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MONEY
Economy

Delayed retirement is both a symptom and a cause of a troubled economy

Michael Molinski
Special for USA TODAY
The aging of the workforce has economic implications.

People in the United States are working longer hours and waiting longer to retire, often not by choice — and that could be bad news for the future of our economy.

In a follow-up to a study about the age and productivity of workers, research at the University of Paris-Sorbonne concluded that as both younger workers (ages 15-24) and older ones (55-65) have been pushed into the workforce over the past 40 years, the age distribution of the U.S. labor force has taken on a distinctive barbell shape. The larger percentage of younger and older workers on either end of the barbell represents a bad sign for our productivity going forward. That's because the most productive group is the core workers (ages 25-54) right in the middle.

The average age for retirement in the U.S. has jumped to 62 in 2014, up significantly from 59 in 2010, according to a Gallup Poll. As a result, our economy is less productive than it could be, and that trend is expected to continue for the next 35 years unless something is done to turn it around.

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As dire as that sounds, there are positives in keeping people in the workforce longer. Even if their productivity doesn’t show it, “There is a mentoring effect,” says Laura Carstensen, director of the Stanford Center on Longevity. “The presence of older workers increases younger people’s success.”

Besides predicting falling productivity, the study also draws attention to the dwindling public and private system of saving for retirement in the United States, and how it feeds into a vicious economic cycle. In Europe, people have more of a safety net that they can draw upon to pay for retirement, subsidized by corporate and payroll taxes. A growing number of U.S. workers don't have that same luxury. To fill in the gap left by the reduction of traditional pensions, the U.S. has created 401(k)s and other retirement vehicles. Those, however, are mostly funded by the employees themselves, so in order to pay for their retirement, people have to keep working and retire later, perpetuating the cycle.

Disappearing pensions hurt U.S. economy as well as workers

The United States is not the only nation dealing with an aging workforce. The average age for workers worldwide has risen to about 43 from about 39 in 2009. In fact, the issue could become more of a problem in other countries with rising life expectancies because longevity appears to be plateauing in the United States. The average life expectancy was unchanged at 78.8 years in 2013, the same as it was in 2012 and barely higher than it was in 2010, according to the U.S. Centers for Disease Control. Carstensen says the plateau may be because white women’s life expectancy has dropped recently, in part because of opioid abuse and suicide.

Based on the average age of America’s population, “The demographic future for the U.S. is robust in comparison with other countries,”  concludes a Pew Research Center report titled "Attitudes about Aging: A Global Perspective."

Needless to say, a huge part of the world is getting older. The U.S. may be graying at a slower pace than many, but it is still graying as well. Those countries that can prepare their economies for this aging by creating a system that does not push older workers to work longer and by finding ways to fund retirement — be they privately or publicly funded — will be better prepared for this shift.

Michael Molinski is a Paris-based economist and writer, and a former retirement editor at Fidelity Investments and a former journalist at MarketWatch and Bloomberg.

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