Wednesday, September 20, 2006

The Demographic Challenge

In today's Wall Street Journal, economist Jeremy Siegel looks at the demographic trends, as shown in the graph above, and concludes that Americans need to retire later:

When Social Security was passed in 1935, the average retirement age was 69. That age fell to 67 by 1950, and to 62 today....

Because of our aging population, I calculate that the average retirement age will have to rise by 10 years or more for workers to produce enough goods and services to provide for a comfortable retirement. This increase will greatly exceed the expected increase in life expectancy and lead -- for the first time in history -- to an absolute reduction in the number of years in retirement.

Siegel also suggests that one way to finance the baby boomers' retirement is persistent capital inflows and trade deficits with developing countries.