People are living longer these days, so in turn, the cost of aging is rising. Makes sense. When people live longer, government resources and family finances are drained.
According to the International Monetary Fund (IMF), people worldwide are living three years longer than expected, on average, which is pushing up the costs of aging by 50 percent. Because of this, government and pension funds are ill prepared. This is especially difficult in a time when the aging baby boomer population is reaching retirement age in record numbers.
According to Merrill Gardens, an independent and assisted living care and retirement community provider, the nation is projected to run out of senior housing options: “As soon as the full baby boomer population hits, out of the entire qualified population of seniors who could move into retirement living, it is expected that only 15 percent will. And in the next 10 years, as that 15 percent moves into senior housing, there won’t be enough senior living options available to accommodate them.” So while the cost of caring for the elderly is beginning to strain budgets, the “silver tsunami” projects a bigger risk than expected. In fact, IMF shows that by 2050, the elderly will match the number of workers almost one to one. Thus, longevity is becoming a global financial problem.
Demographers originally assumed that the lengthening of lifespans would slow in developed countries. But, because of medical technology advancements, this has not happened. It would seem that longer lifespans would be a good thing, but the financial and medical resource risks involved with such a large senior population are staggering.
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“If everyone in 2050 lived just three years longer than now expected, in line with the average underestimation of longevity in the past, society would need extra resources equal to 1 to 2 percent of GDP per year,” according to a World Economic Outlook study. And for private pension plans in the U.S. alone, an extra three years of life would add nine percent to liabilities, according to IMF. This is why government and private sector preparation is so necessary over the next decade.
Here are a few steps the government might take to manage the risk of people living longer:
Preparation is key. IMF feels that “although longevity risk is a slow-burning issue, it increases the vulnerability of the public and the private sector to various other shocks.” As the baby boomer population reaches 65+ in record droves, the nation will definitely start to see and feel the financial impact.