Population aging may have long-term economic impact if policies remain intact

The National Research Council’s recent congressionally mandated report rears a foreboding prophecy — one that all but guarantees far-reaching economic consequences for the United States if it is not acted upon promptly.

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With a massive chunk of the population now comprised of citizens over 65, federal programs that support the elderly are bound to transform regardless of whether the nation chooses to amend or maintain current policies. And this aging trend won’t be fizzling out with the passing of the baby boomer generation either — according to report writers, a seasoned majority is going to remain for all seasons, for years to come.

"The bottom line is that the nation has many good options for responding to population aging," said Roger Ferguson, CEO of TIAA-CREF and co-chair of the committee that wrote the report, in a news release.  "Nonetheless, there is little doubt that there will need to be major changes in the structure of federal programs, particularly those for health.  The transition to sustainable policies will be smoother and less costly if steps are taken sooner rather than later."

The report declares Social Security, Medicare and Medicaid as key program vehicles on the fast-track to unsustainability, perpetually collision-bound if remedies cannot be provided soon. Already, the three entities together amount for roughly 40 percent of all federal spending and 10 percent of total U.S. gross domestic product. Report contributors noted that soon more beneficiaries will subscribe to the systems, leaving fewer workers to support the influx. This, in conjunction with rising healthcare costs, will likely cause the tiers to topple, according to the report.

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To prevent such wreckage, the report predicts that the national response will consist of significant changes in structure to public support programs, an emphasis on more savings during working years and lastly, longer working lives.

"The nation needs to rethink its outlook and policies on working and retirement," said Ronald Lee, professor of demography and economics at the University of California, Berkeley, and committee co-chair, in a news release. "Although 65 has conventionally been considered a normal retirement age, it is an increasingly obsolete threshold for defining old age and for setting benefits for the elderly." 

The potential for older individuals to participate in the workforce — in almost all fields, including medicine — is substantive, the committee added. Including these elder laborers amongst the recovering marketplace could increase national output, decelerate draw-downs on retirement savings and allow workers to save longer, the committee report said. Additionally, the committee could identify no overwhelming effect on the employability of younger workers, productivity or innovation if this allowance were to manifest.

"Population aging does not pose an insurmountable challenge provided that sensible policies are implemented with enough lead time to allow people, companies and other institutions to respond," Ferguson said.

Financial literacy must be improved for the committee’s suggestion to work, the report said, especially given that approximately one-fifth to two-thirds of the current older population doesn’t have enough savings and therefore must rely primarily on Social Security and Medicare.

Further study is intended to be done on health factors that could pose as obstacles when employing older laborers; follow-up study is currently underway regarding the macroeconomic effects of population aging and what that entails for specific policy options.

The study was sponsored by the U.S. Department of Treasury with supplemental funding from the National Institute on Aging. 

The National Research Council is one of four organizational parts making up the National Academies, the other components being the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. [See also: CMS looks to align measures across Medicare and Medicaid]

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