How Will This Bomb Hurt the United States?

Elderly_CrossingA report issued by London-based Fitch Ratings on Monday predicted that the “age bomb” in developed countries, including the United States, will impede long-term fiscal recovery; the aging populations will aggravate government indebtedness and could hurt credit ratings unless labor and pension reforms are enacted.

“Whilst a successful resolution of the current fiscal crisis remains the most important driver for many advanced-economy ratings, without further reform to address the impact of long-term ageing these economies face a second, longer-term fiscal shock,” read the report’s accompanying press release.

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The effect the retirement of the baby boomer generation will have on government finances has long been a concern, and for good reason. By 2050, the “elderly dependency ratio,” or the measure of the number of elderly people as a share of those of working age, in the 34-nation Organisation for Economic Co-operation Development (OECD) is expected for rise from the 14 percent recorded in 2012 to more than a third. As a result of that trend, Fitch expects the average government budget to worsen by 0.6 percentage points in the next eight years and by 4.9 percentage points by 2050.