Talkin’ ’Bout My Generation: The Economic Impact of Aging US …/media/McKinsey/Business... ·...

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McKinsey Global Institute Talkin’ ’Bout My Generation: The Economic Impact of Aging US Baby Boomers June 2008 Executive Summary

Transcript of Talkin’ ’Bout My Generation: The Economic Impact of Aging US …/media/McKinsey/Business... ·...

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McKinsey Global Institute

Talkin’ ’Bout My Generation:The Economic Impact of Aging US Baby Boomers

June 2008

Executive Summary

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McKinsey Global Institute

Th� �cKins��� �l�bal Ins��i������ (��I), f��nd�d in 1990, is �cKins��� &

C�mpan��’s �c�n�mics ��s�a�ch a�m. ��I’s missi�n is ��� h�lp b�sin�ss and

g�v��nm�n�� l�ad��s d�v�l�p a d��p�� �nd��s��anding �f ��h� �v�l���i�n �f ��h�

gl�bal �c�n�m�� and p��vid� a fac�� bas� ��ha�� c�n���ib����s ��� d�cisi�n making

�n c�i��ical manag�m�n�� and p�lic�� iss��s.

��I’s ��s�a�ch is a �niq�� c�mbina��i�n �f ��w� disciplin�s� �c�n�mics and

manag�m�n��. ��� in���g�a��ing ��h�s� ��w� p��sp�c��iv�s, ��I is abl� ��� gain

insigh��s in��� ��h� mic���c�n�mic �nd��pinnings �f ��h� b��ad ����nds shaping

��h� gl�bal �c�n�m��. ��I has ���iliz�d ��his “mic��-���-mac��” app��ach in

��s�a�ch c�v��ing �v�� 15 c��n���i�s and 28 ind�s����� s�c����s, �n ���pics ��ha��

incl�d� �c�n�mic p��d�c��ivi����, gl�bal �c�n�mic in���g�a��i�n, �ffsh��ing, capi��al

ma�k���s, h�al��h ca��, �n��g��, d�m�g�aphics, and c�ns�m�� d�mand.

��I’s ��s�a�ch is c�nd�c���d b�� a g���p �f f�ll-��im� ��I f�ll�ws bas�d in

�ffic�s in San F�ancisc�; Washing���n, DC; L�nd�n; and Shanghai and l�d

b�� ��I’s di��c���� Diana Fa���ll. ��I p��j�c�� ���ams als� incl�d� c�ns�l��an��s

d�awn f��m �cKins���’s �ffic�s a���nd ��h� w��ld and a�� s�pp�����d b��

�cKins���’s n���w��k �f ind�s����� and manag�m�n�� �xp����s and w��ldwid�

pa���n��s. In addi��i�n, ��I ���ams w��k wi��h l�ading �c�n�mis��s, incl�ding

N�b�l la���a���s and p�lic�� �xp����s, wh� ac�� as advis��s ��� ��I p��j�c��s.

��I’s ��s�a�ch is f�nd�d b�� ��h� pa���n��s �f �cKins��� & C�mpan�� and is

n��� c�mmissi�n�d b�� an�� b�sin�ss, g�v��nm�n��, �� ���h�� ins��i�����i�n. F����h��

inf��ma��i�n ab���� ��I and c�pi�s �f ��I’s p�blish�d ��p����s can b� f��nd

a�� www.mckins���.c�m/mgi.

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Talkin’ ’Bout My Generation: The Economic Impact of Aging Baby Boomers is ��h�

��s�l�� �f a ���a�l�ng s���d�� b�� ��h� �cKins��� �l�bal Ins��i������ (��I) in pa���n��ship

wi��h �cKins���’s C�ns�m�� Insigh�� P�ac��ic�. Th� w��k b�ilds �n p��vi��s ��I

w��k �n ��h� impac�� �f d�m�g�aphics �n na��i�nal �c�n�mi�s, as w�ll as ��I’s

w��k �n shif��ing pa������ns �f c�ns�m�� d�mand in ��h� w��ld.1 This s���d�� p��s�n��s

n�w da��a and anal��sis �n h�w ��h� �ab�� ���m��s, �n� �f ��h� la�g�s�� US bi���h

c�h����s ��la��iv� ��� p�p�la��i�n in ��h� las�� c�n������, will shap� ��h� US �c�n�m�� �v��

��h� c�ming d�cad�s as ��h��� ag� and ����i��.

