Atlantic Monthly
State of the Union
January/February 2008

No Country for Young Men

The Baby Boomers’ retirement will change the texture of society in ways we’ve scarcely begun to contemplate. A dispatch from America’s coming silver age

by Megan McArdle

It is cliché to speak of sleepy little country towns, but my mother’s hometown goes beyond sleepy into Rip van Winkle territory. Newark, New York, has more churches than bars. Neat clapboards and stately Victorians line quiet streets wrapped tight around the Erie Canal. Drive through Newark quickly, and it looks like America’s past. Stay a little longer, and you begin to recognize it as our future.

Walk into one of those churches on a typical Sunday morning, and you will find only a few, startling islands of brown or blond hair amid a sea of gray. Almost 20 percent of the population is over the age of 65. (The town’s economic fortunes have declined along with those of the Erie, and many younger workers have left.) On the street where my mother grew up, and my aunt now lives, the only children you see are visiting their grandparents.

The former Midlakes Middle School, which sits in neighboring Phelps, has transmogrified into “Vienna Gardens,” a private independent-living facility where my grandmother now lives. The bones of the schoolhouse are still clearly visible under the carpet and overstuffed couches that line the halls; the residents take their meals in the cavernous former gymnasium. Vienna Gardens is home to 64 people, but the place has an empty feel. The rent is out of the reach of many of the area’s seniors.

Those seniors, eventually, may end up at the county nursing home. It is a new and lovely facility. But its supervisors are leery of slipping into the red; most of its residents are on Medicaid, and the program’s meager payments don’t cover costs. Any overruns would likely be made up through taxes, and the seeds of a tax revolt appear to be germinating. Local property taxes are already high: the school tax alone is 2.5 percent of assessed home value each year. Many of the town’s residents grouse about their tax bills. Local school officials are nervously eyeing nearby Monroe County, where the county executive wants to cope with budget woes by diverting school money into county coffers.

As Newark has aged, its commerce and the nature of its workforce have shifted. The Wal-Mart in town is busy, even on a weekday afternoon, and several local clothing stores have closed. While neither phenomenon is unique to Newark, the town’s aging has doubtlessly contributed to both: big-box stores appeal to the elderly not only because of lower pricing, but also because they put more goods in one place, enabling seniors who can’t walk far, or who have difficulty getting into and out of cars, to make the most of each shopping trip. At the local community college, new programs in health care are proliferating.

At a gala event held at the National Press Club in Washington, D.C., on October 15, Kathleen Casey-Kirschling— born one second after midnight on New Year’s Day 1946—became the first Baby Boomer to file for Social Security benefits. Over roughly the next 20 years, close to 80 million of her fellow Boomers will follow suit. By 2030, America will look like Newark. Almost one in five Americans will be in life’s golden years, up from about one in eight today.

A lot of op-eds have been written about what will happen when the Boomers retire. Like our policy debates, they tend to focus, somewhat remarkably, on accounting. Will the Social Security Trust Fund go bankrupt? Does the trust fund really exist? These questions are too narrow, and they don’t yield particularly useful answers. As Newark’s experience suggests, the retirement of the Boomers will transform the texture of our society. How will it change our economy, our culture, our politics? When it’s over, will America look better, worse, or just different?

Start with the stuff America makes, and the people who make it. Young people buy goods, like cars, houses, and iPods. Old people need services, like transportation, meal preparation, and health care. We have made great strides in enabling the elderly to get around—the scooters you see advertised on daytime television, for example. My grandmother, who is blind and physically frail, was able to live at home much longer than she otherwise could have because she had Meals on Wheels, a home health aide, and a Life Alert-type necklace to call for help in case she fell.

But these services require a lot of labor. According to an analysis by McKinsey Global Institute, the number of hours required to produce an automobile in North America fell by 1.7 percent annually from 1987 to 2002, to an average of about 100 hours. Meanwhile, it still takes about the same amount of time as it always did to drive a senior to a doctor’s appointment, or to help an older patient bathe and dress. Productivity growth is faster in the things that kids consume than in the things that the elderly need.

As the Boomers age, they will consume fewer of the things that we produce efficiently, and more of the things that we provide relatively inefficiently. Productivity is notoriously difficult to project, but many forces will be pushing it downward as the Baby Boomers age.

