Multiplying investment and retirement knowledge
S PEC I
E D I T I OA L
N
BABY, IT’S OVER:
THE LAST BOOMER
TURNS 50
BABY BOOMERS
BABY BOOMERS
TABLE OF CONTENTS
A DEMOGRAPHIC MILESTONE PASSES
DEFINING THE BABY BOOM?
3
4 -5
BABY BOOMERS AROUND THE WORLD
6
FERTILE GROUNDS FOR ARGUMENTS
7
DIFFERENT BOOMS – DIFFERENT IMPACTS?
7
BOOM TO BUST
8 -9
A DEMOGRAPHIC MILESTONE PASSES
BABY BOOM TO BUST PUBLIC PENSION EXPENDITURES? 12
MIND THE BUST NOT THE BOOM
13
BABY BOOM AND BUST: THE LABOR FORCE
14
O
OVER THE HUMP: AFTER THE BOOM
15
passed unnoticed, apart from his young family
financial security? And will these combined
16
and a circle of good friends, except for the fact
sources be enough to support in old age a generation
that he is possibly the last US baby boomer to hit
that is not only the largest in US history, but one that
the half-century mark.
is also the longest living?
THE CHALLENGES AGING BOOMERS REPRESENT FOR SOCIETY 10 -11
SOURCES
BABY BOOMER RETIREMENT AT A GLANCE
• The size of the boomer generation represents the most pronounced retirement
income challenge in history.
• Analysis shows New Zealand was the baby boom champion, undergoing a baby
dividend lasting 27 years; in contrast, Italy’s lasted four years. On average, the
boom lasted 16 years.
• All countries will suffer deteriorating demographics during boomer retirement.
Austria, Belgium, Germany and the Netherlands will have the highest old-age
dependency ratios (the number of those 65+ to those of working age).
• Europe’s aging problem is rooted in the baby bust. Low fertility has resulted in
following generations that do not even match the pre-baby boom generations
in numbers. Some countries are already super-aged before their baby boomers
even enter retirement (See page 11 for definition of super-aged).
• As Europe’s aging problem is rooted in the baby bust, and the one in Anglo-Saxon
countries in the baby boom, both will see old-age social security costs rise.
• On average, as baby boomers enter retirement, pension expenditure will increase
by 29%. Australia will see pension expenditure as a share of GDP jump by 20%;
in Canada, Switzerland, the Netherlands and the US will increase by a third. In
New Zealand, pension costs will soar by 64%. “Old countries” will not see such
dramatic increases as they are already at high levels of public expenditure.
n 31 December 2014, Carlos Barientos III,
The central questions are: will public pension
owner of Hot Lick Guitars in Hawaii,
systems be able to sustain the baby boomers
turned 50 years of age. Carlos is a relaxed,
financially? How much will the retirement savings
easy-going man whose birthday would have
of the boomers themselves contribute to their own
1
As New Year’s celebrations heralded the arrival
1 See interview PROJECT M “Is this man the last baby boomer?“
of 2015, and Carlos and his family and friends joined
revelers on a nearby beach, this planet passed
a demographic milestone. A generation that had
BOOMERS HAVE SHAPED THE
MODERN WORLD
once seemed to define everything that’s energetic,
exciting and irritating about youth finally became
old – even if, in some people’s opinions, not yet
entirely grown up.
The “baby boomers” are the generation that grew
up in the United States, in particular, but also in
Australia, Canada, Europe, and elsewhere, after
World War II, when rapid economic growth was
accompanied by rising birth rates. Those born
during that period were part of the largest,
most prosperous, best-educated and, some
might say, most indulged and indulgent
generation that the western world has ever seen.
Now, with the first boomers already in
retirement and many more approaching, the
generation that once reshaped the notion of youth
seems set to challenge ideas of aging. Their slow
withdrawal from the labor market will impact
almost every aspect of society – from the workforce
to social life, from financial markets to health
From sex, drugs, and rock ‘n’ roll to the civil
rights movements to the dot-com and housing
bubbles – for better or worse, the boomer
generation has shaped modern society. And
with one of its younger members currently in
the White House, and others at Downing Street,
Élysée Palace, and the German Chancellery,
it will continue to do so for years to come.
systems, and from the production of consumer
goods to the layout and infrastructure of our cities.
But one of the most fundamental challenges
baby boomers pose to society concerns the notion
of retirement itself. Often described in the media as
a “silver tsunami,” the sheer size of the boomer
generation represents the most pronounced
retirement income challenge in history.