In N�v�mb�� 2007, w�, al�ng wi��h ��� c�ll�ag��s David C����� and J�hn E. F��s����h,

p�blish�d an a���icl� “S��ving Aging �ab�� ���m��s” in The McKinsey Quarterly,

highligh��ing ��s�l��s �f ��his ��s�a�ch f��m ��h� p��sp�c��iv� �f b�sin�ss�s s��k-

ing ��� s��v� an aging p�p�la��i�n �f c�ns�m��s.2 In ��ha�� pi�c� w� f�c�s�d �n

��h� significan�� �pp�����ni��i�s as w�ll as ��h� chall�ng�s ��his d�m�g�aphic shif��

p��s�n��s f�� c�mpani�s s��ving aging c�ns�m��s. In ��his ��p����, w� ��ak� a dif-

f���n�� p��sp�c��iv�. H���, w� f�c�s �n ��h� q��s��i�n �f wha�� impac�� ��h� aging

�f ��h� ���m��s will hav� �n ��h� �v��all US �c�n�m��, and wha�� ac��i�ns p�lic��

mak��s and b�sin�ss l�ad��s m�s�� b�gin ��� ��ak� n�w ��� minimiz� ��h� �isks ���

��h� �c�n�m�� p�s�d b�� ��his d�m�g�aphic ���ansi��i�n.

David C�����, a �cKins��� di��c���� in Dallas and gl�bal kn�wl�dg� l�ad�� f�� ��h�

C�ns�m�� Insigh�� P�ac��ic�; E�ic ��inh�ck��, a s�ni�� f�ll�w wi��h ��I in L�nd�n;

and J�hn F��s����h, an �xp���� p�incipal wi��h ��h� C�ns�m�� Insigh�� P�ac��ic� in

1 S�� �cKins��� �l�bal Ins��i������ R�p����s� Th� C�ming D�m�g�aphic D�fici��� H�w Aging P�p�la-��i�ns Will R�d�c� �l�bal Savings, D�c�mb�� 2004; From ‘�ad� in China’ ��� ‘S�ld in China’� Th� Ris� �f ��h� Chin�s� U�ban C�ns�m��, N�v�mb�� 2006; The ‘�i�d �f ��ld’� Th� Ris� �f India’s C�ns�m�� �a�k���, �a�� 2007. Th��� can b� f��nd a�� h����p�//www.mckins���.c�m/mgi/

2 David C�����, Diana Fa���ll, and J�hn E. F��s����h, “S��ving Aging �ab�� ���m��s,” The McKinsey Quarterly, N�v�mb�� 2007.

P��fac�

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C�nn�c��ic���, w��k�d cl�s�l�� wi��h m� ��� p��vid� �v��all l�ad��ship �n b���h s��ag�s

�f ��his p��j�c��. Th� p��j�c�� ���am f�� ��his ��p���� was manag�d b�� Ez�a ����nb��g,

an �xp���� wi��h ��I in Washing���n, DC, wh� als� l�d ��h� �c�n�mic anal��sis and

m�d�ling �ff����s, and i�� incl�d�d J�na��han Abl����� �f ��h� N����h Am��ican Kn�wl�dg�

C�n����; S���chi Sh�kla, a �cKins��� c�ns�l��an�� f��m ��h� Asia H��s� �ffic� in

F�ankf����; ���ff���� ����n�, an �x����nal advis�� ��� ��I �n �c�n�m����ic m�d�ling;

and N�ll H�nd��s�n, an ��I s�ni�� �di���� in Washing���n, DC.

