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.

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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.

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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.

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