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Aging Population Poses Global Challenges

In contrast, federal spending on children will only inch up between 2000 and 2010, to $229 billion -- or 9.4 percent of the budget -- from $148 billion, or 8.4 percent of the budget. As a percentage of the gross domestic product, federal spending on children will have stagnated, while spending on the elderly will climb steeply.

"The issue has to be seen in the context of what are the needs of the larger society," the Brookings Institution's Sawhill said. "Where do we want to put our resources? The elderly versus the young is the question to be debated."

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Transcript: The Washington Post's Jonathan Weisman answered questions on his story on an aging planet.
A Graying Population As the U.S. population grows considerable older in the coming years, programs for the elderly are projected to consume an even larger share of federal tax dollars.
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All of that spending on the elderly has had an effect. The income of households age 65 and older has risen by more than a third since 1975, while incomes of households under 45 have stagnated, according to the Concord Coalition, a nonpartisan budget watchdog. The elderly, once mired in poverty, now have incomes nearly on par with the national average.

"Should age itself entail an entitlement to public subsidies?" asked CSIS's Jackson. "That may have made sense in 1935 or 1965, when age was a decent proxy for poverty and class, but it doesn't anymore."

As it begins to confront the costs of an aging population, the United States is in far better shape than most of the developed world. By 2040, 26 percent of the U.S. population will be at least 60 years old, up from 16.3 percent in 2000, according to CSIS. But that will make the population relatively spry. At least 45 percent of the populations of Japan, Spain and Italy will be 60 or older by then. In each of those countries, there will be one retiree for every worker.

China, seen by some as the rising economic power on which other countries will be leaning by mid-century, will be grappling with a demographic problem of its own. By 2040, 28 percent of China's population will be at least 60, a higher percentage than in the United States, and because China has a thin social safety net, the burden of an impoverished elderly class could be especially acute, according to a CSIS study on China's aging problem.

Those countries' misfortunes will be shared by the United States, according to the McKinsey Global Institute, the think-tank arm of consulting firm McKinsey & Co. Since the 1980s, spendthrift Americans have forced U.S. companies to turn to the savings of other countries, especially Japan, for the capital needed to expand and improve productivity. But as people in those lender countries age, they will be spending their savings and making claims on the debts the United States owes.

"We've had this global dynamic with Japan providing a lot of its excess saving to make up for our significant dis-savings," said Diana Farrell, the McKinsey Global Institute's director. "That cannot continue. This is a short-lived party we're in."

Within 20 years, Japan's household financial wealth will stop growing and begin to decline. By 2025, financial wealth in that country alone will be $8 trillion, or 47 percent, less than it would be if wealth growth followed recent trends, McKinsey estimated.

In the United States, McKinsey estimates that growth in household financial wealth -- including 401(k) retirement savings and other assets -- will slow to a crawl, from the 3.8 percent increases enjoyed since the 1970s to a paltry 1.6 percent by 2025.

Such global economic dynamics will only make it more difficult for future U.S. policymakers to confront America's problems, said CSIS's Jackson. Poorer U.S. households will be less able to handle a higher tax burden, and government borrowing could become untenable.

"Do we have a problem?" Jackson concluded. "Yeah, I think we do."

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