This ��p���� b�il�� �p�n ��� �a�li�� w��k. Tha�� p��j�c�� ���am was manag�d fi�s�� b��

Van�ssa F���man, a c�ns�l��an�� in �cKins���’s L�nd�n �ffic� and ��h�n b�� J�hn

Cha�, a c�ns�l��an�� f��m �cKins���’s H��s���n �ffic�. Th� ma�k��� ��s�a�ch was

l�d b�� L��a Chajka-Cadin, an �xp���� wi��h �cKins���’s C�ns�m�� Insigh�� P�ac��ic�

in ��s���n. W� w��� s�pp�����d b�� a s�p��b ���am ��ha�� incl�d�d Viv�k �an��ji,

�a����h�w Kl�sas, ������� L��kk�, J��ng����n Shim, and N�d W�lch.

W� als� ��c�iv�d val�abl� inp��� and g�idanc� f��m a n�mb�� �f s�ni�� �cKins���

pa���n��s wh� c�mmi�����d ��h�i� ��im� ��� s��v� �n a s�����ing c�mmi������ ��� ��vi�w ��h�

w��k. Th��� incl�d� �lai� C�awf��d, �a���in Elling, Dav� Elzinga, ����s�� H�ld�n, David

H�n��, J�hn �cPh��s�n, �icha�l Pa��sal�s-F�x, Tim W�lsh, and �icha�l Z�a.

O�� ���am b�n�fi���d s�bs��an��iall�� f��m in����vi�ws and disc�ssi�ns wi��h a n�mb��

�f �xp����s, incl�ding Alicia ��nn�ll and An��h�n�� W�bb �f ��h� C�n���� f�� R���i��m�n��

R�s�a�ch a�� ��s���n C�ll�g�, and �a���in N�il �ail�� �f ��h� ����kings Ins��i�����i�n.

Finall��, w� w��ld lik� ��� ��hank s�v��al m�mb��s �f ��I’s p��f�ssi�nal s��aff wh�

c�n���ib����d ��h�i� �ff����s ��� ��his p��j�c��� Tim ��ac�m, f�� his ��s�a�ch assis��anc�;

R�b�ca R�bb���, ��I’s �x����nal ��la��i�ns manag��; and D�ad�a H�nd��s�n,

��� p�ac��ic� adminis���a����. W� als� ��hank An��h�n�� L�� �f ��h� N����h Am��ica

Financial S��vic�s P�ac��ic�, and ��h� s�p��b s��affs �f �cKins���’s N����h Am��ican

Kn�wl�dg� C�n����, ��h� �cKins��� Kn�wl�dg� C�n���� in India, and ��h� p��d�c��i�n

and ���chnical s��vic�s �f ��h� Fi�m.

O�� g�al wi��h ��his and ���h�� ��I ��p����s is ��� p��vid� b�sin�ss l�ad��s, p�lic��

mak��s, and ���h�� d�cisi�n mak��s wi��h fac��s and insigh��s ��ha�� l�ad ��� b�������

�nd��s��anding �f k��� ����nds in ��h� gl�bal �c�n�m��. As wi��h all ��I p��j�c��s, ��his

��s�a�ch is ind�p�nd�n�� and was n��� c�mmissi�n�d �� sp�ns���d in an�� wa�� b��

an�� b�sin�ss, g�v��nm�n��, �� ���h�� ins��i�����i�n.

