The Economics of Aging
Wise, David A., NBER Reporter
Population aging, early retirement, limited but increasing retirement saving, more expensive medical practice patterns, and an established national entitlement to income and health care support after age 65--all of these factors largely define the economic environment of the United States (and much of the world) at the beginning of the 21st century. Over the past 30 years, life expectancy has increased from age 71 to age 77, while the most common age of retirement has decreased from age 65 to age 62. Retiring at age 62, the typical American retiree today faces another 20 years of living, consuming and, at one time or another, and in many cases regularly, needing expensive health care services. These trends already have placed significant financial pressure on the public and employer-sponsored programs that provide income and health care support to older Americans.
Meanwhile, the massive demographic bulge in the population--the baby boom generation--begins turning age 62 in 2008. Going forward, the number of Americans age 62 and older is projected to double from 40 million today to 80 million 30 years from now, while the working age population is projected to grow by just 12 percent over the same period. Compounding the demographic situation is the continuing rise in medical costs. National health care expenditures have grown from $250 billion annually in 1980 to $1.4 trillion today, and show little sign of slowing down. The combination of economic, labor market, health and demographic trends points to any number of social and economic challenges in the decades ahead. Understanding the complexities of this situation, and the relationships between demographics, policy, behavior, economics, and health--this is the substantive aim of the NBER Program on the Economics of Aging.
Begun in 1986, the Aging Program has developed primarily around large, coordinated research projects that simultaneously address several interrelated issues in the economics of aging. Extensive funding for the program has been provided by the National Institute on Aging (NIA), both through multiple research grants and through a Center grant, which provides centralized infrastructure support to the program effort. NIA also has supported our efforts to engage new investigators in studying issues in aging, and at least a dozen graduate students and post-doctoral research fellows become engaged in the program each year through NIA fellowships. Many more become engaged as research assistants on project grants. A number of smaller "exploratory" projects on issues in aging are supported through the Center, as well as projects that integrate related components of the overall research effort. More than 100 papers are completed annually by participants in the NBER program. Some of these also appear in a series of books published by the University of Chicago Press. (1)
The Economic Circumstances of Older Americans
Personal Retirement Accounts
A major theme of the Aging Program since its inception has been to better understand the economic circumstances of older Americans. A key fact from early project work was the very small amount of financial assets of most retirees in the United States in the early 1980s and the overwhelming reliance on Social Security, and in some cases firm pension plans, for financial support in retirement. But over the last two decades, there has been a dramatic transformation in the magnitude of saving that is taking place in personal retirement accounts, such as IRAs and 401(k) plans. Now about 85 percent of contributions to retirement plans are to personal accounts. In decomposing trends in plan eligibility, participation given eligibility, participant contributions, and aggregate wealth accumulation in personal retirement accounts, and in projecting the future of these trends, James M. Poterba, Steven F. Venti and I have confirmed the potential of 401(k) plans to significantly alter the financial circumstances of individuals retiring in the future [W8610, W6295, W5762]. …