• Population aging in continental Europe is mainly driven by the “baby bust” and
it will be the first time in modern history that working-age populations will
actually shrink. Germany will see a decline of 14% in the working-age population
between 2021 and 2033. Other countries where shrinking working-age
populations will be visible include Austria and Belgium.
• Anglo-Saxon countries have shown the baby bust can be alleviated through
replacement rate fertility and migration. Nordic countries and France are
following, showing that surprising trend reversals in fertility are possible.
2
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3
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BABY BOOMERS
BABY BOOMERS
DEFINING THE BABY BOOM
T
he “baby boomers” represent a surprise
After World War II, sociologists, demographers
spike in Western demographic history,
and economists were all duly surprised when most
a phenomenon that caught social
Western countries experienced an upswing in the
To identify baby boom countries in Europe,
scientists off-guard and still has them baffled
number of babies born. And it was this unexpected
a comparable measure to that used in the US
as to its causes. Although the baby booms
demographic phenomenon that was later termed
is required.
differed greatly in size, magnitude and timing,
the “baby boom.”
2
attained a sustained fertility rate of three again
(apart from the Netherlands).
The baby boom in the US covers a long period
of 19 years from 1946 to 1964. Early boomers –
beginning with Kathleen Casey-Kirschling, whose
birth one second past midnight on New Year’s
Day, 1946, has made her a minor celebrity –
grew up surrounded by the hippie counterculture,
the music of the Beatles and Bob Dylan, and the
Vietnam war.
By foregoing the definition of requiring fertility
the answers to the central questions surrounding
In Australia and the US, boomers are defined
to be above three per woman, but maintaining the
the retirement of this aging generation are as
as those born in post-war years when there was an
most characteristic feature of the baby boom – the
critical for countries ranging from Australia to
upswing in the total fertility rate (TFR) to three or
sudden, significant reversal in declining fertility –
Switzerland as they are for the US.
more children per woman. (Total fertility refers to
the European countries that experienced a boom
Fertility had been falling in Western countries
the average number of children that would be born
can be readily identified.
for almost a century, since the beginning of the
to a typical woman over her lifetime if she lives to
In addition, countries can be filtered using
Industrial Revolution (see graph 1). Indeed, by the
the end of her childbearing years.) In these
crude birth rates (CBR). This measures the number
early 1930s, it had dropped so far that in some
countries, then, the official definition of the baby
of babies born in a given year per 1,000 people. This
countries in Europe, such as Sweden and the United
boomers is the generation born during the 19-year
indicator reveals the literal meaning of “boom.”
Kingdom, the rate was below 2.1 children per
period stretching from 1946 to 1964.5
As we use the reversal points to identify the start
4
woman (the level a society needs to maintain its
For Europe, no such straightforward definition
and end of the boomer generation in each country,
current population level). Although it recovered
is available; for example, in Germany there are four
percentage increases and decreases of TFR and CBR
slightly in some European countries in the late
different, relatively arbitrary definitions of the
are taken into account. As the US and Australia
1930s, social commentators in the late 1940s still
term. What is clear, however, is that during these
consider the post-war periods as relevant to the
assumed Europe’s population would continue to
post-war years there was a clear upward reversal of
baby boom, only data starting in 1946 was used as
shrink, based upon decades of decline.
fertility rates, although European countries never
well as their level of change to calibrate the results
6
3
THE 19-YEAR STRETCH
By contrast, Barientos and the other boomers of
1964 grew up playing video games and listening
to disco music – or, if their tastes were closer to
those of Barientos, the heavier sounds of Gary
Moore, Thin Lizzy and Van Halen.
Interests are not all that sets the extreme ends
of the baby boom generation apart. While many
of the early baby boomers are now comfortably
retired, enjoying the benefits of Medicare, Social
Security, and tax-free Roth IRA disbursements,
those like Barientos are still in their prime –
and concerned about retirement.
of all countries.
GR A PH 1: TOTA L FERTILIT Y R ATE DE V ELOPMENT IN THE 19TH C ENT URY (SELEC TED COUNTRIE S)
2
3
4
5
6
4.3
Total f er tilit y rate
3.8
3.3
It is this “shock” reversal that differentiates the post-World War II baby boom in the West from other “booming” countries, such as India and Bangladesh, which have experienced high absolute fertility rates for decades.
