-War II, and a full 25 years longer than those born in 1920. But while we are living 25 years longer we are not working 25 years longer. As I mentioned a few weeks back, the average person used to die about the time they reached retirement age. Now people are living 15-20 years in retirement.

From a financial standpoint that can be a problem. If they are not working, the money to handle their expenses has to come from somewhere else. That somewhere else is either an employer-funded retirement plan (a pension), a personally-funded investment pool (like a 401(k) or IRA), or a taxpayer-funded program (Social Security).

Just as the government is having a hard time keeping up with this demographic change (we all know the Social Security system is heading toward insolvency), so too have employers. Employers have responded by pretty much eliminating any pension guarantees. The government hasn’t been quite as proactive about the matter and the demographics get worse each year.

They’re stuck between the proverbial rock and a hard place. Do they raise taxes to fully fund (and even expand) the programs that provide for seniors? That would draw the ire of current workers. Do they lower benefits or make them more restrictive for retired folks? That would definitely draw the ire of retired workers. The simple steps, as I’ve outlined in the past, that they could have taken have been politically daunting—and I’m getting less optimistic every year that the fix will be anything but painful.

So that leaves the workers to fix the problem themselves. That’s probably most of my readers. But with wages pretty much flat for the last several decades (inflation-adjusted), it’s not like you have a lot of extra money laying around to do so.

This is why a lot of seniors find themselves running out of money before they run out of life. It explains why working families find it so hard to save the recommended 10-15% of their pay. We (government, employers, employees, and retirees) are all squeezed in one way or another.

And it points to a future of, if not lowered expectations, limited realities.

This article was published in the  Wichita Falls Times Record News on May 22, 2016.