Diana Fa���ll

Di��c����, �cKins��� �l�bal Ins��i������

J�n� 2008

San F�ancisc�

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Talkin’ ’����� ��� ��n��a��i�n�Th� Ec�n�mic Impac�� �f Aging US �ab�� ���m��s

Diana Fa���llE�ic ��inh�ck��Ez�a ����nb��gS���chi Sh�klaJ�na��han Abl��������ff���� ����n�

�cKins��� �l�bal Ins��i������

J�n� 2008

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Ex�c���iv� S�mma���

Am��ica’s “�ab�� ���m” g�n��a��i�n has d�mina���d ��h� US �c�n�m�� f�� m���

��han a q�a�����-c�n������. O�� ��s�a�ch sh�ws ��ha�� ��h� n�a�l�� 79 milli�n �ab�� ���m-

��s hav� �a�n�d ��c��d l�v�ls �f inc�m�, g�n��a���d g��a�� w�al��h, and sp����d

�c�n�mic g��w��h. ���� ��h��� hav� als� sp�n�� a�� ��c��d l�v�ls, fail�d ��� sav�, and

acc�m�la���d �np��c�d�n���d l�v�ls �f d�b��. N�w, as ��h� �ld�s�� ���m��s n�a� ��-

��i��m�n��, w� �s��ima��� ��ha�� app��xima���l�� ��w�-��hi�ds �f Ea�l�� ���m�� h��s�h�lds,

wh� a�� ag�d 54 ��� 6�, a�� financiall�� �np��pa��d f�� ����i��m�n��—��ha�� is, ��h���

hav� n��� acc�m�la���d �n��gh savings ��� main��ain ��h�i� lif�s����l� as ��h��� ag�. And

man�� �f ��h�m d� n��� ��aliz� ��h��� a�� ill-p��pa��d. ��anwhil�, ��h�i� p��dicam�n��

is w��s�ning wi��h ��h� fall in h�m� val��s and s���ck p�ic�s ��ha�� b�gan in 2007.

Th� ���m��s’ aging als� will b� f�l�� ��h���gh���� ��h� �c�n�m��. As ��h� ���m��s

g��w �ld��, ��h��� will w��k and sp�nd l�ss, sl�wing ��al �DP g��w��h ��� a m���

m�d�s�� pac� ��han in ��c�n�� d�cad�s� f��m ��h� �.2 p��c�n�� av��ag� ann�al �a���

�nj����d sinc� 1965 ��� 2.4 p��c�n�� �v�� ��h� c�ming ��h��� d�cad�s. Whil� ��h�

b��s��ing �f ��h� h��sing b�bbl� and ��s�l��ing c��di�� c�isis hav� �ais�d c�nc��ns

ab���� �c�n�mic p��f��manc� in ��h� sh���� ����m, ��h� c�ming ����i��m�n�� �f ��h�

�ab�� ���m��s will p�s� chall�ng�s ��� ��h� US �c�n�m�� f�� m��� ��han ��h���

d�cad�s.

���� ��� ��s�a�ch als� sh�ws ��ha�� ��h�s� chall�ng�s can b� m���. O�� anal��sis

sh�ws ��ha�� �nabling ��h� ���m��s ��� w��k la���� in lif� w��ld significan��l�� b�n�fi��

b���h individ�al h��s�h�lds and ��h� b��ad�� �c�n�m��. ��� inc��asing ��h� m�dian

����i��m�n�� ag� b�� ab���� ��w� ���a�s—f��m 62.6 ���da�� ��� 64.1 b�� 2015—��h�

sha�� �f �np��pa��d ���m�� h��s�h�lds c��ld b� halv�d f��m 62 p��c�n�� ��� �1

p��c�n��. And ��h� addi��i�nal w��k��s w��ld b��s�� ��al �DP g��w��h.