Notestein (1950)
Australian Bureau of Statistics (2003)
In the US, the baby boom technically started in the middle of 1946, though this statistical point is glossed over in much of the literature: Cp. Hogan Perez, Bell (2008)
Cf. Deutsches Zentrum für Altersfragen (2009), Statistisches Bundesamt (2014)
2.8
2.3
1.8
Aus tralia
France
Sweden
1969
1966
1963
1960
1957
1954
1951
1948
1945
1942
1939
1936
1933
1930
1927
1924
1921
1918
1915
1912
1909
1906
1903
190 0
1.3
United K ingdom (prox ied by England and Wales)
Source: Institut national d’ études démographiques (INED)
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By 2031, when Barientos and the rest of the baby
boomers are retired, more than 20% of the US
population will be at least 65 years old, compared
with only 13% in 2010. As a result, the old-age
dependency ratio (the number of people aged 65
or over relative to the working-age population)
is set to rise from 1:5 to 1:3. This will intensify
pressure on state pension funds and health-care
systems considerably.
BABY BOOMERS
BABY BOOMERS
BABY BOOMERS AROUND THE WORLD
FERTILE GROUNDS FOR ARGUMENTS
W
hat caused the baby boom? Put
average for more than 16 years, which indicates an
bluntly, there is no single, coherent
overly long period to satiate pent-up demand.
cited
And while many countries experienced an
arguments refer to the end of World War II and
immediate post-war baby dividend, others did not
differentiator. In Sweden, fertility peaked directly
the post-war optimism that followed on the back
see fertility peak until more than a decade after
considerably. Most countries experienced
after the war, but in Hungary only in the mid-1950s.
of an economic boom. This catch-up fertility
World War II. Spikes in the crude birth and fertility
a boom directly after the war,7 while in others,
For latecomers such as Belgium and Germany,
hypothesis assumes marriages and pregnancies
rates in the mid-1960s in Denmark and the UK, for
such as Belgium, Germany and the UK, the boom
it peaked only in the mid-1960s. Some European
were postponed during war time, which led to
example, cannot be explained by a simple catch-up
started in the 1950s. There are also significant
countries, like France and Switzerland, experienced
the post-World War II baby boom.
mechanism. Moreover, fertility rates in some
T
able 1 shows that the period and
The timing of the highest fertility is another
dimensions of the baby booms vary
differences concerning the length of the boom.
a dual peak: one in the years following the war,
New Zealand was the clear champion,
and then another in the 1960s.
undergoing a sustained baby dividend lasting
7
8
almost 27 years up into the early 1970s. In
contrast, Italy’s short peak lasted only four years. On
average, the baby boom lasted 16 years in the
explanation.
Commonly
This argument is supported by the fertility spikes
countries started to recover ahead of the outbreak of
experienced directly after the war in 1946. On the
World War II, so caution should be exercised when
other hand, as Table 1 shows, the baby boom lasted on
using the war as a universal explanation.
In fact, in some countries, particularly the neutral parties of Sweden and Switzerland, the baby boom commenced in wartime.
Both Bulgaria and Finland exceeded a TFR figure of three briefly during their short baby boom.
countries investigated.
DIFFERENT BOOMS – DIFFERENT IMPACTS?
Due to the duration of the baby boom in
Anglo-Saxon countries, it had a stronger impact
TABLE 1: WHERE AND WHEN WAS THE BABY BOOM?
there than in continental Europe. Close to 40% of the
current total population of the US and
Star t
Australia were born during the boom; in New
Zealand and Canada, boomers represent even
Australia
End
1946
1965
Highes t
f er tilit y
Share of total
population
at end of
boom
Rate
D ate
38.5%
3.55
1961
S
o are the retirement issues surrounding
both before and after the baby boomer retirement
the silver tsunami only of concern to
corridor. Besides the old-age dependency (OAD) ratio,
Anglo-Saxon countries? Will the sheer
measurements include the change in labor force as a
scale of the baby boom generation undermine
measure of future potential economic output and the
Austria
1956
1969
23.0 %
2.82
1963
public finances, social security and, due to
change in projected pension expenditure as a
Europe, on the other hand, only France, Switzerland
Belgium
1950
1967
28.5%
2.71
1964
Bulgaria
1950
10.1%
3.29
1946
percentage of GDP.
and the Netherlands can be said to have experienced
1946
reduced consumption by retirees, hamper
C anada
1946
1965
42.3%
3.94
1959
Denmark
1946
1966
33.9 %
3.02
1946
Finland
1946
1953
18.2%
3.46
1948
France
1946
1967
37.0 %
3.02
1947
Germany
1956
1968
20.6%
2.53
1964
greater numbers (53% and 42% respectively). In
a boom of similar proportions to that in the US.