Since services are labor-intensive, and the number of service-consuming seniors will grow rapidly, we’ll need a lot more workers (that’s bad news for those who favor restrictive immigration policies, particularly the kind that keep low-skilled workers out). And, of course, the mix of service workers that we’ll need will be different from what it is today. In effect, the next 20 years will require a massive transfer of resources and people away from the care of children, who will decline in relative number, and toward the care of old people.

This rebalancing should have already started, but it hasn’t. Consider that approximately 29,000 pediatricians now work in the United States, caring for roughly 75 million children. To care for roughly half that number of patients over 65, the American Geriatrics Society reports, the country has only 7,128 board-certified geriatricians. Just 468 first-year fellowships in geriatric medicine were available in the 2006–2007 academic year; nonetheless, almost half of them went unfilled.

It’s not just doctors: according to the John A. Hartford Foundation, which promotes (among other things) geriatric-nursing education, fewer than 20,000 registered nurses and nurse-practitioners are certified in gerontology. Lower-skilled jobs in long-term care, such as certified nursing assistant positions, should theoretically be easier to fill, but several states report that shortages exist in these areas as well.

In part, this is a reflection of pay. Medicare, which bankrolls many of these services, pays for procedures, not outcomes. So surgeons do relatively well from Medicare, while geriatricians, whom you would think Medicare would want to attract, make around $160,000 a year. That’s hardly a poverty wage, but since physicians-in-training have other, better-paid options, it’s not surprising to see a shortage. Likewise for geriatric RNs; nurses are in demand nationwide, and jobs caring for the elderly usually don’t pay especially well.

But low pay is only part of the story. Almost everyone has heard a classmate or friend say they want to “work with children” when they graduate. When was the last time you heard someone say they wanted to “work with old people”? Children represent the future, and your own happy past. The elderly represent your own mortality, and your powerlessness to do anything but manage decline. This will be a major problem for the economy as our society ages. The nursing home in Newark pays a government wage, with government benefits, and in Newark, that’s good money. But it struggles with a shortage of RNs, while the local school district has no trouble filling slots.

Of course, if you raise wages enough, you’ll find more job-takers, and the shortages will eventually disappear. But that means higher health-care costs (more on this later). It also means more people taking work that they might find emotionally difficult and psychologically unsatisfying, predominantly for the paycheck. How do you tally the social costs of that?

Economic growth derives from a very simple formula; it is basically equal to the increase in the labor force, plus the increase in productivity (the amount that each worker can produce in a given time period). As noted above, the aging of the Boomers will likely dampen productivity growth. That’s too bad, because as the Boomers retire, growth in the labor force will also slow. In fact, if a sort of demographic perfect storm arises, the workforce may shrink.

For the past two decades, the United States has been in a remarkable sweet spot as far as labor is concerned. The number of annual births was well below the mid-century peak, and the number of elderly was limited by the low birthrates from decades long gone—those of the Great Depression and World War II. As a result, the share of the nation’s population in its working years was exceptionally high. The workforce was swollen further—massively so—by the movement of women into paid work, and the accelerating influx of immigrants. But the percentage of women in the workforce seems to be leveling off, and future immigration rates, given the growing political backlash against immigrants, are anyone’s guess.

Now come the Boomers, 80 million strong, merrily planning their retirements. Watching their generation move from childhood through adulthood and into old age on demographic charts is like watching a pig move through a python. Thanks to the Boomers’ retirement, by 2020, even if immigration continues at roughly its current pace, the workforce looks likely to be only a little bigger than it is today. If immigration rates were to decline precipitously, all else being equal, the labor force would be roughly 1 million people smaller than it is now.

Though we talk about the retirement of the Boomers as an impending event, it has already started. Participation in the workforce generally peaks between the ages of 40 and 44, declines slowly throughout the next decade, and then falls off a cliff. Millions of Baby Boomers have already left the workforce, and as more of them become eligible to collect Social Security, the process will accelerate.

Slower productivity growth and (in the best case) slower workforce growth mean sluggish growth for the economy. That, in turn, will have a host of consequences, ranging from the geopolitical (slower growth could hasten the relative economic decline of the U.S. versus China, India, and other powers) to the social (as the economic historian Benjamin M. Friedman argued in his book, The Moral Consequences of Growth, earlier periods of economic stagnation, stretching back to the 19th century, have typically sharpened racism, intolerance, and other unsavory tendencies). But the most visible consequence will probably be on the stock market.

