3 years, in part caused by efforts to help the economy recover from the deep recession that followed the financial crisis in 2008, have unfortunately coincided with the leading edge of the baby boom generation’s retirement. More broadly, the rate of defined-benefit pension coverage is declining. Social Security, Medicare, and Medicaid face long-term fiscal challenges. The taxes that finance these programs must rise, or the benefits they deliver must be trimmed, at least for some households, to preserve long-run fiscal balance. Health care costs that are rising faster than other prices are also raising the burden of out-of-pocket medical care costs. Although the run-up of house prices during the first decade of this century generated large capital gains for many households now approaching retirement, the post-2008 decline in house prices has left many households with much less housing equity than they had expected to have. The weak economy that has followed that global financial crisis has ended many working careers prematurely, while also lowering the value of many other components of household net worth, such as corporate equities. Moreover, the prospective returns on assets such as inflation-indexed bonds suggest that capital market returns may be low for a prolonged period, making it difficult for “near-retirees” to accumulate assets for their later years.

Fortunately, as life expectancy has increased, rates of disability at most ages have fallen, so that older people today are healthier and more vigorous than their counterparts a few decades ago. Unfortunately, the improvement in elders’ functional status appears to have leveled off in the past decade, and the future outlook is uncertain. Longer and healthier lives are a great benefit, not in themselves a cost. But it does not follow that these added years of healthy life can all be taken as postretirement leisure; some may have to be devoted to working longer, postponing retirement, or working longer hours before retirement. If they are all taken as leisure, then consumption at all ages must be considerably reduced to pay for these new years of leisure: Either savings or taxes will have to rise.

Longer life is only a part of the story. Lower fertility causes slower population growth, and this is also a major contributor to population aging. It makes younger age groups smaller relative to older ones, so there are fewer young people to support old people through taxes or private transfers.

The shifting balance of older and younger population groups has given rise to an increasingly contentious debate within U.S. society about how to address fiscal deficits. Projected costs of public entitlement programs seem daunting, particularly in the context of economic recession. Much of the debate about Social Security solvency, for example, has focused on financing issues—whether the program should continue to be financed solely through the current pay-as-you-go structure or whether personal accounts or other innovations should be introduced. In 2010, the National Research Council and the National Academy of Public Administration convened an expert

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