As A Demographic Crisis Looms, Policy Can Still Save America's Aging Population

America is getting older, and that's not just a way to say that the world's oldest democracy is close to its 250th birthday. It means that the American population is aging, and fast.

The numbers are striking: in 2040, the amount of people over the age of 65 is expected to double what it was in the year 2000. By 2060, 23% of the U.S. population will be above that age, according to projections by the U.S. Census Bureau. In 2020, it was only 17%. 

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The consequences of having more people than ever entering into retirement all at once can be catastrophic for an economy built around a strong cohort of working younger adults (who are also consumers), with a marginal population retiring in their golden years.

Yet, while demographic trends present hard challenges for decades to come, data shows that the U.S. is better positioned than other countries to withstand the shift, and there's still room for policies that can turn a crisis into a manageable challenge.

Why Rich Populations Decline: The Case Of The U.S. Vs The World

In recent years, economists have become more aware of how shifts in demographics can bring trouble for prosperous economies, as citizens of wealthy countries have fewer children while their life expectancy increases.

As demographic pyramids shrink in their bottom, losing productive members and gaining retirees, economies feel the impact of having less working people to support welfare programs for those in retirement, through fiscal income and economic growth produced by young workers.

This month, France approved a highly unpopular measure to raise the retirement age from 62 to 64, sparking fierce protests across the country. France, which experienced the biggest baby boom in Europe after the second world war, is now faced with decades of decreasing births, against a steadily growing life expectancy curve.

This is putting strong pressure over France's pension system, which supports a majority of retirees with an average of about €1500 ($1650) a month.

According to Le Monde, France already has over 26% of its population above the age of 60, and that number is expected to reach one third by 2040.

Demographic stagnation and decline is a global issue, affecting economies across regions. Japan reached its population peak in 2008, while Taiwan and South Korea's populations began shrinking in 2020 and 2021, according to the Council on Foreign Relations.

In China, demographics is expected to be one of the single most significant factors affecting economic decline in the following decades. In 2022, more people died in China than those who were born for the first time in six decades, propelling a crisis that's expected to hit the Chinese economy in more than just its pension system. Labor shortages, for instance, could become ubiquitous as more people retire than those who enter the working age.

In the U.S. the situation could be different. While the country is facing similar challenges to those encountered by other OECD nations, population decline is not as dramatic, leaving more wiggle room for economic policy and action.

Furthermore, Americans are less dependent on social security at the time of retirement than retirees from other rich countries, removing significant pressure from the country's pension system. In an interview with fivethirtyeight.com, University of California, Berkeley Economics Professor Ronald Lee said only one third of income and consumption for the elderly in the U.S. comes from Social Security, with the remaining two thirds coming from private assets.

Incentivizing immigration can be one of the most effective policies to contrast the negative effects of an aging population, as most immigrants tend to be of working age, and are able to contribute to the system by inputting labor and paying taxes.

In the U.S., immigration is expected to overthrow natural births as the leading cause of population growth by 2030. By then, one in five Americans are expected to be over 65.

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