Countries such as Germany and Austria are not
dominated by the boomer generation to anywhere
near the same extent.
economic growth? What, ultimately, will be the
impact of baby boomers when they have all
Identifying the start and end of each baby
boomer generation provides a guide to when the first
Hungar y
1947
1956
18.0 %
2.97
1954
It al y
1946
1949
7.2%
3.01
1946
boomers will retire and when the majority will be
baby boomer generations are larger in the Anglo-
Netherlands
1946
1965
37.9 %
3.97
1946
retired. If age 65 is taken as a cut-off, indicating when
Saxon world is magnitude. Once again, New Zealand
New Zealand
1946
1972
53.4%
4.31
1961
Nor way
1946
1969
39.0 %
2.98
1964
the majority from a given birth year will have retired,
Swe den
1946
1953
13.0 %
2.57
1946
Sw it zerland
1946
1968
36.8%
2.68
1964
recorded fertility figures exceeding an average of
UK*
1956
1968
20.8%
2.93
1964
3.5 children per women, the Netherlands is the only
USA
1946
1964
37.4%
3.71
1957
Besides duration, another explanation why
experienced the highest fertility, with 4.3 children
per woman. While other Anglo-Saxon countries
European country with a similar, sustained peak.8
Source: Institut national d’études démographiques (INED), United
Nations Population Division, the 2012 Revision; where applicable,
Australian/US baby boom definition was used (Netherlands,
New Zealand); share of population refers to the point in time
of the end of the baby boom; *data for the United Kingdom is
proxied by England & Wales
OLD-AGE DEPENDENCY RATIO
reached retirement?
The OAD is the ratio of older people (65+) to the
working-age population (those aged 15-64).
Data is presented as a proportion of dependents
per 100 working-age population. Germany’s
OAD has changed from 14% in 1950 (1 to 7) to
31% in 2010 (1 in 3). The OAD is seen as a proxy
for the support ratio required by social security
and the related burden shouldered by the
current working population.
we can identify a baby boomer “retirement corridor”
per country.
In most countries, the early baby boomers began
retiring in 2011. Austria, Germany and the UK are
For more information on the OAD, see
bit.ly/1vQJPI9
laggards, with their wave of baby boomer retirements
due to start in the 2020s. At that time, the entire
boomer generation in Bulgaria, Hungary, Italy and
Sweden will be retired.
And what are the effects of the baby boom?
To understand the impact of the baby boomer
retirement on a country, it is possible to examine the
changes it can cause by comparing major indicators
6
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7
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Boom to bust
By their sheer weight of numbers, baby boomers have reshaped the
notion of youth in the Western world. Now they are set to challenge
ideas of aging, as this timeline of the US baby boomers shows.
GDP $227.8
billion
Microwave
Oven
45 rpm
single
Korean
war
till 1953
Report says
cigarettes
cause
cancer
Elvis
Jackie
Presley
Hydrogen
TV
sales
Immigrants
Robinson
bomb
increase
6.9% of pop.
exploded dramatically
48
49
50
First Baby Boomer
born 01/01/46
Fall of the
Berlin Wall
51
Immigrants
7.9% of pop.
Hubble
Telescope
Black
Monday
stock market Exxon
Valdez oil
Rodney King
crash
spill
riots in LA
89
90
91
52
53
54
55
92
58
Top Gun,
Platoon
1996
94
59
60
95
97
63
Immigrants
11.1% of pop.
Euro
introduced
98
64
65
99
00
Invasion
of Iraq
9/11
attacks
01
Great
Recession
Hurricane
Katrina
Science & Technology
Culture & Nostalgia
Immigration
Sport
Music & Film
Economy
Nature
Historic Moment
Martin GDP $1038.5
billion
Luther King
assassinated
Summer
of Love
Obama
elected
67
Roe vs Wade –
abortion rights
Mark Spitz
wins seven
gold medals Earth pop.
4 billion
Moon
landing
68
69
70
71
72
03
04
05
07
73
74
75
CNN
launched
First
test-tube
baby
Punk rock
explodes
1976
77
Prince
“When Doves Cry”
Personal
Immigrants Computers
6.2% of pop.
Iran
hostage
crisis
78
79
AIDS
identified
80
First
Baby Boomer
to turn 21
81
Cabbage
Patch Kids
82
8
83
China
GDP as a
function
of PPP is
Immigrants
greater than
12.9% of
Hurricane the USA
pop.
