well good afternoon everyone I’m an
economics professor here at johns
hopkins and as such i wanted to talk to
you about what is probably the single
largest most serious economic challenge
probably of our time and certainly for
your generation and that is the aging of
our population over the next few minutes
I want to talk to you about I can figure
how to get my clicker to work over the
next few minutes I want to talk to you
about how America as a society is
getting older about how that aging if we
continue on our present course is bad
for retirement security harmful for the
federal budget and fiscal policy and
ultimately slows economic growth and
then so this isn’t all about the dismal
science I want to give you an optimistic
note of how instead of aging as we are
today we can age gracefully and instead
of economic decline age for gracing
graceful aging can lead to actually more
vibrant economic growth more vibrant
retirement security in the future so
first of all it’s abundantly clear we
know the demographics America is getting
older looking just back to nineteen
eighty there was just over 20 million
people above the age of 65 in the United
States now there was only 20 million
senior citizens of the United States
today it’s more like 50 million and as
we project forward we’re headed towards
100 million and not only are the number
of seniors growing but their age is
rising as well if you just look at the
chart behind me you’ll see the number of
folks that are above age 75 above age 85
even above age 95 is increasing as a
share of the elderly population now
there are a few things driving this one
is we’re living longer how many folks
know what the life expectancy was when
the Social Security Act was passed in
1935 it was aged 65 it was actually a
normal retirement age at the time if we
go back to 1900 over a hundred years ago
the average life expectancy was only
around 50 the average life expectancy
for those that reach 65 and that wasn’t
all that comment was only about 77 years
old today the average life expectancy is
is 80 and if you’re lucky enough to live
to 65 the
life expectancy is 85 people are
spending 20 plus years in retirement and
every year and this is a good thing by
the way every year that life expectancy
is growing every year we’re living
longer every generation is living longer
than the one before it but by the way as
we’re living longer we’re not working
longer in fact is as we look over time
we see that we’re living longer and
longer and we’re retiring earlier and
earlier the most common age people
retire is now aged 62 the most common to
just 62 that’s the first time you can
collect Social Security now some folks
retire at 65 when you can collect
Medicare some folks retired 66 or 67
Social Security’s normal age but on
average people are retiring at 63 63 is
the average retirement age that’s way
down from even 30 40 50 years ago as
we’re living longer we’re retiring
earlier and here’s the kicker not only
are we living longer and not working
longer but our fertility is weighed out
so previously yes we were living longer
but we were always having more kids more
workers to replace the old the older
ones we’re always having more people
coming after the generation in order to
fund our economic growth in order to
fund our senior citizens historically
the United States in the United States
couples have had about three kids per
couple writer there’s been about three
kids born for every woman that’s above
replacement that’s it that’s a level of
fertility that allows for economic
growth and that allows for population
growth briefly after World War two we
had a baby boom the baby boom population
and we were having about four kids for
every couple but since then things
crashed right and basically since the
baby boom population came into this
world that fertility rainy night States
has averaged right around replacement
level which is two people for every
couple that means for every one person
they’re going to have one kit that’s
enough to keep our population stable but
it’s not enough to keep it growing
growing population of workers to pay for
our seniors add all this together and we
have a situation where our dependency
ratio or our senior dependency ratio is
declining over time just looking at the
Social Security system back in nineteen
fifty we used to have 16 workers paying
in
for every retiree pulling out for every
retiree receiving benefits but fast
forwarding to 1960 when the program is
more mature we’d five workers paying in
for everyone retiree receiving benefits
that meant that each of us in this room
would have to pay twenty cents in order
to give one dollar to a senior that’s
not so bad twenty cents out of your
income for a dollar of senior income
today there’s only three workers for
every retiree which means that each of
us has to contribute thirty-three cents
for every dollar a senior receives and
over time by 2035 there’s only going to
be two of us paying for every senior in
other words two people have to split the
cost of the senior that’s fifty cents
each of us have to contribute just for a
dollar of senior income this declining
ratio of workers to retirees is
problematic for a lot of reasons and it
brings me to my next point which is
aging is bad for economic growth aging
is bad for society we need to do
something about it first of all our