At one point or another, you’ve probably heard the speculation that once the Boomers start selling their stocks and mutual funds to support their retirement, the flood of sales will cause the market to crash. That’s plain wrong: the Boomers were born over a period of 18 years, and they will retire over a similar span; moreover, most of them will not start cashing in their stocks immediately. Most people, evidence shows, wait to break into their 401(k)s until they have to. David Wise, the head of the National Bureau of Economic Research’s aging program, has, along with his colleagues, run multiple models looking at what will happen as the Boomers sell out, and he believes the effect will likely be modest.

But the outlook for equity markets is cloudy nonetheless. The problem is more basic: stock prices reflect both a company’s current earnings and its expected growth in earnings. A high price-to-earnings ratio means investors expect fast growth in future earnings. If you think economic growth is going to slow, the stock market looks overvalued today. Historically, stocks in aggregate have tended to trade at P/E ratios between 12 and 20. Right now, the P/Es of the three major indexes are on the high end of that range, implying the expectation of faster-than-usual economic growth. That sort of growth will be awfully difficult to achieve as the Boomers retire—and the problem could persist for decades. It is possible that, as the Yale economist Irving Fisher infamously said in 1929, “Stock prices have reached what looks like a permanently high plateau.”

Many analysts have joined the debate over whether the Baby Boomers have saved enough for retirement. Optimists tend to look at the amount Boomers have saved relative to their incomes, compared with how much their parents had saved at the same age. But Boomers are living longer, so they will need more money than their parents did. And even with the new prescription-drug benefit, they can expect to spend more on health care.

Perhaps most important, the Baby Boomers have fewer children. My grandmother has one daughter living nearby to help with shopping, another (my mother) overseeing her finances, and a third who is only a plane-flight away in case of emergency; when my grandfather was dying, my mother drove up to Newark for weeks at a time. My parents’ familial support network will be thinner: divorced and living in different cities, they will have to share the same two daughters. Given the vicissitudes of the modern economy, neither child may be living nearby when help is required. This is demographically typical, which means that not only will the Boomers be paying for help that family used to provide, they will also have fewer people to call on for financial assistance.

Despite all that, the Boomers themselves are remarkably optimistic about their prospects. A 2004 survey by the AARP showed that a solid majority are confident of their ability to prepare financially for retirement, which may be why 69 percent of them say that they are fairly or very optimistic about the future. More than 70 percent of them think that they will work at least part-time, but only a quarter expect to do so because they need the money; more are expecting to fulfill dreams of entrepreneurship or just to use work to break up the routine of grandkids, travel, and bingo.

These sunny views are reflected and amplified by the AARP, whose Web site paints a rosy picture of early retirement. And by some media outlets, including the newly launched Retirement Living TV channel (motto: “Inspiring your freedom years”), which features programs such as Retired & Wired, Living Live! with Florence Henderson, and Another Chance for Romance, which is billed as “the first dating show focusing solely on Baby Boomers.” (You must give the Boomers credit: their uncanny ability to focus solely on themselves, approvingly, appears undiminished by age.)

And there is cause for optimism, particularly for people planning their early retirement years, rather than confronting their later ones. I met a lot of these people in Newark. They were all terrifically cheerful, and why not? The kids were raised, they had a bit of money saved up, and the next few years looked good. Life expectancies for 65-year-olds have increased dramatically over the past 50 years, from about 14 years more in 1950 to just over 18 years more in 2001. These days, active life expectancy is increasing even faster. Twenty years ago, many patients entered the county nursing home near Newark in their late 60s. Now patients entering before their late 70s or early 80s are viewed as rare tragedies, brought low by some chronic disease like diabetes or kidney failure.