Sandy
84
39% of Boomers
have been
divorced
85
Last
Baby Boomer
to turn 21
Earth pop.
8 billion est.
Earth pop.
9 billion est.
2016
08
1986
Earth pop.
7 billion
09 10
11
12
13
14
15
First
Last
Baby Boomer Baby Boomer
to turn 65
to turn 50
2046
24
29
Last
Baby Boomer
to turn 65
31
Last
Baby Boomer
to retire aged 67
Visit bit.ly/1sc9wMs to see an interactive
and comprehensive timeline of events
Allianz
Ozone hole
discovered
Last
Baby Boomer
to turn 18
2006
02
Apple
founded
Microsoft
19 66
First
Last Baby Boomer
Baby Boomer born 31/12/64
to turn 18 (birth rate per minute 7.64)
First
US increases
First
Boomer elected to White House, Baby Boomer retirement age
to turn 50
to 67 after
Bill Clinton
2000
American Generations
Greatest Generation 1930 – 1946
Baby Boomers
1946 – 1964
Generation X
1965 – 1984
Millennials
1984 – 2004
TBD
2004 onwards
62
Facebook
launched
Viagra
Miniskirt
JFK
assassinated
61
Tiger Woods
wins his
first master
Nelson
Mandela
elected
president of
South Africa
93
Compact
cassette
Earth pop.
3 billion
57
Beatles
visit US
Nike founded
NASA
Highest fertility rate
during baby boom period
3.71 (birth rate per minute 8.18)
(birth rate per minute 6.49)
88
Barbie
1956
47
Cuban
missile crisis
The Pill
1946
87
Berlin Wall
Sputnik,
Vietnam first
War
satellite
till 1975 in orbit
Population
9
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40
First
Baby Boomers
to turn 100
BABY BOOMERS
BABY BOOMERS
THE CHALLENGES AGING BOOMERS
REPRESENT FOR SOCIETY
boomers retire, all countries analyzed
BABY BOOMER RETIREMENT
CORRIDOR
are expected to suffer deteriorating
demographics. On average, the old-age
G R A P H 2: A L A R M C H A R T: D E M O G R A P H I C I M PAC T O F B A BY B O O M E R R E T I R E M E N T
% 90
the US will see a tremendous relative increase in
the old age dependency ratios of their social security
systems when the boomers finally retire. Although
from relatively moderate levels, the old-age
dependency ratio in Canada and New Zealand
will increase by more than 80% over the 20 and 26
(respectively) years of the baby boomer retiring
period (see Graph 2). In Australia and the US, the
increase of the OAD during their 19 and 18 years
corridor will be 50%. In comparison, the relative
increase across Western countries is slightly more
10
0
2011 2011 2011 2011 2011 2011 2011 2011 2021 2021 2011 2015 2011 2021 2012 2011 2011 2011
Retirement to
to
to
to
to
to
to
to
to
to
to
to
to
to
to
to
to
to
corridor 2037 2030 2030 2029 2032 2030 2034 2033 2033 2033 2031 2032 2018 2033 2021 2018 2015 2014
Source: UN (2012)
Note: For color coding, see breakout box page 10
than 40% during the baby boomer retirement phase.
AGING, AGED, SUPER-AGED
As a convention, once 7% of a country’s population is 65 years old or over, the country is considered to be “aging.”
When this exceeds 14%, the country is seen to be “aged.” In this respect, with only 5.7% of its population aged
65 or over, Malaysia , for example, is considered a young country. France and the UK (both 18%) belong to the
aged countries, while Germany (21%), Italy (22%) and Japan (26%) are already being referred to as “super-aged”
as they have reached the next 7% threshold.
10
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It aly
As can be seen in Graph 2, New Zealand is relatively
young in terms of OAD (green color), despite the
baby boomers already retiring. During the long
retirement corridor from 2011 to 2037, the OAD
will increase by 80%. The baby boom therefore
will have a dramatic effect on the demographics
of New Zealand. In comparison, Italy has the
highest OAD ratio among the sample countries
(2015: 33.8%) so is marked red. During their
relatively short retirement corridor, Italian baby
boomers did not contribute significantly to
population changes. In other words: Italy is facing
an aging challenge – but it is not because of the
baby boomers.
Bulgar ia
will kick in: Australia, Canada, New Zealand and
Sweden
Nevertheless, this is where the silver tsunami
20
Hungar y
Western world average.
