50+ Lifestyles

The Economic Impact of an Aging World

By Richard J. Schillig, CLU, ChFC, LUTCF
Independent Insurance and Financial Advisor

Spending on programs for an aging population is already straining economies throughout the world, and the economic pressure will increase as populations continue to age.

During the week of June 10, 2024, French markets were rocked by a government bond sell-off after a strong showing by the far-right National Rally party in the European Union election. With polls suggesting the party might win a plurality of seats in the upcoming French parliamentary election, investors feared a promised social spending program, including a reduction of the minimum retirement age from 64 to 60 would further strain the already struggling economy.

As it turned out, the left-wing New Popular Front coalition – which also promised expensive social spending and a reduction in the pension age – won the most seats on election day. The initial reaction in the government bond market was muted, but analysts predicted further turmoil to come. By contrast, when France raised the retirement age from 62 to 64 in 2023, aiming to strengthen the economy, workers took to the streets in protest.

The French conflict over the retirement age reflects a fundamental social and economic issue throughout the developed world. Put simply, the world population is getting older, which means the percentage of workers in the population who can drive the economy and support old age pension and healthcare programs is gradually diminishing.

The U.S. Social Security program is a prime example. In 1960, there were 5.1 workers paying into the program for each beneficiary. In 2024, there are 2.7, projected to drop to 2.3 by 2040. Because of this demographic shift, Social Security no longer pays for itself and has been partially supported by Trust fund reserves built up when there were more workers per beneficiary. The reserves for the Old-Age and Survivors Insurance Trust Fund, which helps support retirement benefits, are projected to run out in 2033, at which time program income would cover only 79% of scheduled benefits unless Congress takes action to increase funding.

Medicare faces a similar challenge. The Hospital Insurance Trust Fund reserves, which help pay for Medicare Part A Inpatient and hospital care benefits, are projected to be depleted in 2036, at which time drug coverage are automatically balanced through premiums and revenue from the federal government’s general fund, but they will require an increasing larger share of the federal budget unless economic growth outpaces spending.

Spending on programs for an aging population is already straining economies throughout the world and the economic pressure will increase as populations continue to age. The funding gap for government programs such as Social Security can be addressed by a combination of solutions that may be politically unpopular but are unlikely to derail the broader economy; higher retirement ages, increased payroll taxes and means testing for wealthier beneficiaries. The larger question is how to keep growing the global economy. This may require increased worker productivity driven by new technologies and greater integration of older workers into the workforce.

U.S. worker productivity increased at an annual rate of 2.9% in the first quarter of 2024, well above the annual average since the end of World War II. If this trend continues, it could help balance some productivity lost as older people exit the workforce. Americans are already working longer – about one out of five of those age 65 and older was employed in 2024, almost double the number in 1985. The long-term solution may require rethinking the traditional model of a career, with more opportunity for lifelong learning and late-life career development. Studies indicate that working longer may help prevent cognitive decline, but it also could help balance the macroeconomic effects of global aging.

During this month of August we continue offering our “virtual monthly community meetings.” Next meetings are scheduled for August 20 & August 22nd. On Tuesday Aug 20 Craig talks about the basics of Medicare and then focuses on the Medicare Supplements. Two days later on Aug 22, Craig again reviews the basics of Medicare and then focuses on the alternative to Medicare – the Medicare Advantage Plans. That’s Medicare Part C. Call Craig to participate 563-332-2200 and receive instructions on how to participate virtually.

Richard J. Schillig, CLU, ChFC, LUTCF is an Independent Insurance and Financial Advisor with RJS and Associates, Inc. He can be reached at (563) 332-2200.