Why should we be scared of the Baby Boomers retirement?

July 25, 2008 10:52 AM

Why do talking heads make is sound like the impending retirement of lots of baby boomers will cause huge economic and government collapse? Won't all their jobs be replaced by younger workers who will get raises and then pay more taxes? what am I missing here?
posted by jrishel to work & money (28 comments total)

If you have fewer active workers and therefore less goods and services produced, but just as many people with money to spend, what happens? Inflation.
posted by randomstriker at 10:58 AM on July 25, 2008

There are fewer members in each subsequent generation to the baby boomers. It's a bit top heavy, if you will. The idea is that there are not enough replacements.

On the other hand, we are more productive now, and that trend continues upward......
posted by no1hatchling at 10:59 AM on July 25, 2008

Who replaces the younger workers? That's what you're missing.

Boomers, by and large, are highly-skilled and/or -educated people serving in jobs which require the same. Generations coming after them simply don't have the same numbers of people with the same skills and education. I don't think it's going to lead to collapse, but it's a bubble and it will burst.
posted by dirtynumbangelboy at 11:02 AM on July 25, 2008

The problem is that you can't just give everyone raises in real terms. Fewer workers means less production of goods, so there will simply be less goods (income) to go around.
posted by thrako at 11:02 AM on July 25, 2008

Also, retiring boomers are going to be a big load on government benefits programs for senior citizens, so the smaller workforce left behind after the mass boomer retirement is going to get hit hard on taxes to cover the costs.
posted by letourneau at 11:07 AM on July 25, 2008

Luckily the problems with social security will prolong the inevitable, meaning more baby boomers will take longer to retire. And if other baby boomers are as work-hungry as my parents are, they'll gladly take the low-paying vacancies that their own retirements cause (my dad retires as advertising executive to work minimum wage as a floor guy at Lowe's, and couldn't be happier).

This scenario truly highlights the need to step up our A.I. R&D.
posted by bjork24 at 11:07 AM on July 25, 2008

There wont be the numbers of younger workers necessary to replace the older workers. The same number of people aren't born each year . . . it was called the baby "boom" for a reason. So many people with great experience will retire within a short span of time. The problems it causes are compounded by factors such as the extended life expectancy of people. So programs like Social Security will be strained by this fact. In essence, many government systems are like pyramid schemes and require an ever and ever increasing number of new workers to support them.

This is already a big problem in places like Italy, where the birth rate is very low, and the state is having trouble funding retirement schemes and social programs, as an ever-decreasing percentage of the population is adding to the coffers. Much of Europe has stagnant birth rates, when they need more people. And typically, it's the educated and wealthy people who are having fewer kids. People in lower economic or education strata have more kids - but these families don't contribute as much on a per capita basis, and they tend to draw more money from the system.
posted by Dee Xtrovert at 11:10 AM on July 25, 2008

It's the number of retirees that the government will be supporting that is the issue, not that people won't be filling their jobs and paying taxes. We need more younger workers to keep the ratio from going too out of whack so do your patriotic duty and procreate.
posted by caddis at 11:13 AM on July 25, 2008

The analogy I've heard is to think of the nation with the baby-boomer generation as a snake that's swallowed a football. As the bulge of the football moves from head towards tail in the snake (as the generation ages from cradle to grave) the population in an age bracket swells and then falls as the boomer generation passes through it. That means that when they retire, the number of people drawing pensions and medicaid and so on, will swell, while the number of people working will fall.

Social security is not a mattress that money is stuffed under for 40 years - even though the boomers were paying into it as they worked, those payments were being spent as they came in by the government of the time with the understanding that it would be paid back come retirement time, by the labour of a future generation that would be the workforce at the time when the boomers retired.

So previously - boomers in the workforce meant a large number of workers supporting a small number of retirees.
Soon - boomers retiring will mean a small number of workers supporting a large number of retirees.

So... productivity has to increase or standards of living will either fall (or continue to rise but at a slower rate of increase than previously, ie growth will fall).
posted by -harlequin- at 11:21 AM on July 25, 2008

It's the social security issue. The system depends on having deposits exceed or match withdrawals. With lots of old people living a long time, and presumably not contributing after retirement, the system is underfunded.

It's poor management/planning of a government benefit. What might end up happening as baby boomers retire is that the workers of today and tomorrow will be paying for the past and not getting a benefit for the future.