UK
Anglo-Saxon countries will still be within the
30
Finland
generations retire, the old-age dependency ratios of
Belgium
comparison, even after their huge baby boomer
40
Denmar k
To orientate the reader, a color code is included
in the graphs. In this “alarm chart” countries
with a low OAD ratio today (below 25%) are
marked green, those with an elevated OAD ratio
are yellow (25-30%) and those countries already
experiencing advanced population aging (OAD
30%+) are marked red.
Ger many
Netherlands), only experienced small booms. In
Austr ia
dependency ratios. These countries (except the
50
Sw it zer land
Netherlands will have the highest old-age
60
Nor way
By the end of the baby boomer retirement
phase, Austria, Belgium, Germany and the
70
Australia
experience the lowest increase.
France
points. Due to the brevity of its boom, Italy will
80
USA
Netherlands, with an increase of 17 percentage
Nether lands
points. The largest increase is expected in the
Canada
At first glance in Graph 2, New Zealand appears
to be most affected by baby boomer retirement.
However, this is misleading as the period over
which changes occur vary in duration and starting
point. Countries are in different stages of aging.
Western countries already differ in terms of their
current demographic composition. For example,
while Italy and Germany only have three people
of working age to one person aged 65+, in New
Zealand and the US the ratio is approximately
five to one.
New Zealand
dependency ratio will rise by 10.7 percentage
Increase in OAD
D
uring the periods when the baby
11
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BABY BOOMERS
BABY BOOMERS
BABY BOOM TO BUST –
PUBLIC PENSION EXPENDITURES?
A
MIND THE BUST NOT THE BOOM
change in the OAD will cause a
But it should be noted that New Zealand faces the
corresponding increase in pension
longest period of time in which baby boomers
expenditure. Countries with a strong
will retire.
T
he baby boom came to an end as abruptly
remained relatively strong in numbers, especially
as it started. In Austria, Germany,
compared to pre-war cohorts (those born in the
Hungary and Switzerland it took only
same year). In European countries such as Germany
three years for total fertility to drop back below
(which had a modest baby boom and one of the
longer and was stronger in Anglo-Saxon countries
replacement levels. Fertility decreased by almost
lowest post-boom fertility rates), generations born
than in continental Europe, the onset of baby
one child per woman within eight years in
after the boom do not even outnumber those born
of the baby boomer retirement corridor will
boomer retirement will cause pressures on social
countries such as Canada, New Zealand and the
in the inter- or immediate post-war years. The effect
see only a slight increase in pension expenditure.
security systems. On the other hand, population
United States. This phenomenon is commonly
of the baby bust in continental Europe has been to
Australia will see its pension expenditure as
aging in most continental European countries,
referred to as the baby bust (refer to Table 2).
accelerate population aging.
a share of GDP jump by 20% once its baby boomer
which are already relatively old today, is mainly
The pattern of collapsing birth and fertility
The consequences of the baby bust in Europe
generation retires. During the retirement corridor
driven by the other major demographic event of
rates is observed in most of the countries that were
are more dramatic than the baby boom because of
of baby boomers in Canada, Switzerland, the
modern times: the “baby bust.”
OAD increase will face the biggest economic
As the post-World War II baby boom lasted
challenges stemming from the baby boomer
generation. Those countries already “old” ahead
analyzed. There are exceptions such as Italy, which
the sheer duration of the phenomenon. While the
Netherlands and the US, pension expenditure will
despite its short baby boom period was the second
baby boom lasted on average 13.5 years in Europe,
increase by a third. In the most extreme case,
last to enter below-replacement fertility (some 28
below-replacement rate fertility has continued in
New Zealand, pension costs will soar by 64%.
years after the boom ended). As in the case with the
some countries for four decades.
baby boom, the baby bust varies across countries.
The high variability of the starting period of the
GR APH 3: REL ATIVE BABY BOOMER SIZE VS. INCRE A SE IN PUBLIC E XPENDITURES
the contraceptive pill unlikely.
% 90
80
Increase in OAD
bust differs considerably. While the average total
NL
fertility from after the boom until 2010 was well
US
60
FR
50
CH
DE
DK
40
AU
AT
NO
UK
HU
20
0
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
Increase in pension e x penditure
Source: EU (2012), OECD (2013), UN (2012), Congres sional Budget Of f ice,
The baby boomer retirement corridor was rounde d to the nearest 5 -year
period. Countr y abbrev iations accord to ISO st andards.
Note: the relative changes refer to the period where baby
boomers retire. They differ between countries (see Table 1).
