The aging states of America

A senior engineer-technician operates complex equipment at an electrical dispatching station. (Photo by Olga Rolenko/Getty Images)

The United States is experiencing rapid growth in its older population, a triumphant result of long-term investments in health and medicine. There have never before been so many older Americans – particularly relative to working-age Americans. And the proportion of the country 65 and older will only keep growing in the years ahead: A decade from now, the number of older Americans will surpass those under 18 for the first time in history.  

These changing demographics present both challenges and opportunities for the United States. Additional years of life will offer Americans more time for family, work, and leisure. But a growing elderly population will also need care, support, and integration into the workforce, which is certain to be costly and could threaten the country’s fiscal and economic stability. Avoiding that outcome will require giving workers new opportunities to save before they reach retirement, making the workplace more accessible for older workers and shoring up state and federal budgets. 

A gray wave

By 2040, the U.S. population, which currently numbers about 330 million, is projected to hit 372 million. Over this time period, the composition of the population is also expected to shift dramatically. The number of Americans 65 and older will likely increase by 50%, going from 54 million to an estimated 82 million, while the number of those under 65 is expected to increase by just 5%. To grasp the economic implications of this shift, consider that in 2020, for every 100 working-age households – the core of the U.S. tax base – there were only 37 older households. In 2040, however, there will be 54 older households per 100 working-age households, potentially causing great strain not only on the working-age households but also on the government.  

This great transformation can be attributed to three factors: birth rates, life expectancy, and migration. First, birth rates have been dropping ever since the end of the baby boom in the mid-1960s. In the United States in the late 1970s, women on average were giving birth to 2.2 children over their lifetimes. Today that number is just 1.7, and it’s not expected to rise (or fall) over the next 30 years. Many factors may have influenced the drop in fertility rates, including increased labor-force participation, earnings, and educational attainment by women; delays in marriage and childbearing; the use of contraceptives; and the cost of raising children.  

Meanwhile, life expectancy is growing. In the United States, life expectancy at birth was 77.5 years in 2022 – and should surpass 84 years by 2050. Americans who reach the age of 65 are also living longer. In 1960, Americans who reached 65 could, on average, expect to live another 14.3 years; by 2022, that number was 18.9 years.  

Finally, as a small counterbalance to the falling birth rate, migration to the United States – assuming current trends and no changes in public policy – will be a modestly net positive in the years ahead as more individuals migrate into the country than choose to leave. Indeed, as the U.S. fertility rate falls, growth of the country’s population will increasingly be driven by immigration.

Nursing home residents are introduced to a new robotic assistant in Roseville, Minnesota on July 6, 2022. (Photo by Mark Vancleave/Star Tribune via Getty Images)

Not ready to retire

Maintaining older Americans’ quality of life and protecting the country’s fiscal situation will require ensuring that Americans properly prepare for their retirement. Unfortunately, that does not seem to be happening. Pew-sponsored research published last year assessed the gap between the income that retirees will need – defined as 75% of their pre-retirement income – and the income they’ll likely receive based on current trends. The study found that by 2040, the average American retiree will earn $7,050 less per year than they’ll need.  

The retirement readiness of American households will affect not only retirees but also the country’s social assistance programs. If Americans don’t have enough saved to support themselves, it’s more likely that they’ll need to access the patchwork of government assistance programs that provide nutrition, housing, health care, and other services.  

At present, many programs that serve people 65 and older in the United States are means-tested for eligibility or benefit levels. Annual federal spending on people 65 and older within selected programs (excluding Social Security and Medicare, which are not dependent on income levels) totaled an estimated $109.7 billion in 2020, based on a Pew-funded 2023 study. Several of these programs also have state-funded components that are estimated to cost an additional $36.7 billion. If current trends continue, insufficient retirement savings by individuals are expected to lead to $990 billion in cumulative federal expenditures between now and 2040. In other words, lack of household savings will cost the U.S. government nearly $1 trillion over the next decade and a half. State budgets will be hit with about $334 billion in additional expenses. 

