While we battle as a society to reshape ourselves to meet the challenges and grasp the opportunities that the new economy is throwing our way, we have been dealt with a historic demographic anomaly. The Baby Boom generation’s disproportionate size compared to the following generations (Generation X and Millennial), has caused a major issue in the world of public/private pensions and government social provisions.
Pensions are a major drag upon economic growth. This is because they are structured in a way to provide funds to those qualified (of age), while siphoning funds away from active employees and their employers. Across the board, public agencies are experiencing huge increases in the employer’s contribution requirement and, to a lesser extent, to the employee’s contribution amount. This reduces the employer’s ability to provide the service they are designed to deliver and reduces the buying power of the employee. The beneficiary of this shift is the retired person receiving the pension. In terms of economic growth, the conundrum comes from the fact that older populations are not prone to spending large amounts of money. In general, they are not buying new homes, starting a family, or launching new businesses. The trend for retired folks is to travel some and be conservative with the money they have. Why? Because they know end of life costs can be horribly expensive and they only have a finite amount of funds.
The arrival of Baby Boomers to the golden years of retirement and widespread dependence on pensions is a dangerous combination. Not only do pensions cause a number of economic drags, they also open society to significant turmoil, if a pension fund becomes insolvent. These risks are real and will likely be more apparent as we progress to the end of the current decade and into the 20’s.
We face a variety of economic hurdles. That is not to say that is opportunity is gone, but a number of factors exist that can mitigate economic progress. It is important to understand what dangers are present as we progress into the future. The new normal we hear of is getting long in the tooth, and it is not going to be supplanted by a younger fresher reality anytime soon.