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Th� ���m��s hav� b��n adap��abl� and inn�va��iv� ��h���gh���� ��h�i� liv�s and a��

al��ad�� s��a���ing ��� ��d�fin� aging and ����i��m�n��. O�� s��v��� �f ���m��s facing

����i��m�n�� sh�ws ��ha�� m�s�� �xp�c�� ��� w��k la���� in lif�. H�w�v��, ��h��� a�� als�

man�� ba��i��s ��� d�ing s�. Th�s� �ang� f��m ��h� c�s��s �f Am��ica’s h�al��h ca��

s��s���m, ��� �nin���nd�d c�ns�q��nc�s �f lab�� laws and p�nsi�n ��g�la��i�ns,

��� c��p��a��� a����i���d�s ���wa�d �ld�� w��k��s. I�� is �ss�n��ial ��ha�� p�lic�� mak��s

and b�sin�ss l�ad��s w��k ���g���h�� ��� ��m�v� ��h�s� ba��i��s and p��v�n�� ��h�

���m��s’ ����i��m�n�� f��m b�c�ming a m�l��i-d�cad� d�ag �n US g��w��h.

Th�s� c�ncl�si�ns a�� s�pp�����d b�� a ���a�l�ng ��s�a�ch p��j�c�� c�nd�c���d b��

��h� �cKins��� �l�bal Ins��i������ (��I) in pa���n��ship wi��h �cKins���’s C�ns�m��

Insigh�� P�ac��ic�. Th� ��s�a�ch incl�d�d c�ns����c��i�n �f a da��abas� �f US h��s�-

h�ld financial da��a c��� b�� ag�, inc�m�, and w�al��h f��m 1962 ��h���gh ��h� ��hi�d

q�a����� �f 2007; ��h� c��a��i�n �f an �c�n�m����ic f���cas��ing m�d�l ��ha�� p��j�c��s

���m�� and ���h�� c�h���� h��s�h�ld financ�s ��� 20�5; a s��v��� �f �v�� 5,100

h��s�h�lds �f ���m��s and ��h� Sil�n��s (��h� g�n��a��i�n ��ha�� p��c�d�d ��h�

���m��s), and �2 in-h�m� ���hn�g�aphic in����vi�ws wi��h ���m�� h��s�h�lds

app��aching �� j�s�� pas�� ����i��m�n��. W� b�i�fl�� ����lin� ��h� findings f��m ��his

��s�a�ch b�l�w. R�ad��s in�����s���d in ��h� f�ll ��s�l��s and anal��s�s a�� di��c���d

��� ��h� main chap����s �f ��h� ��p����, whil� ��h�s� in�����s���d in ��� m���h�d�l�g��,

ass�mp��i�ns, and da��a s���c�s a�� di��c���d ��� ��h� app�ndix�s.

BOOMERS HAVE ENJOYED RECORD EARNINGS—BUT EIGHTY PERCENT OF

THEIR GAINS ARE FROM ONETIME FACTORS

Th� �ab�� ���m��s hav� had an ����siz�d impac�� �n ��h� US �c�n�m�� sinc� ��h�i�

bi���h in ��h� p�s��wa� p��i�d f��m 1945 ��� 1964. A�� 45 milli�n h��s�h�lds s����ng,

��h��� hav� acc��n���d f�� ��h� g��a���s�� sha�� �f �a�nings and c�ns�mp��i�n in ��h�

�c�n�m�� sinc� 1980. W� p��j�c�� ��ha�� ��h�i� ��a �f �c�n�mic d�minanc� will las��

�n��il 2019 (Exhibi�� 1).

Th� ���m��s hav� �a�n�d m��� a�� �v���� ag� in ��al ����ms ��han p��vi��s g�n-

��a��i�ns. Exhibi�� 2 c�mpa��s ���m�� �a�nings b�� ag� wi��h ��h�s� �f ��h� Sil�n��

g�n��a��i�n, ��h� c�h���� ��ha�� p��c�d�d ��h� ���m��s. W� p��j�c�� ��ha�� ��h� ���m��s’

�a�nings will p�ak in 2015 f�� ��h� Ea�l�� ���m��s (b��n f��m 1945 ��� 1954) a��

$90,000 p�� h��s�h�ld, and in 2025 f�� ��h� La��� ���m��s (b��n f��m 1955

��h���gh 1964) a�� $106,000.1

1 All inc�m�, n��� w����h, and sp�nding fig���s a�� �xp��ss�d in 2000 d�lla�s. O�� �c�n�m����ic m�d�l cap�����s 100 p��c�n�� �f h��s�h�ld inc�m� and sp�nding in ��h� �c�n�m��. F�ll�wing na��i�nal acc��n��ing s��anda�ds, w� incl�d� inc�m� and sp�nding p��vid�d in-kind ��� h��s�-h�lds. S�� Chap���� 1 and App�ndix � f�� m��� d���ails.