population aging not death panels but as
there are other options we’ll talk about
first of all population aging is
problematic for retirement security if
people are living longer but they aren’t
working longer it means they have less
savings available to finance their
retirement your choices then are you
need to either consume less during your
working life and then save more or you
need to stretch the same amount of
savings over more years it’s a lot
harder to retire for thirty years than
415 you need a lot more savings to do it
secondly our aging population is
seriously problematic for our national
debt so today in our new president
entered office with a higher debt
relative to the economy than any
president besides Harry Truman right now
dead is seventy-seven percent of GDP
which is a record other than during
World War two overtime its projected to
double by 2050 even under current law we
expect it to double as a share of GDP
this is more than entirely driven by the
aging of our population it’s more than
entirely driven by the rising cost of
Social Security which is our senior
retirement program and Medicare which is
our senior health program in fact if
those two programs just grew at the pace
of economic growth we would have the
declining debt ratio fiscal policy the
united states would be stable and this
isn’t just
a problem for the debt it’s a problem
for these specific programs social
security in particular is self financed
people pay your payroll tax into Social
Security and then other seniors receive
benefits from that trust fund in the
past especially in the 90s we had more
paying in than we had pulling out we had
the baby boomers in their prime working
years contributing payroll taxes and a
relatively small senior population so we
built up a surplus built of a trust fund
about three trillion dollars now every
year we’re drawing from that trust fund
by sometime between 2030 and 2035 that
trust fund is going to be empty there’ll
be no money left in it at that point the
law says every one of the program
doesn’t matter if you’re rich or your
poor doesn’t matter if your age 62 or 92
everyone in the program sees their
benefits cut immediately by twenty
percent now we can prevent that but to
prevent that we basically need to make
adjustments equivalent to over 11
trillion dollars in today’s dollars
that’s our unfunded obligations all of
this to address the effect of the aging
population on the Social Security system
and perhaps most importantly as we age
we’re experiencing a permanent slowdown
in economic growth historically there
have always been booms and busts but the
United States on average has grown about
3% from year to year half of that was
labor force growth 1.5 of that three
percent was the fact that each year more
people were entering the labor force or
working more hours now we’re only
projected to see that labor force growth
at half a percent a year so instead of
one and a half percentage points growth
from labor force we’re getting half a
percent and that means our economic
growth is going to slow and in fact
already has slowed from three percent
year to year to two percent now that
might seem like a small difference but
over time it accumulates and it’s quite
significant it could be the difference
between a prospering society and one
that’s just holding on luckily it’s not
all bad news just because demographics
is destiny we can’t stop aging but what
we can do is address it what we can do
is learn to age gracefully and I would
propose a three-part plan that will get
us most of the way there part one is we
need to reform our immigration laws part
two we need to fix of Social Security
and part 3 perhaps most importantly we
need to change the way we think about
retirement we need to change our
retirement culture so let me go through
these in order very quickly first of all
if your problem is you have too few
workers for retirees part of the
solution should be to try to have more
workers per retiree we could do that the
old-fashioned way but that requires a
big boost in fertility and then to wait
18 to 30 years before we actually get
the labor participation right a much
quicker fix for this is to increase the
number of especially young and
especially skilled immigrants coming
into this country but to increase the
total number of immigrants this will
boost economic growth this will secure
or this will strengthen our trust funds
this will improve the debt situation and
this will help to rebalance our
demographic situation in the immediate
term now I want to be careful this is
not a permanent solution because
remember if we bring young workers in
eventually they too were going to be old
eventually they too will be on the wrong
side of the dependency ratio but what
immigration reform can do is buy us time
is buy us a more gradual transition to
the young population we used to have to
the older population we’re already
starting to have so immigration is step
one but step two is we should be
treating basically the biggest symptom
of our aging population which is the
decline and ultimate insolvency of our
social security system the thing is
fixing Social Security is actually
incredibly easy if instead of speaking
about aging I just negotiated with all
of you a social security reform plan in
my 18 minutes we’d have about 14 minutes
left to spare okay you go to Social