12
2.07
1.73
1976
Austria
1.56
1.33
1972
1.74
1.51
1972
Bulgaria
1.89
1.09
1965
C anada
1.78
1.49
1972
Denmark
1.75
1.38
1969
1969
fertility after the boom in the range of 1.5. That
Finland
1.97
1.49
continental Europe was hit harder is also underlined
France
1.93
1.66
1975
Germany
1.46
1.24
1970
Hungar y
1.76
1.26
1959
It al y
1.84
1.19
1977
countries saw their lows at about 1.7 children per
Netherlands
1.78
1.47
1973
woman, countries such as Germany and Italy
New Zealand
2.07
1.89
1978
Nor way
1.89
1.66
1975
Swe den
1.92
1.5
1968
dropped as far as 1.2 and Bulgaria as far as 1.1.
The baby boom and bust had different effects
on Anglo-Saxon countries and continental Europe.
For example, the US boom was long and strong in
magnitude, and post-baby boom generations
Allianz
Australia
Belgium
aftermath of the baby boom. While Anglo-Saxon
IT
Fir s t time
below
replacement
(2.1)
continental European countries such as Austria,
by the absolute lowest fertility rate observed in the
SE
BG
Lowes t
f er tilit y
above two for Australia, New Zealand and the US,
Germany and Switzerland experienced average
BE
FI
30
Average TFR
since end of
baby boom*
As can be seen in table 2, the magnitude of the
NZ
CA
70
10
TABLE 2: WHERE AND WHEN WA S THE BABY BUST ?
bust makes a single universal explanation such as
Sw it zerland
1.59
1.39
1971
UK
1.87
1.63
1973
USA
2.04
1.74
1972
Source: INED, *time period: End of respective baby boom until 2010
13
Allianz
BABY BOOMERS
BABY BOOMERS
BABY BOOM AND BUST: THE LABOR FORCE
OVER THE HUMP: AFTER THE BOOM
G R A P H 4: C H A N G E O F L A B O R F O RC E S I Z E B E F O R E A N D A F T E R B A BY B O O M E R R E T I R E M E N T
T
% 20
Change in work ing age population
15
10
5
0
-5
-10
-15
Source: UN (2012)
B
Australia
New Zealand
Nor way
Sw it zer land
USA
Canada
UK
France
Denmar k
Sweden
It aly
Belgium
Finland
Bulgar ia
Austr ia
Hungar y
Nether lands
Ger many
-20
Note: the relative changes refer to the period where baby boomers retire. They differ between countries (see Table 1).
he baby boom caught the world off-guard.
were not as numerous, their declining fertility rate
Interwar fertility and crude birth rates
has hit their societies harder. More than four
had indicated that the developed world
decades of below-replacement fertility has resulted
would continue to experience a shrinking
in following generations that do not even match the
population, but the reality – inexplicably –
pre-baby boom generations in numbers, leading to
proved different and the boom dramatically
considerably accelerated aging. As a result, some
changed the face of the modern world.
European countries are already super-aged before
Anglo-Saxon countries experienced long baby
their baby-boom generations even enter retirement.
booms with higher numbers of birth per women
As long as Western societies record below-
than continental European nations. As a result,
replacement rate fertility rates, the challenges they
the impact of the baby boomers on population
face relating to baby boomers and population aging
aging, pension expenditure and the economy also
will not simply “outgrow themselves.” But there are
varies significantly. While the populations of
positives. Anglo-Saxon countries have shown that
countries such as Australia, Canada, New Zealand
the baby bust phenomenon can be alleviated
and the US are shaped by the baby boom, the
through replacement rate fertility and migration,
challenges facing European countries stem from
and the Nordic countries and France are following
the subsequent baby bust.
in their trail, showing that surprising trend
Anglo-Saxon countries will see old-age social
esides the impact on retirement, the
In many countries across Europe, this will be
security costs escalate once the youth bulge turns
macro-economic implications of the baby
the first time in modern history that working-age
elderly. This will happen as the strongest birth
boomer generation are widely discussed.
populations will actually shrink. Interestingly,
cohorts enter retirement. Meanwhile, continental
Once baby boomers retire, experienced cohorts
these countries are not those with the largest
European countries face an increasing economic
will exit the labor force. The effects of the baby bust
baby boomer cohorts, but rather continental
challenge as their labor force shrinks due to
are not often included in discussions although the
European countries that experienced a small baby
advanced aging mainly based on the baby bust effect.
macro-economic implications are far more severe.
boom and are already at an advanced stage in aging
– and it is here that the baby bust kicks in.
Economic literature associates a shrinking
reversals in fertility are indeed still possible.