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Exhibit 1

Boomer Era

THE SIZE OF THE COHORT HAS CREATED A "BOOMER ERA" FROM 1980 TO 2019

Cohort share of households%

Generation X

Boomers

Silents

Source: McKinsey Global Institute US Consumer Model, v7.2

0

10

20

30

40

50

1965 1975 1985 1995 2005 2015 2025 2035

Exhibit 2

BOOMERS HAVE EARNED MORE AT EVERY AGE THAN PRIOR GENERATIONS

0

20

40

60

80

100

120

25 30 35 40 45 50 55 60 65 70 75

Real disposable annual income per household by cohort$ thousand, 2000

Age (cohort midpoint)

Source: McKinsey Global Institute US Consumer Model, v7.2

Late BoomersEarly BoomersLate SilentEarly SilentForecast

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L��k�d a�� in agg��ga���, ��h� ���m��s hav� �a�n�d m��� ��han ��wic� as m�ch as ��h�

Sil�n�� g�n��a��i�n d��ing ��h� sam� ag� span (Exhibi�� �). ���� ��� anal��sis sh�ws

��ha�� 80 p��c�n�� �f ��h� ���m��s’ inc��as�d �a�nings was d�iv�n b�� ��h��� sp�cific

�n���im� fac����s ��ha�� a�� n��� lik�l�� ��� b� ��p�a���d f�� f������ g�n��a��i�ns.

Fi�s�� is ��h� sh��� siz� �f ��h� ���m�� c�h����. Th� ���m��s inc��as�d ��h� siz� �f

��h� US lab�� f��c�, b��s��ing ����p��� and p�ck���ing ��h� inc�m� ass�cia���d wi��h

��ha�� g��w��h. If w� ass�m� ��ha�� �n av��ag� ��h� ���m��s liv�d as did ��h� p��vi��s

Sil�n�� g�n��a��i�n, wi��h ��h� sam� n�mb�� �f ad�l��s and ��h� sam� inc�m� p��

h��s�h�ld, ��h� simpl� fac�� ��ha�� ��h��� w��� m��� �f ��h�m w��ld acc��n�� f�� �8

p��c�n�� �f ��h�i� inc��as�d agg��ga��� inc�m�.

���� ��h� ���m��s als� �a�n�d m��� b�ca�s� ��h��� liv�d v���� diff���n��l�� ��han ��h�

Sil�n��s. On� k��� diff���nc� was ��ha�� ���m�� w�m�n p����d in��� ��h� w��kplac� a��

�ising �a���s, f����h�� b��s��ing ��h� siz� �f ��h� lab�� f��c�. This chang� was cl�s�l��

link�d ��� a s��� �f s�cial ����nds� Th� ���m��s hav� ma��i�d and had child��n la����

in lif�, hav� div��c�d a�� high�� �a���s, �� hav� ch�s�n n��� ��� ma���� a�� all. As a

��s�l��, ��h� ���m��s a�� n�w divid�d in��� a la�g�� n�mb�� �f small�� h��s�h�lds

��han in p��vi��s g�n��a��i�ns, wi��h f�w�� ad�l��s p�� h��s�h�ld. ���� h��s�h�lds

f�� ��his g�n��a��i�n m�an�� m��� �a�n��s. Ass�ming ��ha�� ��h� ���m��s had ��h�

sam� av��ag� inc�m� as ��h� Sil�n��s, ��his shif�� p��vid�s a s�c�nd �xplana��i�n

f�� ��h� ���m��s’ g��a���� c�ll�c��iv� inc�m� and acc��n��s f�� 15 p��c�n�� �f ��h�

diff���nc�.