But the confidence of the Boomers in their finances is hard to justify, and seems to rely on some mystical alchemy of strong stock gains, housing value increases, and government largesse. The first, as we’ve seen, may disappoint. The second seems outright fantastic. As the economist Robert J. Shiller, author of Irrational Exuberance, has pointed out, once you account for inflation and home improvements, house values in the United States were typically pretty flat throughout the 20th century: the boom in housing that began in the mid-1990s is a huge historical anomaly. The Case-Shiller index, which tracks housing prices nationally, shows that despite a slight fall since 2006, prices are still more than double what they were in 1997, and have increased much faster than the growth in rents—a sign of unsustainable price growth. (And yet, Shiller’s surveys show that Americans still expect 5 percent or more in annual appreciation from their homes.) As for government largesse, Social Security typically provides just a little more than 40 percent of the average retiree’s income, yet the program’s finances are already strained.

Shiller more or less agrees with the 70 percent of Boomers who say they plan to keep working: he says they’ll have to. And while some, mostly affluent Boomers will surely find the work-as-personal-fulfillment that they expect—mayorships or artistry or part-time teaching; nonprofit work or light consulting as a coda to a successful business career; reinvention at 65—for a larger number, the destination is more likely to be someplace like Wal-Mart. Nationwide, that company employs hundreds of thousands of older workers, many of them retired from other jobs. The AARP’s list of elder-friendly companies leans heavily on temp agencies and retail establishments like Home Depot, Staples, and Walgreens.

If the Boomers really do work in large numbers, many ills will be cured. Contrary to stereotypes, seniors are valuable workers. Though research shows that some cognitive abilities, such as memory and calculation, can decline with age, seniors’ experience has generally endowed them with other skills, particularly “soft skills” like customer service and management. Later retirements by some workers would increase the size of the economic pie and ease the burden of providing for those who do retire. David Wise estimates that if the Boomers stayed in the workforce an average of five more years, by 2030 GDP could be 7 to 8 percent bigger than it otherwise would be. That translates into enough tax revenue to make a major dent in Social Security’s budget gap (though not Medicare’s much larger problems).

So the trillion-dollar question is, Will the Boomers really work in large numbers as they hit the traditional retirement years? Whatever they say beforehand, very few people over the age of 65 do. Labor-force participation rates among seniors are far lower than they were in 1950, even though life expectancies have risen. In 1950, almost half of all men over 65 were still working. Now, that figure is less than 20 percent.

Part of this is the result of pensions and Social Security benefits—and the decline of pensions, combined with low savings, will surely cause some rebound in senior work rates (indeed, a small rebound has already occurred). But it’s also the perverse result of a social bargain we’ve made with our workers: you accept slightly lower wages than you’re worth when you’re young in exchange for steady increases as you age. The problem is, this makes older workers expensive compared with young people, and harder to reemploy if they lose their jobs. Wages are what economists call “sticky”: they rarely adjust downward, except after long agony.

Somewhere around the age of 45 or 50, the experience of losing a job seems to change dramatically. Whatever the reason behind the job loss, long-term unemployment becomes a much more likely prospect. People older than this are sometimes unwilling to accept a new, lower-paying or lower-status position, even if that refusal causes substantial economic hardship. Instead, they may label themselves consultants and wait for a job comparable to the one they lost, one that, in all too many cases, never comes along; or go on disability; or simply exit the workforce altogether.

Accepting a lower wage feels too much like accepting a lower value on yourself—and for seniors and near-seniors, accepting that you have peaked economically. Even without age discrimination, this would limit the employment prospects of older workers. And both anecdotal evidence and government data suggest that age discrimination is a persistent ill.

One of the greatest challenges for the country will be creating good jobs for seniors, ideally ones closer to where they built their skills and knowledge than the aisles of Staples or Home Depot—ones in which they’ll be the most productive. There’s no national bureau that can bring about this change. It must emerge organically, from companies learning to accommodate their older workers on the one hand, and finding creative ways to mask or reduce the emotional impact of pay cuts on the other. And from changed expectations on the part of 60-somethings about career paths and hierarchy.

Until that happens—and even once it does—our politics are likely to be contentious, because to many people, spanning several generations, it may feel as if there’s not enough money to go around. And indeed there’s no getting around these facts: in 1945, the year before the Baby Boomers began entering the world, each retiree in America was supported by 42 workers. Now each retiree is supported by three. When the Boomers are fully retired, each of them will be supported by just two.

