Baby Boomer Retirements Affect Entire Economy

January 18, 2013 ( - The mass of Baby Boomers retiring and their potential lack of adequate savings will present challenges for the whole economy.

Baby Boomers, born between 1946 and 1964, began to reach their full retirement age of 66 in 2012, according to a recent report titled “Potential Macroeconomic Consequences of an Aging Population with Insufficient Savings” by asset management firm Manning & Napier. This generation’s aging will be a central issue over the next several decades, as the Census Bureau projects a doubling of the age 65 and older group between 2010 and 2050.  

The economy’s growth will be hindered as Boomers age and move out of their prime spending years. To compound this problem, many Boomers have insufficient savings, higher health care costs and longer life expectancies. Headwinds resulting from this aging generation could come in the form of decreased economic output and productivity, as well as a strain on government entitlement programs because of an increased demand from the demographic shift, the paper says.

Medicare as of 2009 only covered 59% of health care services costs for beneficiaries ages 65 and older. Out-of-pocket covered 13%, private insurance 14% and a mix of Medicaid, Tricare and other sources made up the remaining 14%. “Longevity is posing a challenge, and health care costs have been outpacing inflation,” Mary Moglia-Cannon, senior analyst and portfolio strategist at Manning & Napier, told PLANSPONSOR. “The savings are really needed for long-term care and premiums.”

Manning & Napier’s paper outlines several things to watch for as the Baby Boomers begin retiring:  

  • “Dependency ratio” – As Baby Boomers retire, the dependency ratio (ratio of the retiree-age population to working-age population) will increase as the population of those older than 65 expands more quickly than the working-age population.  
  •  Prime spending years – The number of people entering their prime spending years (ages 35 to 54) does not make up for the number leaving. The 40 to 49 age cohort is projected to have negative growth over the next 10 years. To add to the problem, the Baby Boomer generation leaving their primary spending years may affect the economy more than the generation before them because, as Moglia-Cannon put it, “Baby Boomers were notorious for consumption.”
  • Labor force productivity - Companies are facing pressures due to the aging Baby Boomers, both in terms of labor force productivity as well as changes in consumer spending patterns. 
  • Economic effects - Although the slower growth in the working age population could lead to wage growth and a decline in unemployment, it also has the potential to lead to inflationary pressures. The upside is that immigration could change what seem to be well-defined demographics for the next few decades. 
  • Investment implications - As the mix of Baby Boomer purchases change, so will the beneficiaries of their spending. Investors need to be mindful of the fact that industries that were beneficiaries of this tailwind in the past are likely going to encounter demographic headwinds going forward. 


The full paper from Manning & Napier can be accessed in the Insights section at