From the August 2008 issue of Boomer Market Advisor • Subscribe!

August 1, 2008

More boomer myths busted

Much has been written recently about the impact of boomer retirement on the country's overall economic health. Dire predictions of stock market redemptions and a mass workplace exodus are now commonplace. But are they accurate?
Russell Beland knows a thing or two about the impact of manpower on production and overall economic health. The deputy assistant secretary of the Navy for manpower analysis and assessment wrote a piece recently for The Washington Post that debunked more myth surrounding boomer retirement.

Myth 1
As boomers quit working and ease into their golden years, they could break the backs of the younger workers who will have to support them.

Not so, writes Beland. Even at the peak of boomer retirement, around 2030, most of the population will still be of prime working age, between 20 and 64. The percentage - about 55, according to the Social Security Administration - will be lower than it is today (59 percent), but above the levels of the 1960s and '70s. And don't forget that women have entered the workforce in staggering numbers over the past 40 years.

Myth 2
We're running out of time to fix senior-citizen entitlement programs before a crisis strikes.

Actually, we're out of time, Beland dryly notes. If it were politically impossible to solve this problem when the number of retirees was comparatively small, there's no chance for a major fix as the ranks of the elderly - and their political clout - grow. There may be some minor changes in the way benefits are taxed or adjusted for inflation, but he notes it's already too late for any big fix.

Myth 3
Boomers' retirement will be bad for the economy.

Not really, according to Beland. It'll be bad for the federal budget, sure, but it will actually be good for the economy as a whole. As retirees, boomers will continue to buy goods and services, but they won't be competing for jobs. This will tend to push wages up, keep unemployment low and boost demand across the board.

Myth 4
Politicians know what needs to be done; they just lack the will to do it.

Beland says this gives politicians too much credit. They may lack the will, but they almost certainly have no idea what needs to be done. Estimates of future Social Security and Medicare spending are based on complex economic and demographic models that are quite sensitive to even modest changes in key assumptions. No one really knows the size of the problem facing the federal budget, and very few people understand all the moving parts.

Myth 5
Saving the budget will require either major reductions in the old-age entitlement programs or major tax increases - or both.

Actually, probably none of the above, writes Beland. Unless there are major changes in benefit rules or in the population, spending on Social Security and Medicare will grow dramatically over the next few decades. But many economic changes are likely to mitigate the effects on the budget. For example, as the workforce shrinks, the demand for labor will grow, pushing up wages and thus increasing payroll taxes, giving the government more income. Higher wages mean that more people are likely to choose to work, and to work longer before retiring. These changes, and many others like them, are likely to offset most of the increases in costs.

The full article is found at www.washingtonpost.com.

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