There won't be a government collapse nor will there be an economic collapse. As far as having enough workers, that issue depends on more variables. Keep in mind you don't need to replace the old workers. Some industries disappear or shrink, others grow and if immigration policies are heading where they are, new workers won't have to be born here.
posted by abdulf at 11:26 AM on July 25, 2008

People above have been focusing on Social Security. Another part of the problem is that the elderly are living far longer than they used to, which drains Social Security and other programs (e.g. health care) at a faster rate than it used to.

We need more younger workers to keep the ratio from going too out of whack so do your patriotic duty and procreate.

For many European nations with decades of zero or even negative population growth, this is not a joke. Sweden and Russia, for example, are going out of their way with tax incentives and even outright cash payments to encourage young people to get married and have babies.

The other alternative is relaxing immigration standards and letting more people into the country, which presents its own challenges.
posted by Cool Papa Bell at 11:28 AM on July 25, 2008

Premise: Social Security takes it's payments from current workers to pay people who have/are retired a fixed amount every month depending on the retirees' previous income as previous workers, until they die.

Good: Currently, there's a "surplus" of payments in vs. withdrawals out.

Problem #1: The gov't borrows against the surplus to pay for items in the budget. They use it like a credit card, but is late in repaying

Problem #2: Retirees are living longer

Problem #3: There are and increasingly more new retirees receiving SS vs. new workers capable paying into it. The young workers now are not getting the equivalent amount of compensation (with lack of pensions, competition in the workforce) as those did when the boomers entered the workforce. Think of the gap between rich and poor and the disappearing middle class.

Problem #4: No one has done much about it
posted by spoons at 11:30 AM on July 25, 2008 [1 favorite]

Problem #5: High cost of dying. 30-50% of a person's LIFETIME health care expenditure is spent on their last 6 months.
posted by small_ruminant at 11:48 AM on July 25, 2008 [2 favorites]

so... instead of sending our young soldiers off to war, we really should institute a draft for people over 60...

this solves problems #2, #3, and #5.
posted by jrishel at 12:00 PM on July 25, 2008 [2 favorites]

In addition to what everyone else here has mentioned, also consider the effect of boomer retirement on the stock market. Imagine all the boomer wealth tied up in 401Ks, pension funds, etc. But all that money tied up in the markets is there for one purpose: saving for retirement. The only way to tap that money is by selling it.

So really there are two possibilities: the first is deflated asset prices due to the boomer sell-off. The second is selling these US assets to the Indias, Chinas, etc. of the world.

See Jeremy Siegel's argument on this here.
posted by prunes at 12:10 PM on July 25, 2008

There's also the issue of the fact that the Baby Boomers have sold out today's generation for their own gain. Education is in shambles, the economy is ailing, and purchases that Boomers took for granted like housing are nigh impossible for today's young adults.

For the first time in America's history, the following generation (Gen X/Y) is making less in REAL terms than their parents. That is, adjusted for inflation, an average 30 year old made more in the 70s than today.

So now, after tax cuts and budget cuts and squandering our nation's resources, they're going to reverse course and put a huge strain on our social and medical care systems that they've undercut. All at the same time we're most likely going to have to also shore up the national debt they've racked up with their Bush/Reaganomics.

As you can guess, I'm quite bitter about this situation, but it just infuriates me to no end that the same people who waited in line in the 70s to refuel their cars were the first to buy enormous trucks and SUVs. This is pretty much an analogy to how their generation has collectively acted toward the health of the nation as a whole.
posted by explosion at 12:30 PM on July 25, 2008 [9 favorites]

These are really good answers. And yet it's a good question: one would suppose that, IF the number of jobs in the US economy remained constant, the relatively small number of workers in the next generation would make up for the shortfall by getting correspondingly higher wages.

Others have suggested problems with this assumption, and inflationary side-effects. But isn't another impediment that, as SS is presently structured, per-person contributions are capped at a fairly low amount, so that increases in salary per person for the next generation would not, even if realized, mean as much for increases in SS contributions?
posted by Clyde Mnestra at 1:03 PM on July 25, 2008

And to tack on to what Explosion and Spoons are saying, I think that our private companies who employ the bulk of our citizens are just not treating employees like they used to. Hire and fire is the norm. Long-term benefits like pension funds are becoming incredibly scarce. When this younger generation is made up of job-hoppers, there is not the depth and breadth of knowledge that these companies can rely on. The boomers are holding on to their jobs for longer and maybe the same caliber of trainee is not coming up to take their place.
posted by amanda at 1:03 PM on July 25, 2008

explosion,

I'm sympathetic to your complaint. But I'm not aware of any evidence that Generation Y/Millennials/whatever have been more interested in investing in the nation's infrastructure and whatnot -- or, more acutely, in making sacrifices for generations beyond theirs.
posted by Clyde Mnestra at 1:07 PM on July 25, 2008

