While future uncertainties are large, there are many ways to improve Americans’ retirement security. These include encouraging people to work longer, raising retirement ages, improving insurance protection and long-term care, and putting Social Security and Medicare on a sound long-term footing. Additionally, while financial innovation has been rapid in some areas, it has been relatively slow to develop products that will help most households manage their savings and transition to retirement. The nation needs to improve private-market solutions such as more saving, better financial literacy, and enhanced financial, long-term care, and annuity products.

Changing Public Policies and Transfer Programs

As noted earlier, the committee concludes that the overall macroeconomic consequences of population aging in the United States are likely to be modest. However, because the government plays a particularly important role in financing consumption and health care for the elderly, many of the consequences of population aging will be focused on specific government programs rather than spread across the economy. For these programs, population aging will have a major effect on costs. Population aging already has led to projected shortfalls in the finances of Social Security, Medicare, and Medicaid and is likely to lead to increasing government budget deficits in the future (Chapter 9). The consequences for Social Security are predictable, and they can be relatively easily addressed by benefit formula changes and increases in contributions. Programs providing health care and long-term care, notably Medicare and Medicaid, are a different matter. Health care costs per eligible person have been growing substantially faster than per capita income for decades, and if this pattern continues, it will interact with population aging to drive up public health care expenditures substantially. Recent reforms have attempted to address this problem and could lead to fundamental change in delivery, quality, and cost of care, but their impacts are as yet unclear.

Government programs are particularly important because it is largely through them that policies could influence retirement ages and perhaps also employers’ demand for older workers. Moreover, they could alter changes in consumption for both workers and the elderly. Changes to these programs will also go far in determining how the costs of population aging will be shared across generations and age groups in the future. A critical need in the near future is to put Social Security and government health programs on a secure footing and to reduce uncertainty and mistrust by announcing


something radically different. For insightful studies of the history of retirement, see Costa (1998) and Haber and Gratton (1994).

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