	Background

In the 21st century the nation faces a growing fiscal imbalance. A  demographic shift will begin to affect the federal budget in 2008 as the first  baby boomers become eligible for Social Security benefits. This shift will  increase as spending for federal health and retirement programs swells. Long-term commitments for these and other federal programs will drive a  massive imbalance between spending and revenues that cannot be  eliminated without tough choices and significant policy changes. Continued economic growth is critical to addressing this challenge and  will help to ease the burden, but the projected fiscal gap is so great that it  is unrealistic to expect that the United States will grow its way out of the  problem. Early action to change existing programs and policies would  yield the highest fiscal dividends and provide a longer period for  prospective beneficiaries to make adjustments in their own planning. One  of the potential policy changes that could address both the demographic  shift and the need for robust economic growth is assisting older workers  who want to stay in the workforce past retirement age. These developments will lead to significant changes in the elderly  dependency ratio--the estimated proportion of people aged 65 and over to  those of working age. Another concern is  the possible loss of many experienced workers as the baby boomers retire. This could create gaps in skilled worker and managerial occupations,  leading to further adverse effects on productivity and economic growth. Similarly, the labor force participation rate of women over 55 has  continued to increase. Many Factors Influence Workers’ Retirement and Employment Decisions

Although some people can benefit by remaining in the labor force at later  ages, others may be unable or unwilling to do so. For those who are able,  there are many factors that influence their choices. These include the  eligibility rules of both employer pension plans and Social Security, an  individual’s health status, the need for health insurance, personal  preference, and the employment status of a spouse. The availability of  suitable employment, including part-time work or flexible work  arrangements, may also affect the retirement and employment choices of  older workers. By  staying in the workforce, older workers could ease financial pressures on  Social Security and Medicare, as well as mitigate the expected slowdown  in labor force growth. We at  GAO look forward to continuing to work with this Committee and the  Congress in addressing this and other important issues facing our nation.
Why GAO Did This Study

In the 21st century our nation faces a growing fiscal imbalance. A demographic shift will begin to affect the federal budget in 2008 as the first baby boomers become eligible for Social Security benefits. This shift will increase as spending for federal health and retirement programs swells. Long-term commitments for these and other federal programs will drive a massive imbalance between spending and revenues that cannot be eliminated without tough choices and significant policy changes. Continued economic growth is critical and will help to ease the burden, but the projected fiscal gap is so great that it is unrealistic to expect that we will grow our way out of the problem. Early action to change existing programs and policies would yield the highest fiscal dividends and provide a longer period for prospective beneficiaries to make adjustments in their own planning. One of the potential policy changes is assisting older workers who want to stay in the workforce past retirement age. The Chairman and Ranking Member of the Senate Special Committee on Aging asked GAO to discuss demographic and labor force trends and the economic and fiscal need to increase labor force participation among older workers. This testimony will address those factors making it important to encourage those who want to work to continue doing so, as well as factors affecting older Americans' employment decisions.

What GAO Found

The aging of the baby boom generation (those born between 1946 and 1964), increased life expectancy, and falling fertility rates pose serious challenges for our nation. These trends will affect the size and productivity of the U.S. labor force and its output and will have real and important impacts on employers and the economy. With the impending retirement of the baby boom generation, employers face the loss of many experienced workers and possibly skill gaps in certain occupations. This could have adverse effects on productivity and economic growth. Furthermore, the expected increasing ratio of the elderly to those of working ages will place added pressure on Social Security and Medicare, both of which face long-term financial problems. Increasing the labor force by encouraging Americans to work longer may be one part of solutions to these problems. Although some people can benefit by remaining in the labor force at later ages, others may be unable or unwilling to do so. For those who are able, there are many factors that influence their choices. These include the eligibility rules of both employer pension plans and Social Security, an individual's health status, the need for health insurance, personal preference, and the employment status of a spouse. The availability of suitable employment, including part-time work or flexible work arrangements, may also affect the retirement and employment choices of older workers.