Entitlement Program Changes, More Saving, Longer
Work Life Likely as Population Ages
National Research Council looks at demands of aging
nation - ‘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’
Sept. 26, 2012 - The unprecedented demographic
shift in which people over age 65 make up an increasingly large
percentage of the U.S. population is not a temporary phenomenon
associated with the aging of the baby boom generation, but a pervasive
trend that is here to stay, says a report from the National Research
Council. This increasing domination will have broad economic
consequences for the country, particularly for federal programs that
support the elderly, and its long-term effects on all generations will
be mediated by how - and how quickly - the nation responds.
"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 that was
mandated by congress.
"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
Social Security, Medicare & Medicaid –
Social Security, Medicare, and Medicaid are on
unsustainable paths, and the failure to remedy the situation raises a
number of economic risks, the report says. Together, the cost of the
three programs currently amounts to roughly 40 percent of all federal
spending and 10 percent of the nation's gross domestic product.
Because of overall longer life expectancy and lower
birth rates, these programs will have more beneficiaries with relatively
fewer workers contributing to support them in the coming decades.
Combined with soaring health care costs, population aging will drive up
public health care expenditures and demand an ever-larger fraction of
Population aging around the world
Population aging is also occurring in other
industrialized nations, so any consequences for the U.S. must be
considered in the broader context of a global economy. Adapting to this
new economic landscape entails costs and policy options with different
implications for which generations will bear the costs or receive the
benefits. Recent policy actions have attempted to address health care
costs, but their effects are as yet unclear.
According to the report, the ultimate national
response will likely be some combination of major structural changes to
public support programs, more savings during people's working years, and
longer working lives.
Longer working years
"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
"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 committee found that there is substantial
potential for increased labor force participation at older ages, which
would boost national output, slow the draw-down on retirement savings,
and allow workers to save longer. The report adds that longer working
lives would have little effect on employment opportunities for younger
workers, productivity, or innovation.
In addition, workers can better prepare for
retirement by planning ahead and adapting their saving and spending
habits, the report suggests. Improved financial literacy will be
critical, since between one-fifth and two-thirds of today's older
population have not saved enough for retirement and therefore rely
heavily on Social Security and Medicare.
More research in areas such as health measurement
and projections, the capacity to work, and changes in consumption and
saving will help to inform decision making, but the report emphasizes
the need to act now in order to craft a balanced response.
"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.
A follow-up study from the National Research
Council will look more in-depth at the long-term macroeconomic effects
of population aging and provide quantitative assessments of specific
The study was sponsored by the U.S. Department of
Treasury with supplemental funding from the National Institute on Aging.
The National Academy of Sciences, National Academy of Engineering,
Institute of Medicine, and National Research Council make up the
National Academies. They are private, nonprofit institutions that
provide science, technology, and health policy advice under a
congressional charter. The Research Council is the principal operating
agency of the National Academy of Sciences and the National Academy of
Engineering. For more information, visit
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