NCPA - National Center for Policy Analysis

Same Old Question: How Can U.S. Fund Retirement?

December 17, 2002

Old or young, we've all heard warnings that a war of the generations lies ahead over the high cost of financing retirement in an aging society. While European economists are preparing for the worst in countries like Italy, France and Spain, Gary Burtless, an economist at the Brookings Institution, however, sees a brighter prospect for the United States.

Among his observations:

  • Yes, we are getting older. Today, people age 65 and older account for 12.4 percent of the population. By 2050, that figure will exceed 20 percent.
  • There are four workers for every retiree today in the United States. By 2040, it's expected there will be two workers per retiree.
  • But the burden of dependents - both old and young - for each U.S. worker peaked in 1965, he said, and today it's only half that level.
  • In 1965, there were far more children. There were 95 Americans either under age 20 or over age 64 for every 100 working-age adults. That's nearly one worker per dependent, the same ratio that's causing economists to conjure doomsday forecasts for Italy's future.

These numbers suggest the solution for Americans is to take the savings from having fewer children and apply them to retirement. That spares younger American workers from the sort of tax hikes that confront their Italian counterparts.

"We can afford to continue retiring at the age we're retiring, if we want to devote more of our income before we retire to supporting ourselves after we retire," Burtless said.

The logic is familiar. It's the basis for 401(k) retirement plans, which offer tax-deferred treatment for retirement savings. Instead of relying on Social Security, where today's workers pay for today's retirees, workers could save for their own retirement.

Source: Jim Landers, "How Can U.S. Afford to Fund Retirement?" The Dallas Morning News, December 9, 2002.


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