Demographics and The Debt

See the impact that demographic trends may have on the debt and how the U.S. debt stacks up versus other countries.

0:00 / 0:00

Transcript PDF

Exploring Entitlement and Demographic Trends

The largest portion of the federal budget comes from mandatory spending requirements—often referred to as entitlement programs. The largest of these programs are Social Security, the main health programs,1 and income security programs.

When Social Security was signed into law, the average life expectancy was about 62 years. The program was intended to provide income security to those who lived beyond their years. It was not meant to be a retirement plan as many think of it today.

Currently, the Congressional Budget Office (CBO) projects that the Social Security Trust fund will be exhausted by 2029.2 This would not spell the program’s end, but the Social Security Administration would be limited to paying no more per year than received in annual revenues.

It is very unlikely, in our opinion, that politicians would allow a sudden significant reduction in benefits, but the fact remains that if the program is left unchanged, benefits would be reduced by an estimated 29 percent in 2030.2

Demographic Challenges: We’re Not Alone

While the U.S. faces demographic problems as the population ages, much of the developed world is in far worse shape.

Falling birth rates in the developed world are leaving many countries with too few workers to support older citizens. The U.S. birthrate reached a peak in the late 1950s at 3.3 births per woman as the baby boom generation emerged. Today, the rate has dropped to 1.9 births per woman, below the 2.1 level necessary to replace the current population.

As the population ages, a greater burden will be placed on the government budget and resources—resources which may have otherwise supported economic growth—and will be needed to support increased costs for social programs. Interestingly, high debt levels and difficult demographic issues have not yet led to creditor concern. In fact, interest rates across the globe are near their lowest levels on record.

While the U.S. is in better shape than many other developed countries, the reality is we need working, tax-paying citizens to take care of our aging population, and we would be wise to begin facing our demographic issues before the situation becomes too dire to address gradually.

Download the Full Report

1 Medicare, Medicaid, Children’s Health insurance Program, and spending to subsidize health insurance, including costs associated with the Affordable Care Act (ACA).
2 CBO's 2015 Long-Term Projections for Social Security Report, December 2015.

Global Investment Strategy (GIS) is a division of Wells Fargo Investment Institute, Inc. (WFII). WFII is a registered investment adviser and wholly-owned subsidiary of Wells Fargo & Company and provides investment advice to Wells Fargo Bank, N.A., Wells Fargo Advisors, and other Wells Fargo affiliates. Wells Fargo Bank, N.A. is a bank affiliate of Wells Fargo & Company.

The information in this report was prepared by Global Investment Strategy. Opinions represent GIS’ opinion as of the date of this report and are for general information purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector, or the markets generally. GIS does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.

This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs, and investment time horizon.

Wells Fargo Advisors is registered with the U.S. Securities Exchange Commission and the Financial Industry Regulatory Authority, but is not licensed or registered with any financial services regulatory authority outside of the U.S. Non-U.S. residents who maintain U.S.-based financial services account(s) with Wells Fargo Advisors may not be afforded certain protections conferred by legislation and regulations in their country of residence in respect of any investments, investment transactions, or communications made with Wells Fargo Advisors.

Special Reports

A collection of the most recent thematic reports from Wells Fargo Investment Institute that cover varying topics of interest and importance to investors.

Read Our Insights