Blame Demography for American's Weak Economic Growth

An article recently featured in The Economist explores the ways in which demographic changes have stifled economic growth. Many politicians have noticed the lagging economic growth rate following the greatest recession since WWII and are concerned that this may be the new norm. As The Economist explains, in the past three years the average growth rate stood at 2.2%, which is only slightly more than half the 4.2% averaged after the seven previous recessions. Part of the reason for the slower growth rate is that American's are facing unprecedented levels of debt and businesses are reluctant to spend, but changes in demography are also to blame for the slower recovery.
       The prime working ages are between 25 and 54 however the share of the population under 25 and above 54 continues to grow, causing a decline in overall labor-force participation rates. A few possible solutions are identified in the article to counteract this decline in labor force participation.  These include allowing more immigrants into America, reforming disability benefits to encourage those who are between the ages of 25 and 54 to go back to work, and raising the retirement age to keep workers in the labor force longer.

One Third of American Nonretirees Expect Social Security to be Major Source of Retirement Funding

Gallup reports that 33% of American nonretirees predict Social Security will be a major source of retirement funding.  This percentage has increased since the recession; in 2007, 27% believed Social Security would prove vital to their retirement fund.  57% of retirees depend on Social Security as a major source of income, while only 33% of retirees rely on a work-sponsored pension plan.  In addition, nonretirees are more likely than retirees to utilize a retirement account (46% to 24% respectively) – such as a 401(k) or an IRA – to be the major source of funding their retirement.  This percentage has decreased six points since the recession.  Gallup’s Chief Economist, Dennis Jacobe, believes stock and retirement losses have led to many of these trends.  Also noteworthy is the fact that 38% of nonretirees expect to retire comfortably – a new low.

Most Working Americans Expect to Continue Work Beyond Retirement Age

According to recent Gallup polling, 8 in 10 employed Americans expect to continue working full or part time after reaching retirement age, with more of them claiming they will continue work because they "want to" (44%) rather than they "have to" (36%). The expectation among a large majority (63%) of workers is that they will work part time beyond their retirement age, as opposed to full time (18%) or stopping work altogether (18%).

Workers' expectations for their level of employment after retirement age appear to be connected to how optimistically they view their financial futures. Writes Gallup: "Those who expect to work full time are twice as likely to say they will do so out of need rather than as a choice." But those who say they will stop working "overwhelmingly say it is because they want to," and workers who expect to work part time are more likely to say it is because they want to work, rather than have to.
And although upper-income workers--those with an annual household income of $75,000 or larger--are "somewhat" less likely than middle- and lower-income workers to expect continued work after retirement age, a large majority of all income groups holds that expectation. Only 23% of upper-income workers and 13% of middle- and lower-income workers expect to stop working after retirement age.

Gallup suggests that the poll results reflect larger changes in the economy and how older Americans approach the concept of retirement, writing: "The current expectation among today's workers that they will continue working once they reach retirement age underscores the changing nature of the retirement landscape in the United States, partly because of changes in the economics of retirement and partly because of individuals' desired level of activity in retirement."

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