Balancing act

The exponential growth of older adults puts social welfare and the economy at risk

This original artwork was created with the assistance of DALL-E

It’s hard to escape conversations today about the wave of older adults flooding into their “retirement years.” About 11,000 Americans will turn 65 each day from now until December 2027 — that's about 15 people per hour and 4.1 million each year. In less than a decade, they will outnumber those under 18 for the first time. At the same time, birthrates have plummeted, further disrupting the age mix and shifting us from a young nation to a super-aged one.

The demographic shift isn’t something that snuck up on us — it’s a “slow-moving” trend that’s been coming for decades. This has allowed our leaders to defer addressing the coming crisis for decades, taking advantage of the political landscape where short-term wins significantly influence decision-making more than the long-term repercussions to social welfare programs and the economy. It’s also blinded individuals to the economic realities of retirement.

We need modern solutions to address modern challenges to ensure that social welfare programs and the economy weather the coming storm.

Recipe for disaster

This shift isn’t just about the people over 65. It’s about all of us.

The systems and norms that were designed and developed in the 20th Century haven’t kept pace with extended human longevity and declining birth rates. Retirement, at least as we know it today, is a social construct and a byproduct of the Second Industrial Revolution. It was designed to solve for the problem of older bodies giving out due to the intensive physical strain of hard factory labor and shifting family structures. It was also modeled on a shorter lifespan and hasn’t kept pace with modernity.

There’s also the unfortunate reality that people aren’t just living longer; according to McKinsey, they’re living in poorer health longer in later life. With the number of Americans over 100 on track to quadruple in the next thirty years, it’s hard to imagine a scenario where the social welfare systems or the economy don’t collapse under their weight.

The sustainability of Medicare and Social Security is a contentious issue in Washington, D.C., as lawmakers grapple with the country's surging debt, now exceeding $32 trillion, and debate ways to ensure the program's longevity. Yet, they only have a few years left to address the challenges — Medicare will run out of money to pay full benefits by 2031, and the Social Security Trust Fund will be depleted by 2033. The longer policymakers wait, the worse things get and the harder they are to fix.

The effects of insolvency will be swift. Current beneficiaries will see an immediate increase in their Medicare premiums and a roughly 25% decrease in their Social Security checks — low-income adults will be impacted most. It will also remove approximately $350 billion in spending from the economy.

One unfortunate outcome will be a spike in the number of people experiencing homelessness. Older adults — defined by the Department of Health and Human Services as those over 55 — are now the fastest-growing group experiencing homelessness, and they are on track to triple by 2030. The loss of Social Security income will push more of these older adults, including those over 65, onto the streets.

Too many out, too few in

This is a numbers game, and restoring some degree of balance to the dependency ratio is necessary.

The dependency ratio, which measures the number of people in the labor market to the number of people out, is out-of-whack, and there aren’t enough people working and paying taxes to support those living in retirement. Its imbalance also contributes to the rising cost of labor and goods. If these working adults are asked to pay more taxes to support the growing number of people living in retirement, it could trigger a drag on the economy.

The lack of workers is also accelerating automation and AI adoption. But guess what? Those machines don’t buy goods or pay taxes, so while they may lower labor and consumer costs, at least in the short term, they won’t add consumers or taxpaying citizens to the mix, meaning the social welfare and economic woes will only continue to grow for the U.S. and other countries facing super-aging societies.

Europe is confronted by this harsh reality now because they waited too long. The eurozone economy only grew by about 6% over the past 15 years compared to 82% in the U.S. All European nations now “face tough choices on raising the eligibility age or taxes or reducing the amount of the pension,” according to Frank Leyhausen, a leading expert in Germany’s aging population and founder and CEO of REIFEGRAD4. This has led to mass protests in some countries, including France.

Common ground for the future

It’s hard to find things that Americans agree on these days. Yet, according to a March 2023 poll by The Associated Press-NORC Center for Public Affairs Research, 79 percent of U.S. adults say they oppose reducing the size of Social Security benefits, and 67 percent are against raising monthly premiums for Medicare.

But let’s be real here: the solvency of these programs will not improve unless big changes are made and fast. Everyone needs to take responsibility, sacrifice a bit, and come together to renegotiate the social contract. But what does that look like in practice since there’s no silver bullet to solve our woes?

Here are three of the current proposals working their way through Washington:

• Increase the retirement age: There are a number of proposals on the table to raise the retirement age and cut social welfare benefits, including from Republican presidential candidate Nikki Haley who announced during the third primary debate, "We would change the retirement age so that it matches life expectancy.” While these proposals look good on the balance sheet, they would disproportionately impact low-income seniors and people of color since life expectancy for the bottom half of earners has barely budged in 40 years. The Center on Budget and Policy Priorities notes that “Black workers in particular still experience lower lifetime earnings and face an average shorter life expectancy than white workers.”

• Means-test benefits: Means-testing the benefits for income could also be part of the solution, although it's less discussed today than it was a decade ago. Advocates for this approach, like former presidential candidate Chris Christie, note that reducing or eliminating benefits for those whose income or assets exceed certain thresholds would help preserve Social Security. He believes that these programs should be a safety net for those who truly need it, noting in an interview with The Hill, “I’m sure he’s collecting it, but Warren Buffett does not need Social Security,”

• Raise taxes: Raising taxes on the rich has broad support and is a necessary ingredient for reform. According to Navigator, more than 8 out of 10 Americans support it. This consensus spans political affiliations, with 92% of Democrats, 74% of Republicans, and 72% of independents agreeing. Even among households earning over $100,000 annually, 77% support higher taxes on the rich and corporations over cutting social programs. President Biden supports this, noting in a White House address, “By asking those with the highest incomes to contribute modestly more, we can keep the Medicare program strong for decades to come.”

Personal responsibility

Securing the future of social welfare programs and the nation’s economic health requires more than policy fixes.

And, as it turns out, some moves are already happening, including on the workforce front, according to Kerry Hannon, retirement strategist and author of In Control at 50+. “Roughly 1 in 5 Americans ages 65 and older (19%) were employed in 2023, four times the number in the mid-1980s,” Kerry shared, “so, there’s a movement to extend working lives.” The Department of Labor further projects that the participation of older adults in the labor market will grow by nearly a quarter over the next ten years, signaling a cultural shift where more older adults want or plan to work longer.

Increased labor participation by older adults has a cascading effect on the economy because people who are earning are contributing to payroll taxes that support Social Security and Medicare. They’re also consuming, which means that their spending fuels economic growth and fills local and state tax coffers. An added benefit: they earn more from Social Security if they defer retirement, which gives them more money to spend when they do retire.

Work can also keep people mentally sharp and physically healthy. Research studies have shown that cognitive performance is lower in countries that have younger retirement ages, for example. A CDC study of 83,000 older adults further suggested that people who worked past age 65 were about three times more likely to report being in good health and about half as likely to have serious health problems compared to those who retired before 65. In short, working longer can lessen the burden on the healthcare system and Medicare, too.

But will the extension of working years be enough to close the solvency gap and prevent a drag on the economy? Probably not, but it's a start, and it’s already happening. It may just give our policymakers and the public enough time to come together and consider the options on the table in order to find a solution that not only protects social welfare but also grows the economy.

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