The media are saturated with stories about the impending retirement of the baby boom generation. Given that the first boomers turn 60 this year, such stories are timely and describe an important phenomenon.
More than 80 million people will reach age 65 between now and 2030. That exceeds one-fourth of the current U.S. population. Aging baby boomers will impose large adjustments on the U.S. economy and on society as a whole.
This needs to be kept in perspective, however. The aging of those born between 1946 and 1964 is not an economic catastrophe. Our nation has faced far worse challenges in the past. Both retirees and working people in 2020 are likely to have higher standards of living than we have now and much higher ones than common in 1975 or 1950.
In economics, it usually is important to know both the absolute and relative dimensions of whatever it is you are studying. The absolute size of the baby boom cohort is 78 million. And as noted above, it represents about 26 percent of the total population. But there are other important measures to keep in mind.
While 26 percent sounds high, the 1946-1964 birth cohorts are a much smaller proportion of the total population than when they were born. At the end of the baby boom in 1964, some 42 percent of the population was in this group. Yes, the ratio of retirees to workers will be higher the next 40 years than in the past. But each worker in the 1960s had to produce goods and services for far more children than now.
The size of the boomer generation was fixed by 1964. The total population continues to grow apace. It has grown by 35 million in the last decade alone and probably will grow at least that much in the next one. The relative demographic importance of boomers will shrink even before many of them die.
Even more important, we are a much richer nation than when the boomers were little. In 1964, our economy, adjusted for inflation to 2005 dollars, produced less than $18,000 of goods and services for each man, woman or child. In 2006, it will exceed $40,000. Yes, the number of retirees will grow compared to the work force. But we have many more goods and services to go around than 40 years ago.
The U.S. economy is large, productive and far more flexible than the economies of Japan or Europe. We have the resources to meet the needs of all members of the population even as 80 million people begin to work less.
That is key. Boomers are healthier than previous cohorts. Contemporary medicine will allow more of us to work later in life than our parents or grandparents did. Wages and salaries will rise as the proportion of the population of traditional working age shrinks. Many boomers will respond by working, at least part time, well into their 70s or even 80s.
© 2006 Edward Lotterman
Chanarambie Consulting, Inc.