Your financial future: Aging workforce straining system
This week, we saw large-scale rioting on television that is happening in France. The president is trying to raise the official retirement age from 62 to 64. People are protesting in the streets and trying to put pressure on the government to stop the change. They feel that the rules are being changed in the middle of the game.
France is facing a problem that the United States, Japan and many other industrialized countries are facing. Populations are aging. Policymakers must deal with a decline in working age population, increased health care, unsustainable pension commitments and changing needs from younger citizens. In 17 of the biggest of these countries, over 20% of the population is 65 or older.
Changing characteristics in population is not a new problem. In the U.S. and many of our allied countries, there was a baby boom after the soldiers came home from World War II. As the babies aged, cities had to build new schools, the suburbs grew in population and many new products such as disposable diapers were created. Stores stocked sports shoes, clothing, furniture and things to supply growing young families. The station wagon became a popular car. Later, colleges and universities expanded to meet increased demand. As the population ages, the demand for some of these products lessens.
Now, every day, 10,000 baby boomers turn 65 in our country. Since seniors often use more health care, this puts more pressure on Medicare and the health care system. Because of better medicine, life expectancy has increased, which further increases demand.
The aging boomers are also putting pressure on the Social Security system. It was always a program where currently employed people paid the benefits for those retired. Now the ratio of these two groups is reversing.
When people retire, they stress public social systems because they often transition from taxpayers to government consumers. Since we have a progressive tax system, they pay lower tax rates than they did while working. Also, their full-time exit from the work force can cause employee shortness, as we are now experiencing, and lead to increasing wages. This is one of the contributors to inflation. That can lead to a drop in gross domestic product and a slowing of the economy. So many parts of the financial world are interconnected and there are not simple solutions to these problems.
Change will not stop anytime soon as the financial world revolves. We are now seeing many more “gig workers,” such as Uber drivers and home delivery private contractors in the workforce. How will retirement be funded for these people who are self-employed? We need to have an immigration system that allows younger workers with needed skill sets to become part of society.
We need to train current workers with the right skills and equipment to provide needed goods and services. The industrial revolution changed the way things were manufactured from small specialty shops to large factories. We need to discover what will be the changes for the wave of the future.
We will get there, but there may be many bumps in the road, such as the one occurring now in France.
Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, “Your Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.”
If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.