Will Aging Baby Boomers Bust the Federal Budget?

B arely ten years from now, the leading edge of the baby boom generation will turn 65, ushering in a sustained aging of the U.S. population. Many are concerned that through the first half of the 21st century, the federal government will stagger under the weight of these elderly baby boomers as they receive the medical, retirement, and disability benefits promised them. The number of people over age 65 in the population is projected to increase by a factor of 2.5 by 2040 (Lee and Tuljapurkar, 1994), with the number of nursing home residents growing even more rapidly (Schneider and Guralnick, 1990). Long-term forecasts suggest that nearly one-third of GDP will be accounted for by health care by 2030 (Burner, Waldo and McKusick, 1992; Warshawsky, 1994). The fiscal impact of this demographic change is potentially enormous (Shoven, Topper and Wise, 1994). An alternative view is much more optimistic about retirement prospects for the baby boom generation. This view holds that disability and morbidity will continue to become more compressed, leading to healthier years later in life (Manton, Stallard and Liu, 1993b; Manton, Corder and Stallard, 1997). The average retirement age will rise. Productivity gains and increased tax revenue will offset the demands that aging baby boomers place on the federal budget. One projection suggests the percentage of those over age 65 requiring Medicaid coverage for longterm care will decline in the next century (Wiener, Illston and Hanley, 1994). Another is that long-term health care costs will decline as a fraction of median