Retiring seniors may adversely impact the economy by reducing the size of the available labor market. Governments may want to increase immigration to relieve pressure on the shrinking labor force.
As seniors will not be working and will be living longer, they will increase the burden on social welfare and healthcare. A large portion of retirees have little or no savings for retirement. Without a savings retirement account, private pension or inheritance, many older persons must rely on social welfare. Governments may have to raise taxes to fund the growing social welfare entitlements.
Many retirees reduce the size of their stockholdings into cash or bank deposits to reduce their risk exposure to fluctuating markets. This may cause stock markets to run-out-of-steam and not provide adequate investment returns for other investors.
Who Are the Retiring Seniors – Baby Boomers?
The world went through a period known as the ‘baby boom’ after World War II, where birth rates increased for about two decades, from 1946 to 1966.
In 2011, the first “baby boomers’ reached retirement age.
By 2031, all the “baby boomers’ will have reached retirement age. Over 20% of the population will be 65 or over, which means they will be retired and eligible for social welfare. Some may still go to work because they have not saved enough for retirement. Others who are no longer working put an extra burden on the government’s budget.
Working-age Population Will Decrease
As more seniors retire, a smaller portion of the population will be working-age members of the labour force. Public services will be funded from a smaller tax base to meet their obligations for a larger senior population that continues to increase.
Working-age Population May Have to Pay More Taxes
Some economists worry that the higher proportion of retirement age persons will put extra strain on Medicare and social security pensions. Governments may have to raise taxes to fund the growing social welfare entitlements. This would be an extra burden on the working class to pay for baby boomers.
Retiring Seniors May Cause Labor Shortages
As more people reach retirement age than ever before, there will be a smaller workforce. Employers may find it difficult to find new employees to fill vacant positions. Some specialized skill sets may completely disappear from the labor market leading to a change in the way work is performed.
Shortages of labor could lead to slowing economic growth. Some industries would be driven offshore to second and third world nations where there are more young people available for work.
Seniors Decrease Spending in Retirement
Once someone retires from work their income stream dramatically reduces and they must cut their expenditure to match. Some economists forecast that this decrease in spending will be detrimental to economic growth. Retirees tend to hold on to savings in bank accounts to provide their financial security rather than spend money.
Retiring Seniors May Impact the Economy by Selling Stocks
Seniors reduce their stock holdings and move to safer assets like cash and bank deposits. Some tax laws encourage or enforce retirees to withdraw investments from tax-advantaged retirement pension accounts. The result is a reduced demand for stocks which could depress the stock markets into a phase of low growth.
Health Costs May Rise with Increased Demand
As more people reach retirement age and live longer, the demand for healthcare increases as older persons require significantly more healthcare than young people. There will be an increased demand for healthcare professionals and facilities to cope with the increasing aged population. The increased demand will cause the cost of healthcare to rise. This may impact retirees’ ability to spend money in other sectors of the economy.
Retiring Seniors Don’t Have Enough Savings
A large portion of retirees have little or no savings for retirement. Without a savings retirement account, private pension or inheritance, many older persons must rely on social welfare. Some “baby boomers” may never be able to stop working as they would never be able to save enough money for retirement.
Millennials Will Not Reach their Retirement Goals
Retirees May Live Longer than Previous Generations
“Baby Boomers” are expected to have a longer life expectancy than their parents. Retirement will be long and expensive. Retirees will require more money invested to last a longer time span than generations before them.
Governments need to factor into their budgets that social welfare will be required for longer periods of time and retirees will need more healthcare for longer.
Retiring Seniors May Impact the Economy by Creating Inequality
As retiring seniors live longer and retain more wealth they could create generational inequality by not passing on their wealth to their children. Older generations control and own most of the world’s wealth.
Many younger people never afford home ownership or accumulate wealth until they receive an inheritance from their parents. If “baby boomers” live into their 80s and 90s their children may not receive an inheritance until they are in retirement. This may further burden the social welfare and healthcare systems.
Seniors may live so long that their grandchildren need to take care of them reducing the available labor force and limiting tax-paying workers.
Property Boom Makes Homeowners Rich
How to Prevent Retiring Seniors Impacting the Economy
Many politicians and economists want to utilize immigration to relieve pressure on the shrinking labor force. However, it is challenging to find young, skilled workers from other countries that fit into our society. Increasing immigration introduces new issues and exacerbates existing problems such as demand for housing, healthcare, education, and extra traffic congestion.
Governments could reduce tax on interest income and stock dividends for seniors. Maybe make the first $5,000 of interest income and dividends tax free. Maybe cap the tax rate on the balance of interest income and dividends. This would encourage retirees to remain invested in stocks and hold smaller cash savings accounts.
Automation and new technology could reduce the pressure on the labor market by decreasing the requirement for staff in certain industries. Driverless cars, advanced robotic manufacturing, electronic paperless transactions, online banking, and many more new methods of working will shift the labor force into other jobs. There may naturally be less demand for labor in the future.