Delaying Americans’ retirement age is one way to deal with these costs. Incentivizing people to work longer reduces their need for social assistance and helps them generate additional savings. Older Americans are already working more years than in the past. In 2002, 20% of adults 65 to 74 were employed; by 2022, the rate was 27%, and it is expected to continue climbing. This increase in employment at older ages may reflect the fact that some workers don’t have sufficient savings to retire. But it’s also true that many workers with higher education levels can – and want to – work longer than in the past. In 1965, for example, only 5% of people 65 and older had a bachelor’s degree. By 2020 (the latest year for which data is available), that figure was 33%. 

Not all Americans may be able to work for more years, however. Aging is associated with an increased risk of disability, disease, and chronic health conditions. Although only 4% of 24-year-olds currently report health conditions that limit the kind of work they can do, 21% of 56-year-olds report such conditions.  

Still, there are a variety of ways the country can enable older Americans to remain employed. Employers are experimenting with various ways to encourage older workers to remain in the workforce; for example, through mentorship programs that pair older and younger workers and by offering older workers opportunities for lifelong learning and skill development. Other ideas include greater workplace flexibility – such as remote work, job sharing (a flexible work arrangement where two employees share the responsibilities of a single position by working part time), and phased retirement – to accommodate the needs of older employees while retaining their valuable experience and expertise. 

Another way to help defray the costs associated with an older population would be for workers to save more for retirement. Filling the estimated retiree income gap of $7,050 would require Americans to save an additional $1,685 per year, or about $140 per month, for the 30 years preceding retirement. Saving an additional $140 per month will be manageable for many Americans, but not all. Even more modest savings, however, would provide a buffer to help vulnerable households afford retirement. 

In recent years, states and the federal government have made several policy changes to encourage individuals to save more during their working years. In 2019 and 2022, Congress created new tax credits that either encourage more savings or offset the employer cost of sponsoring retirement benefits. And in the last seven years, 17 states have created savings programs for workers who lack retirement benefits at work.  

Governments can and should do more, however, including expanding access to retirement savings opportunities, especially for small businesses and workers in the gig economy. Policymakers should also make savings more commonplace for all workers by, for example, automatically enrolling workers into a plan (with the ability to opt out) and automatically escalating retirement contributions by 1% each year up to a maximum level (such as 10% of pay). Government should also find ways to improve Americans’ financial literacy, which will help them better plan for retirement. 

Service Employees International Union members and nursing home workers rally in St. Louis Park, Minnesota on March 5, 2024. (Photo by Elizabeth Flores/Star Tribune via Getty Images)

Caring for caregivers

Even if Americans do start saving more, an aging population will still need additional services. Adult day care, assisted living communities, and nursing homes are often unattainable for people who need them, due to high costs or limited availability in many communities. 

Long-term care for older Americans is very expensive. In 2023, U.S. nursing homes cost $104,000 or more per year at the median, depending on room type. Even less expensive options, such as home health aides, still cost more than $5,000 per month. 

Unable to afford such care, many Americans turn to family members for help instead. But the slower growth of the working-age population in coming years means that families will have fewer and fewer caregivers available. And these caregivers must also balance competing imperatives: 61% of all U.S. caregivers report holding outside jobs in addition to their family duties, and 60% of those jobs are full time. Taking on the care of an older relative often requires workers to reduce their hours, take a leave of absence, or forgo promotions or raises.  

To address these and other concerns, a number of experts on aging have proposed an array of possible solutions and interventions. (Pew does not endorse any particular idea.) These ideas include, for example, increasing funding for geriatric-care training programs, incentivizing health-care providers to offer services in underserved areas, better use of innovative health-care technology, tax credits for caregivers, and more flexible work arrangements that keep caregivers in the workforce in order to maintain income and benefits. 

No time to waste

The coming inversion of the old and young populations in the United States – as Americans over 65 come to outnumber those under 18 – will test the country’s long-standing social and economic practices and resources. The graying of the American population is already putting enormous pressure on state and federal programs designed to support older citizens, and those pressures will increase in the coming years. While many older Americans are working longer, too few are saving enough for retirement. U.S. policymakers would be wise to start implementing measures now that encourage greater savings and provide care for those who need it; if they wait until the country’s current workers hit retirement, it will be far too late.