The Aging Problem in a Nutshell
Accelerating Growth of the Elderly:
Our aging population means the proportion of the elderly to workers will go up, thereby forcing remaining workers to cover an increasing amount of Social Security, Medicare, Medicaid and welfare for the older population. In 2010, the number of those over 65 was 24.6% of those between ages 25 and 65. The Bureau of Economic Analysis* estimates that will increase to 36.3% by 2025 with continuing growth after that. Said another way, the elderly will be more of a problem to support by 1.48 times (36.3%/24.6%) in just 15 years! And that doesn’t count any increases in medical costs.
Getting Money to Support the Elderly:
Not only is the number of elderly to workers increasing, but almost 50% of our workers now do not pay any income tax—a problem that gets worse as more and more workers are unemployed, lower-income tax credits increase, and the population ages and retires. Because those entering the 65+ group have very low savings (See below.), they are likely to try and continue to work longer thereby reducing the number of replacement job opportunities for younger people.
Political Wars Between Workers and the Elderly:
This situation is exacerbated by political factors because the aging of our population will increase from 17% of the voting population in 2010 to 23% in those 15 years*. For example, AARP, the largest provider of Medigap health policies and a powerful lobbying organization, supported the new health care act but now has obtained its own waivers from the rules leaving its largest competitors, the numerous Medicare Advantage insurers, at a disadvantage. Equally politically powerful unions, supporting the worker’s share of the population, have also won waivers from the act leaving many employer plans at their own disadvantage. These organizations will gain strength in the future and be diametrically opposed in entitlement issues, the elderly wanting more compensation and the workers wanting to pay less.
The Biggest Problem of All:
But the main problem for the elderly is the small amount of money they have accumulated in savings. Savings rates started a decline in 1985 from the long-time average of 9% till zilch in 2005--and has been anemic since then. To catch up, savings rates would have to exceed 20% a year for the next 20 years—a virtual impossibility. That, combined with the loss of pension programs, will increase both the political and actual demand for additional support for the elderly—from a much smaller base of tax-paying workers and an ever-increasing number of elderly. This is bad news for the economy. Most economists are not motivated to consider the cumulative savings shortfall as a problem because they are ever hopeful that the economy will boom once again so they can retain their jobs with the government, financial firms and industry—all of which need a growing economy to support their income. The same was true for the national debt problem until it became obvious to the public that something has to be done.
Henry K. (Bud) Hebeler
* 2011Statistical Abstract, Census Bureau