And, just to fact-check myself. As it turns out more people are employed by the public sector than private -- I wonder how Boomers' retirement will affect government employment? So many departments and services are funded by taxes.
posted by amanda at 1:08 PM on July 25, 2008

As Cool Papa Bell mentioned, one of the main ingredients in the overall mix is medical science and its ability to sustain the life of the elderly. Even if a person is ninety-something and suffering from dementia, there are medications on the market to prolong their life (even if the qualifty of said life is zilch). These elder patients are tapping the Medicare funds to the max (and are subsidized by their Boomer children). Twenty years from now, the oldest Boomers are going to be in their 80s and suffering from the same conditons that afflict the elderly (unless some miracle cure is discovered in the meantime). But the children of the Baby Boomer generation grew up in an era where they were constantly bombarded with news reports of the world wide population explosion. Likewise, the cost of living increased, so that (unlike their Boomer parents), both husband and wife had to work outside the home in order to sustain their lifetstyle, which meant that children were suddenly "planned" instead of just "happening" as a result of marriage. Couples had less children as a result. A lot of Baby Boomers have a variety of brothers and sisters to share the load of parental care (meaning they could eitther take turns taking care of mom and dad or they could pool resources and augment the parents' Medicare expenses).

However, as families tend to consistently produce less children, the "pyramid" of the aging population is going to get top heavy. This is probably why IRAs and 401K plans started becoming part of the vernacular in the 1980s - it was a wake-up call to the "younger generation" that Social Security might well dry up by the time you're 65.
posted by Oriole Adams at 1:08 PM on July 25, 2008

Also consider voting power. Waning Soacial Security funds will prompt some sort of legislation. Either retiree benefits will be messed with (you'll have to wait longer to collect; or you'll collect less) or younger generations will be taxed more. When it comes time to vote on that issue there will be a lot of boomers with nothing to do but be engaged in the political process. Guess which way that issue will tilt?

Personally, I'm 51 and I plan for retirement not counting on Social Security at all.

Oh, and I also am on a plan to move out of stocks well before the time all my compadres start cashing in theirs. Don't tell anyone.
posted by lpsguy at 1:13 PM on July 25, 2008

Well,

* The younger generation has to pay for the social security of this generation and the amount promised by the government is tremendously hight

* At the same time the young generation has to cope with the tremendous public debt accumulated by this generation

* Investments in infrastructure have been neglected, hence another burden to be paid by you!

* How will you save for your retirement? Have you calculated where the S&P will be in this century when you assume an average 8% yearly increase? At the same time the baby boomers unlikely will be able to live on the dividends but have to sell stocks...

Basically the baby boomers could only sustain their life-style and retirement in exploiting you and living on your (future) money. BTW, the situation is not different in Europe. It is very unlikely that the younger generations have on average the same in real terms than the baby boomers.

Solution?

Either be born rich or try your luck abroad, maybe in the BRIC countries.

Cheers,

Yoyo_NYC, a European living in the states and thinking about leaving.
posted by yoyo_nyc at 1:17 PM on July 25, 2008

caddis writes "not that people won't be filling their jobs"

While a minor problem this is actually a concern in service sectors. I n the future we'll see lower service levels, the 24x7x365 restaurant/gas station/super market/etc. will be a rarer, and there will probably be more self service across the board.
posted by Mitheral at 1:56 PM on July 25, 2008

Storms on the Horizon
posted by yoyo_nyc at 2:06 PM on July 25, 2008 [1 favorite]

For a while anyway the Boomers will be taking all the jobs that teenagers and lower educated people traditionally did. I'm already seeing it: telemarketers, retail store employees, handymen, tour guides, and so on.
posted by small_ruminant at 2:12 PM on July 25, 2008

Slight derail:

So if, as dirtynumbangelboy posits above, there are fewer younger workers available with the skills to fill jobs vacated by the boomers, does that mean more educated/skilled workers will be better off because they can command higher salaries? Or will they just qualify for "average" wages (because they are just replacing "average" jobs)? And will any gains they make in salary just be offset by the higher tax burden they have to shoulder?

I'm in the less-populated generation between the boomers and the current young generation, and I've been wondering what I have to look forward to in this department.
posted by Rykey at 7:33 AM on July 26, 2008

Medicare is the biggest problem. Having a larger percentage of older Americans draining government resources but not being productive is going to be very detrimental on the economy.
posted by bucksox at 7:32 PM on July 31, 2008