(May 2002) The population of the United States is getting older. In 1950, when the baby boom was just getting underway, 8.2 percent of Americans were age 65 or older; now, 12.6 percent are. The number of Americans over age 65 is expected to reach 20 percent by the year 2030, when the nation as a whole will have a higher percentage of older people than Florida does today.

The U.S. population’s aging is the result of two long-term trends: declining fertility rates and increasing longevity. The long-term decline in fertility rates was temporarily interrupted during the baby boom, when 76 million babies were born in the United States between 1946 and 1964. The boom produced an unusually large cohort, whose members will join the population over age 65 beginning in 2011. Population aging will thus accelerate during the second and third decades of the 21st century.

The aging of the population affects everyone: marketers, builders, health officials—and taxpayers, young and old alike. Older people receive more in public benefits, notably Social Security and public spending on health care, than they pay each year in taxes. Of course, there is no assumption that the tax payments and public expenditures of an individual or an age group should balance in any given calendar year. Those receiving Social Security benefits have typically paid taxes for many years to support the system, and they have also raised and supported current and future taxpayers. It would be misleading to look at old people only as burdens for the public purse. Nonetheless, the fact that the age group that produces the largest net deficit for the public sector is growing rapidly does pose a challenge for government— and ultimately for voters. Public finances must be adapted to deal with a new demographic situation.

Current forecasts imply that demographic changes will force Americans to choose one of four options: get used to the government share of the economy being much greater than they have been used to in peacetime; make age-related benefits less generous or less universal; restructure the systems to reduce the public obligation; or develop some combination of the first three. The choice is not merely a technical matter for accountants and policymakers. The current systems have important effects on the distribution of income and welfare, so reform proposals must be evaluated on the basis of Americans’ perceptions of fairness, as well as on the changes’ effects on public budgets. But one thing is clear: The sooner steps are taken to deal with the coming changes, the less stressful the situation will be, both for the beneficiaries of public programs and for the taxpayers who support them.

Much of the current political discussion deals with technical questions, such as the actuarial balance in trust funds set up to pay for social insurance programs, or with proposals for new benefits, such as adding a prescription drug benefit or individual retirement accounts. But there are some basic underlying issues: making the programs financially sustainable under new demographic conditions, and ensuring that individuals, generations, and groups within generations are treated fairly. This report is not intended to support specific reform proposals, but rather to present data and criteria for judging the alternatives.

Ronald Lee is professor of demography and economics at the University of California at Berkeley, where he also directs the Center for the Economics and Demography of Aging.

John Haaga is director of the Population Reference Bureau’s domestic programs group, which publishes information on U.S. population trends and their implications.