Security reform org you can design a
Social Security reform plan there’s only
a few lovers we can boost the social
security retirement age we can slow the
benefit growth maybe just for higher
earners who don’t need it as much we can
increase the amount of income coming
into the program maybe by increasing
income subject to the social security
payroll tax cap the solutions are pretty
straightforward the politics are really
hard but I promised if our politicians
come together and agree on some
compromise a I think they’re gonna get
more thumbs up the middle fingers as my
old boss L Simpson used to say but be
the economic benefits will be huge no
longer will we have an
solvent social security system no longer
will we have a rapidly rising debt and
on top of all of that workers will have
clear signals about how much to work how
much to save and invest and how to plan
for their future right now they have
none of that that brings me by last
point which is we need to start
rethinking retirement the old way of
retiring was got a job at age 20 or so
you worked until age 63 or so and then
you retired into something completely
different you know you moved to Florida
or you moved into a smaller home that
doesn’t work anymore that’s that’s that
makes sense in a manufacturing economy
that’s not very dynamic it doesn’t make
sense in our modern economy that’s
increasingly both service and
information based doesn’t work in our
uber economy where you can have ten jobs
or one job it doesn’t work in an economy
where people can move fluidly from job
to job and don’t even have to be in the
same physical location we need to
rethink retirement yeah some people
should still retire at age 62 or 63
maybe earlier others could stay at their
exact same job until age 70 or 75 or 80
and if they’re happy doing that we
should be encouraging them to but
there’s a bigger group of people that
fall into need these neither category
neither do I want to quit exactly at age
62 nor work until 150 years old right
there’s other options though you can
transition into retirement phased
retirement maybe you switch from
full-time to part-time you can move to
consulting you can retire then come back
you have an encore career have a
consulting career there’s no reason
retired firefighter can’t open a bar or
become a bartender there’s no reason
that a retired real estate agent can’t
teach at a community college teach
business at a community college there’s
no reason that somebody that’s been a
mechanic for their whole life can’t
start doing aviation consulting we need
to stop thinking of the labor force is
one fixed job with one fixed choice do I
work or do I not work and start thinking
about it as a breadth of choice where
each individual makes the best decision
for them and our economy and our
economic policy welcomes those decisions
now if we can do that I suspect one
people will work longer and I suspect
they’ll work longer in much more
flexible ways and the benefits of that
would be huge first of all we see a big
uptick in economic growth these are
estimates from the Congressional Budget
Office this is basically the official
scorekeeper of the united states
government and they say if everybody
just works one year longer the economy
will eventually be two and a half
percent larger if everybody works three
years longer the economy will be seven
percent larger and remember this doesn’t
have to happen all at once this can be a
gradual change secondly working longer
is good for workers the longer you work
the fewer years you’ve got to take care
of yourself in foreign retirement and
the more savings you will have to do so
with again these are some estimates of
how much money you’d have if you just
put a typical amount into a 401k say
5,000 a year depending on your age of
retirement if you’re tired at 62 you’d
basically be able to spend twenty six
thousand dollars a year that would be
your income if you just retired at 66
you’d be able to spend thirty five
thousand retiring later is good for
workers at least for workers that are
able and by the way the literature on
this they’re not Universal all points in
one direction which is that working
longer and working in more flexible ways
is good for folks wealth it’s good for
their health and it’s good for their
happiness there’s one study that
basically says if a worker works a year
more they can spend ten percent more
each year for the remainder of their
lives that’s a much happier retirement
right ten percent more they actually
looked at low income seniors and found
it was more like fifteen percent more it
also turns out we’re healthier when we
work longer both mentally and physically
and were happier we’re more satisfied
when we worked longer humans weren’t
meant to do the same thing their entire
life and then just one day stop right
humans are dynamic and we live in a
dynamic society we’re meant to be able
to fulfill our to use our skills to the
best of our ability and to fill our own
goals of happiness that doesn’t happen
with some binary retirement system this
is the good news the good news is
there’s a win-win here right if we think
the way we retire if we fix our social
security system we increase immigration
to manage the transition we don’t have
to have economic decline we can age
gracefully
and we can achieve economic prosperity
thank you very much [Applause]