Economy#5: Baby Boomer Retirement and What It Means For the Economy

Photo by: mikol ice

This post is part of my World-Changing Wednesday series. These are a collection of thoughts on issues which I think will have a huge impact on how we live our lives in the years to come.

Populations of Industrialised Nations Are Ageing

There is a troubling trend brewing and it’s going to change many of the things we thought we knew about the economy.

In 1960 there were more than 5 workers per retiree in the USA. By 2007, that ratio had dropped to only 3.3 to 1, and by 2032, that ratio will have plummeted to a thoroughly unworkable value of 2.1 to 1. This same pattern is shown throughout the developed world and every country will be affected in some way. This trend comes about as a feature of the so-called ‘Baby Boom’ which occured post WWII.

The easiest way to visualise this issue is using a demographic pyramid chart. This first chart represents a more ‘normal’ population distribution; in this case Australia in 1971. Humans evolved over countless millennia with a population pyramid that looked something like this. This distribution is capable of supporting an entitlement program based on transferring wealth directly from younger workers to older retirees, such as the age pension in Australia and social security in the USA.

When we cast this chart of Australian population forward to 2008, the baby boomer bulge is quite apparent. While it may not seem like much, the ‘hole’ that exists in the population behind the baby boomers represents an enormous challenge, and will greatly complicate how the economy operates in the decades to come.

Boomer Wealth Based on Massive Credit Bubble

The ‘Boomers’ are the wealthiest generation ever. They hold nearly all of the assets in developed nations.  In my article entitled The Debt Trap (Our Economic System is not Sustainable), I explained how our economic system is based entirely on debt and that current levels of debt are without precedent.  The biggest credit bubble in history has been inflating since the beginning of the post WWII baby boom and that bubble has fueled the massive wealth accumulation of the Boomers. 

We have already seen that exponential growth in debt (which underlies the Boomer wealth) only appears to be sustainable when asset prices rise fast enough to keep the financial system solvent. Without continuous economic growth, the entire monetary system will collapse and we are already seeing the beginning stages of this process.


Percentage of nations’ population aged 65 and over: Chartsbin

What Happens When Boomers Want to Retire?

Unfortunately for the Boomers, they will need to sell off the assets which define their wealth in order to fund their retirements. The question then is: Who exactly are the Boomers planning on selling their assets to? Even if Generation X somehow could afford to buy all these assets, there simply aren’t enough people in this generation to buy them. One has to wonder, given the demographic forces in the Western world, if there is simply going to be more sellers than buyers in the coming years as the Boomers liquidate.

If we are operating an economic system which must continue to grow exponentially to survive, we have to question how this can happen if Boomers are retiring en masse and there are fewer behind them to take their place?

  • Will assets plummet in value as they are repriced to the reality of what Gen X can afford?
  • How will this affect the Boomers’ expectations of a comfortable retirement?
  • Will the younger generations be expected to work harder to pay for those promises made to the Boomer generation?

This sort of demographic profile will be with us for decades and setting policies to encourage population growth are probably not the best way to solve the problem given that we live on a finite planet and cannot support further exponential population growth. This issue is one that we’d do well to recognise and plan for rather than ignore.

Boomer retirement has already begun, and the pace of this will accelerate rapidly over the next 15 years.

The next twenty years are going to be completely unlike the last twenty years. ~ Chris Martenson

Soon, I’ll write another post with more specifics on what this means for my generation (Gen X) and those coming through behind.

Read more from me:

Energy#2: The Economy and Oil (The Long Decline)

Environment #1: The issue of Human Population Growth


  1. I have to say it is going to be very interesting to see what happens. To make things even more confusing, by my understanding, here in Aus 2009 was another “baby boom” due to the wonderful *sarcasm* Baby Bonus scheme. Not only are we going to have pressure on end of life services we have just created a whole new problem with beginning of life and education services.

    The governments are going to have a hard sell on this one a not insignificant amount of Gen X is already signalling that they are simply not going to work their guts out to support a lifestyle. Right now it looks like we are going to have one very volatile political landscape for the next 20 years.. the boomers who have a large amount of voting power are going to do their best to ensure the support systems they are going to need if their asset values are downwardly corrected are going to come into direct conflict with the needs of the young and growing who of course will have no voting power at all.

    Kind Regards

    1. Yes, the new baby boom is just as concerning. I am simply amazed at how many 4-5 children families there are now. It is quite normal these days to have such a large family compared to when I was growing up. The Government baby bonus is not doing anyone any favours.

  2. Hi Mia,

    I think that we can answer the question: What Happens When Boomers Want to Retire?

    The answer is that they can’t. This is already happening with the GFC. Many people have had to put off retirement, or accept much reduced circumstances.

    Have a look at this article:

    Here’s a quote from it:

    “Simon Kelly, an associate professor at the National Centre for Social and Economic Modelling, a research centre at the University of Canberra, said the average super account balance for males aged 60 to 64 was just $135,000. For females it is less than half that, $62,000. These are well short of the sums needed to fund a comfortable retirement.”

    So the lesson for Generation X is (I think) be prepared to be looking after your parents AND yourself. Not very encouraging I know.

    1. I saw that article LS, or one just like it. Actually the figures I saw were even worse when you look at the median super balance. Many boomers will be struggling to retire. I know my parents will be. I’ll be writing more about this topic later this week. It’s a big one.

  3. I would agree with what Belinda says. Gen – X will not work as hard as the Boomer generation expects. We didn’t make these promises and spend all this money.

    What happens when more of us realize that:
    1. The game is rigged.
    2. There will be no social security/medicare in ~10 to 20 years.
    3. The best health care is a healthy lifestyle.
    4. Borrowing money to buy a lifestyle no longer makes sense.
    5. If you don’t work so hard, there is less to tax.
    6. If you consume less, use less, and make things last, you don’t have to work so hard.
    7. We are running out of inexpensive oil.

    I do believe that the early/richer Boomers will be the last generation to “retire.” The rest of us will work until the day we die. All humans did this not too long ago. Retirement will soon be predicated on how much money you have personally saved, not how much the gov’t will provide for you.

    $135,000 for 20 years at 2% is only $683 per month. I hope you own your home free and clear, plant a victory garden, stay healthy, enjoy working and have daughters.

    What happens to home prices here in the States when three generations start living under one roof again?

    1. Agreed with all you’ve said Thompson. In fact I’m writing a post with exactly this info later in the week.

      The trend to multiple generations under one roof is something we are already seeing in Australia with housing prices becoming obscene. Did you see the guest post on Dmitry Orlov’s blog recently? Says it all really:

  4. Mr. Orlov’s post does indeed say it all.

    “Everyone is cultivating their own special psychosis, and periodically turns vicious.” Classic!

    Did you see John Robb’s comment today regarding possibilities/repercussions of the Mexican drug violence quickly crossing the border?

    “When it [the violence] arrives, it will take off very quickly with innovation and participation rates that will knock the socks off of observers — Americans are very innovative and entrepreneurial when pushed.”

    Zen Pundits’ article and the following comments are even better.

    It will all be very interesting to watch. Got marshmallows?

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