PRB

Public pension plans hold trillions of dollars in assets and are responsible for the current and future retirement security of millions of Americans. In recent years, though, questions have arisen about the financial sustainability of such plans.

Baby Boomers have exited the labor force in large numbers over the last decade, meaning they are now drawing payments from thousands of public pension systems across the United States. Without sufficient planning for demographic change, public pension plans will face fiscal challenges in the very near future.

In this Population Bulletin, we test different scenarios to understand how policy levers could change the population of retirees in the coming decades and affect the demand on state and local public pensions. Among our findings:

• The retirement rate has risen notably in recent years. The retirement rate among 59- to 77-year-olds increased from 7.9% to 8.3% between 2014–2016 and 2021–2023, adding 3.7 million retirees in this age group.
• By 2050, nearly a quarter (23.2%) of the U.S. population will be retirees. Meanwhile, the share of the total population in the labor force in 2050 will be just 56.4%, down three percentage points from 2024.
• Between 2024 and 2050, the share of retirees will grow quickly. If our current assumptions about the age of retirement and the population of older Americans hold true, the ratio of retirees to workers will increase from 0.32 in 2024 to 0.41 in 2050. The population of retirees will rise from over 53 million in 2024 to nearly 71 million by 2050. On average, over 3.2 million new retirements will happen each year over this 26-year period.
• Increasing the minimum retirement age by two years—a popular policy proposal—would do little to change these trends. The rise in the ratio of retirees to workers would slow, but by a small magnitude. This policy change would lead to just 4.3 million fewer retirees overall by 2050.
• If workers retired two years earlier, the number of retirees would grow. Such early retirements would culminate in 7.9 million more retirees by 2050 than currently expected.
• Events such as gradual declines in hiring and retention challenges or an immediate shock resulting in layoffs or closures (like the COVID-19 pandemic) would also increase the number of retirees in the public sector. Such occurrences would result in 1 to 2 million more retirees relative to younger workers by 2050, over and above demographic change.
• Our aging workforce is driving major changes. In all scenarios, the number of retirees relative to younger workers increases over time as the United States becomes an older country.

State and local governments need to address the reality that aging Baby Boomers will affect pension plans for decades to come. As we demonstrate, adjustments to retirement policies do very little to counteract the demographic pressures these plans will face. Solutions such as drawing un- and underemployed workers into the government, addressing fiscal challenges sooner rather than later, and creating flexibility in how pension plans are designed could help address these pressures. Without interventions, the failure to confront our demographic reality will lead to an increased burden for everyone.