NCPA - National Center for Policy Analysis

Cost of Aging Rising Faster than Expected

April 17, 2012

The cost of caring for aging baby boomers is already beginning to strain government budgets, particularly in advanced economies where by 2050 the elderly will match the numbers of workers almost one for one.  But a new International Momentary Fund (IMF) study shows that the longevity issue is a bigger risk than thought, says Reuters.

As people begin to live longer (a phenomenon that routinely is underestimated by analysts looking to the future), costs for governments around the world of caring for the elderly will increase substantially.

  • If everyone in 2050 lived just three years longer than now expected, society would need extra resources equal to 1 to 2 percent of gross domestic product (GDP) per year to care for them.
  • For private pension plans in the United States alone, an extra three years of life would add 9 percent to liabilities for pensions alone, not including health care.
  • The IMF estimates that if advanced economies were to plug this shortfall in pension savings, they would have to stash away the equivalent of 50 percent of 2010 GDP and emerging economies would need 25 percent.

Continual advances in medical technology have largely prevented increases in life expectancy from flattening out in developed countries.  Furthermore, emerging economies face rising standards of living and the expansion of health care, which also are adding to lifespans.

This news comes at the same time as countries both developed and emerging ready themselves to deal with demographic changes that will leave a smaller workforce to support a larger elderly population.

  • The proportion of the population that is over age 65 is expected to increase from 24 percent currently to 48 percent by 2050 for all advanced economies worldwide.
  • For emerging economies, their old-age dependency ratios are expected to rise from 13 percent today to 33 percent by 2050.

Governments can take a number of steps to ease this transition and lower the burden that the elderly will place on their economies:

  • Raise the retirement age.
  • Increase taxes to fund public pension plans.
  • Lower benefits.
  • Educate current workers on how to save for retirement on their own.

Source: Stella Dawson, "Cost of Aging Rising Faster than Expected: IMF," Reuters, April 11, 2012.

For text:


Browse more articles on Tax and Spending Issues