An economic silver lining
Anyone reading the financial news these past several years is well aware of the impending stress that Baby Boomers will put on the retirement and entitlement systems. In a nutshell, the U.S. is underfunded for the Boomers’ retirement to the tune of dozens of trillions of dollars.
It occurred to me — and probably many real economists, though I’ve not read about it yet — that the current meltdown of the financial system will require many Boomers to postpone retirement, to keep on working, thus contributing back to the system and staving off the impending financial crisis of the entire generation’s retirement. The stock market is down 40% from last year. That’s a lot of wealth lost. Moreover, CDOs were Triple-A rated securities. Conservative pension funds devoured them for the yield they promised because they were, after all, rated highly and therefore not risky to pensioners.
It turns out those CDOs were risky. Lots of wealth was lost from mutual funds, 401ks, and retirement plans. There is less equity in people’s homes than a year or two ago. Anyone planning for retirement is taking this into account. Many of them will have to continue working. This leaves more workers paying into the entitlement system (which retiring Boomers would have turned upside down). There will be more savings and investment. Health insurance will cover these millions of workers longer before they join Medicare, thus reducing the taxpayer’s burden.
I don’t know how much of an impact this would make on our underfunded entitlements. It will be non-zero, but it will not be as much as we need. We’ll still be in the hole, but I wonder if that hole is a bit shallower now.