Age Dependency Ratios and Social Security Solvency (CRS Report for Congress)
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| Release Date |
Revised Oct. 27, 2006 |
| Report Number |
RL32981 |
| Report Type |
Report |
| Authors |
Laura B. Shrestha, Domestic Social Policy Division |
| Source Agency |
Congressional Research Service |
| Older Revisions |
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Summary:
The aging of the population of the United States, hastened by the impending retirement of the huge baby-boom generation, has caused some policy-makers to question whether the U.S. Social Security system can meet the demands for retirement benefits in the future. The financial health of the system, which is largely financed through payroll taxes paid by current workers in a pay-as-you-go manner, is sensitive to the ratio of dependents to workersâsometimes called the age dependency ratio or support ratio.
Trends and projections of dependency ratios, including the relationship between both older (years 65 and older) and younger (under age 20) dependents to the working-age population in the United States are considered in the first section of this demographic report. If one considers the 130-year period from 1950-2080, the greatest demographic "burden"âwhen the number of dependents (children plus the elderly) most exceeds persons in the working-age populationâis already in the past, having reached its height in 1965 when there were 94.7 dependents per 100 persons of working age. While the dependency ratio has generally been decreasing since that time, two trends are evident. First, the ratio of dependents to workers will again reverse course beginning around year 2013 with the retirement of a large number of baby boomers. Second, the composition of the dependency ratio is changing. The number of children per worker has been falling since 1965; most of the anticipated increase in the dependency ratio in the coming decades reflects a growing proportion of older persons (ages 65 and older). Age-specific trends in the age dependency ratios are not off-setting in terms of their federal budget implications. Programs administered by the federal government (especially Social Security and Medicare) focus much more heavily on assisting the elderly population whereas state and local governments have historically provided substantial support for families with children through spending on elementary and secondary education and other programs.
Next, the United States is compared to nine other nations. Seven of the countries are members of the G8, a consultative grouping of leading industrial democracies: Canada, France, Germany, Italy, Japan, Russia, the United Kingdom. (The United States is the 8th member). In addition, China and India, the two most populous countries globally, are included to highlight that population aging is occurring even in nations that are less industrialized and have "younger" current age structures. Population aging, which largely results from declining fertility rates and increasing survival, is a global phenomenon. Today, the United States is the "youngest" of the industrialized G8 nations. While the proportion of the U.S. population that is aged 65 and older will continue to increase, aging in the United States is still projected to be considerably slower than in any of the other industrialized countries.
In the final section, policy implications of the changing dependent-to-worker ratios are considered in the context of pay-as-you-go (paygo) social security systems.
This report will be updated every two years.