What happens when currently optimistic Boomers finally face the hard realities of their savings accounts? Will they ask for more from the government? At a bare minimum, seniors already struggling with their finances are not apt to look kindly on benefit cuts. Yet the cost of the benefits we’ve already promised them will weigh heavily on the workers expected to support a half-Boomer apiece.

Social Security is the comparatively easy problem to solve. It will go from consuming 4.3 percent of GDP in 2007 to absorbing about 6.2 percent in 2030. That’s a big jump—if the cost were spread evenly, it would be equivalent to about a 5 percent increase in payroll taxes for each worker—but by and large, the economy will be able to cope.

Medicare is a different story. Health-care costs now consume about 16 percent of GDP, but projections by the Department of Health and Human Services suggest that by 2016, that will have risen to almost 20 percent. Wise speculates that closing the Medicare budgetary gap would require a tax increase of something on the order of 8 to 12 percent of total payroll. That is a massive tax increase—$4,000 to $6,000 a year on a $50,000 income (again assuming the tax were spread evenly). Many economists and budget analysts have drawn up plans intended to fix Social Security, through some combination of benefit cuts, higher retirement ages, and tax increases. But almost no one claims to have any good ideas about Medicare.

Stories of America’s aging often unfurl like disaster tales, and I suppose this one has, too; it’s hard not to sound gloomy when looking at the various ledgers involved in the Boomers’ retirement. But as I walk along Main Street in Newark on a fall day, the statistics seem less oppressive. The town may be aging, and the economy falling behind the rest of the country, but people around me look about as happy as people everywhere else. Not only that, but their lives are still getting better.

Statistics can always tell two stories. If we catch criminals, incarceration rates will rise; if we cut infant mortality rates, education budgets five years later will show the strain. The statistics on America’s demographic transition are no exception. We are all, to be sure, going to die, but not as soon as we used to—and so our pension bill will rise. Medical science is improving by leaps and bounds, making us healthier and longer-lived—and so our health-care bills will grow. Technological progress will continue to raise our living standards and grow our economy as seniors leave the workforce—it’s only the rate of growth that will decline.

We should not look away from the darker side of life in an aging society. It would be better to avoid Newark’s problems: slow economic growth, a heavy tax burden, the political problems that come with dividing limited resources between young and old. There is still time for policy fixes (particularly in Social Security, Medicare, and immigration) to avert some of the worst problems, so it makes sense to focus on what, exactly, we are trying to avoid.

But it’s also worth remembering that the problems are only a part, and not the largest part, of life in Newark. Which, despite the problems, is still pretty good. Incomes may not be growing as fast as they once did, but Wal-Mart and the Internet make wages go farther than they used to. I am toting a new digital camera bought at the local Wal-Mart for less than my grandfather would have paid for a mid-range film model in the 1970s. And I have with me a lunch of fresh bread and artisanal cheese purchased at Wegmans, a supermarket light-years away from the TV-dinner-and-canned-soup horror of my mother’s youth.

Shopping is the least of it. Everywhere I go, I meet people who would never have lived so long if they’d been born a few decades earlier. Indeed, I’m one of them; I’d likely be deaf without penicillin for childhood ear infections, and dead without the albuterol inhaler that was only approved in the U.S. in 1981. Western New York is not the mighty economic colossus that once let Buffalo boast more millionaires per capita than any other city in America, but it is still a better place to live in now than it was then. And it is getting better all the time.

That, too, is our future. Aging will make the economy grow more slowly than we would like, and probably more slowly than we are used to. Social Security and Medicare will almost certainly be financed by a combination of benefit cuts, increased taxes, and higher retirement ages—which means that all of us will work longer than we want to, and pay more in taxes than we have before.

The political battles over all of this will be bitter, and they will probably be, too often, won by the retirees, who vote in force (though not always as a bloc). Those same retirees may also vote against things that are actually in their interest—thus shutting out the immigrants who could help them stay at home, and out of the nursing home, longer; turning down school taxes that could create a more productive workforce to support them; fighting for zoning restrictions that make it harder for the low-income workers who provide their services to live within easy commuting distance.

But if we will be worse off than we could be in an ideal world, we will still be better off than we are now, workers and retirees alike. We’ll not only be at least somewhat richer; we’ll also have years and years more to enjoy our health and wealth. The past in Newark is lovely, but the future, while not without its blemishes, is likely to be better still.