Exhibit 3

420

1,645

Silentincome1985

791

Largeincrease in population

310

Morehouseholds

575

Higherreturns to work and education

Economyeffect

3,741

Boomerincome2005

EIGHTY PERCENT OF BOOMER INCOME GROWTH DUE TO ONETIME FACTORS SPECIFIC TO BOOMER COHORT

* Decomposition compares 10-year cohorts at the same age: Early Boomers vs. Early Silents at age 55; Late Boomers vs. Late Silents at age 45. Age refers to cohort midpoint.

Source: McKinsey Global Institute US Consumer Model, v7.2

Characteristics specific to Boomer cohort

2038 15Contribution% 27

Drivers of change in total income across cohorts measured at the same age*$ billion, 2000

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Thi�d, and finall��, ��h� ���m��s hav� �nj����d g��a���� ������ns ��� b���h �d�ca��i�n and

w��k ��han did ��h� p��vi��s g�n��a��i�n, which b��s���d ��h�i� av��ag� h��s�h�ld

inc�m�. Th��� b�cam� m��� �d�ca���d ��han p��vi��s g�n��a��i�ns, in la�g� pa���

b�ca�s� �f ��h� �d�ca��i�nal gains b�� ���m�� w�m�n. And ��h��� did s� a�� a ��im�

wh�n ��h� lab�� f��c� was shif��ing f��m ind�s���ial w��k ��� s��vic� and kn�wl�dg�

j�bs, inc��asing ��h� ������ns ��� �d�ca��i�n. Th��� w��� als� b������� abl� ��han ���h��

c�h����s ��� capi��aliz� �n chang�s in ��h� �c�n�m�� s���mming f��m p��d�c��ivi����

g��w��h, ���chn�l�gical inn�va��i�n, and gl�baliza��i�n d��ing ��his p��i�d. W� �s��i-

ma��� ��ha�� high�� ������ns b��s���d agg��ga��� inc�m� b�� 27 p��c�n��.

Th� ��maining 20 p��c�n�� �f ��h�i� inc�m� gains is d�� ��� fac����s n��� sp�cific ���

��h� ���m��s—i�� is ��h� gain ��h��� ��c�iv�d b�� b�n�fi��ing f��m �c�n�mic g��w��h a��

l�as�� as m�ch as did �v�����n� �ls� �v�� ��his p��i�d.

N�n� �f ��h� ��h��� fac����s d�iving diff���n��ial g��w��h in ���m��s’ inc�m� is lik�l��

��� b� ��p�a���d. I�� is �nlik�l�� w�’ll s�� an���h�� c�h���� as p��p����i�nall�� la�g�

as ��h� ���m��s f�� s�m� ��im� ��� c�m�. Lik�wis�, ��h� s�cial ����nds ��ha�� hav�

inc��as�d h��s�h�ld n�mb��s s��m ��� hav� la�g�l�� pla���d ���� and s��abiliz�d.

Finall��, f�mal� �d�ca��i�nal a����ainm�n�� and w��kf��c� pa���icipa��i�n als� app�a�

��� hav� p�ak�d.

Th�s, whil� f������ g�n��a��i�ns will lik�l�� s�� ��al inc�m� inc��as�s d�� ���

p��d�c��ivi���� g��w��h and ���h�� f�ndam�n��al �c�n�mic fac����s, ��h�s� gains a��

�nlik�l�� ��� �cc�� a�� ��h� pac� �nj����d b�� ��h� ���m��s.