10 Allianz (2014)
TABLE 3: BABY BOOM, BABY BUST – WHAT’S NEXT?
FIRST SIGNS OF A RECOVERY
However, there is a silver lining for Western
countries. Since the all-time lows in fertility rates in
Lowes t pos tbaby boom
f er tilit y
D ate
Increase
since low
Australia
1.73
2001
9.08%
Austria
1.33
2001
8.27%
1985
21.85%
36.70 %
workforce with a decline in potential GDP, the
Germany, one of the oldest countries examined
the mid-1990s to the early 2000s, there has been a
Belgium
1.51
“natural output” which relates to the highest level
as measured by old-age dependency, will see a
significant trend reversal in some countries.
Bulgaria
1.09
1997
of output that can be sustained in the
decline of almost 14% in its working-age population
Scandinavian countries have experienced fertility
C anada
1.49
2000
9.34%
long-term. A possibly shrinking potential GDP
between 2021 and 2033. Hungary and Bulgaria are
gains up to 36% in the past 15 years, while France
Denmark
1.38
1983
36.23%
Finland
1.49
1973
25.50 %
therefore means lower growth levels.
already losing one percent of their working-age
has recovered to levels close to the replacement rate.
France
1.66
1993
21.69 %
Countries with the largest baby boom will not
population annually. Other countries where
Hungary is the only country in the sample not to
Germany
1.24
1994
12.10 %
see their potential labor forces decline. Although
shrinking working-age populations will be visible
have shown a reversal.
Hungar y
1.26
2010
0.0 0 %
population growth will slow, the US working-age
in the near future include Austria and Belgium. The
It al y
1.19
1995
18.49 %
22.45%
While future pension reforms in Anglo-Saxon
population is expected to grow by about 10 million
Netherlands is the only country where a large baby
countries will focus on the costs of retirement
people from 2011 to 2029. Larger relative increases
boom coincides with a considerable shrinking of
institutions, the labor market policy consequences
are expected for Australia and New Zealand, where,
the working-age population.
of a graying society is becoming more apparent in
according to UN population data, the potential
However, the possible effects of a shrinking
labor force will grow by double digits during the
working-age population on overall economic
The European aging problem is rooted in the
baby boomer retirement. These countries can
performance are still disputed: variables such as
baby bust. Because the European baby boomers
reduce the effect that retiring baby boomers have
the statutory and effective retirement age, labor
on their labor force by strong net immigration,
force participation rate (especially of women), hours
combined with a higher fertility rate (compared to
worked and total productivity, may all offset the
continental Europe).
negative effects of a shrinking potential labor force.
14
Allianz
Netherlands
1.47
1983
New Zealand
1.89
1998
13.76%
Nor way
1.66
1983
16.27%
1.5
1999
32.67%
Sw it zerland
1.39
2002
10.79 %
UK
1.63
2001
21.47%
USA
1.74
1976
11.03%
Swe den
continental European countries.
Source: INED
15
Allianz
SOURCES
·A
llianz (2014) Security – Trust – Solidarity – Perceptions of
Retirement: A cross-country comparison, Allianz International
Pensions Paper 01/2014
·A
ustralian Bureau of Statistics (2003); Baby Boomers and the
2001 Census, in: Newsletter “Age Matters”
· H ogan, Howard; Perez, Deborah; Bell, William (2008);
Who (Really) are the First Baby Boomers, in: Joint Statistical
Meetings Procedures, US Census Bureau
· D eutsches Zentrum für Altersfragen (2009); Die Babyboomer –
ein demographisches Porträt, in: Report Altersdaten
· S tatistisches Bundesamt (2014); Babyboomer: Deutschlands
geburtenstärkster Jahrgang wird 50, in: IM FOKUS, April 2014
· N otestein, Frank W. (1950), The population of the world in the
year 2000; in: Journal of the American Statistical Association 45
· V an Bavel, Jan; Reher David (2013); The Mid-20th Century Baby
Boom in the West: What we Know and What We Need to Know;
Working Paper
· O ECD (2013), Pensions at a Glance 2013
· U nited Nations (2012), World Population Prospects, the 2012 Revision
· E uropean Commission (2012), The 2012 Ageing Report: Economic
and budgetary projections for the 27 EU Member States
MASTHEAD
Publisher and Editorial Office
Allianz SE
International Pensions
Königinstrasse 28
80802 Munich, Germany
[email protected]
www.allianz.com
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Authors: Richard Wolf, Greg Langley, Renate Finke
Date: November 2014
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