THE MISSING PEAK—DESPITE HIGH INCOMES, THE BOOMERS HAVE FAILED

TO SAVE

���� j�s�� as ��h� ���m��s hav� b��n ��c��d �a�n��s, ��h��� hav� als� b��n ��c��d

sp�nd��s and b����w��s. Th� ���m��s hav� b��n ��h� maj�� sp�nd��s in ��h�

�c�n�m�� sinc� ��h� mid-1980s, and ��h��� hav� sp�n�� m��� in ��al ����ms a�� �v����

ag� ��han p��vi��s g�n��a��i�ns. Th� ���m��s’ sp�nding sp��� has h�lp�d d�iv�

c�ns�mp��i�n ��� acc��n�� f�� m��� ��han 78 p��c�n�� �f �DP g��w��h in ��h� Uni���d

S��a���s f��m 1995 ��� 2005 v��s�s 64 p��c�n�� ��w� d�cad�s �a�li��.

���� wha�� has ��all�� s�pa�a���d ��h� ���m��s f��m p��vi��s g�n��a��i�ns has b��n

��h�i� fail��� ��� sav�. His����icall��, h��s�h�lds hav� f�ll�w�d a lif�-c��cl� pa������n

wh��� ��h��� hav� m�d�s�� savings in ��h�i� �a�l�� ���a�s wh�n ��h�i� inc�m�s a�� l�w;

��h�n ��h��� acc�m�la��� savings in ��h�i� p�ak �a�ning ���a�s, ����picall�� ��h�i� f����i�s

and fif��i�s; and ��h�n ��h��� d�aw d�wn ��h�s� savings in ����i��m�n�� in ��h�i� six��i�s

and s�v�n��i�s. Exhibi�� 4 sh�ws ��his savings lif� c��cl� f�� ��h� ���m��s v��s�s ��h�

Sil�n��s. ����h ��h� Ea�l�� and La��� Sil�n��s sh�w a dis��inc�� savings p�ak d��ing ��h�i�

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high-�a�ning ���a�s. ���� ��h� p�ak is missing f�� ��h� Ea�l�� ���m��s, and ��h� La���

���m��s app�a� ��� b� �n an �v�n l�w�� savings ���aj�c������. O�� anal��sis sh�ws

��ha�� ��h� ���m��s’ missing savings p�ak acc��n��s f�� m�s�� �f ��h� c�llaps� in

��h� US h��s�h�ld saving �a��� f��m i��s p�ak �f �v�� 10 p��c�n�� in ��h� mid-1980s

��� a���nd 2 p��c�n�� ���da��. In 2005, ��h� ���m��s had 47 p��c�n�� �f na��i�nal

disp�sabl� inc�m� b��� c�n���ib����d �nl�� 7 p��c�n��ag� p�in��s ��� na��i�nal savings.

A�� ��h� sam� p�in�� in ��h�i� lif� c��cl� in 1985, ��h� Sil�n��s c�n���ib����d ��wic� as

m�ch ��� na��i�nal savings d�spi��� c�n����lling p��p����i�nall�� fa� l�ss inc�m�.

O�� anal��sis highligh��s ��w� c�i��ical ��as�ns f�� ��his missing p�ak in ���m��

saving—��h� “w�al��h �ff�c��” f��m ass��� app��cia��i�n and inc��as�d acc�ss ���

c��di��. Fi�s��, financial ma�k��� inn�va��i�ns in ��h� 1980s and ’90s ����n�d m���

Am��icans in��� b���h inv�s����s and b����w��s. D��ing ��h� ���m��s’ lif���im�s,

m����al f�nd p�n����a��i�n am�ng 50- ��� 59-���a�-�lds has climb�d f��m 14 p��c�n��

�f h��s�h�lds ��� 64 p��c�n��. Wh�n ���m��s saw ��h�i� s���cks and h�m� val��s

s�a� d��ing ��his p��i�d, ��h��� f�l�� �mb�ld�n�d ��� sp�nd m���, and ��h�s sav� l�ss

��han ��h��� w��ld hav� ���h��wis�—��h� s�-call�d w�al��h �ff�c��. O�� anal��sis sh�ws

��ha�� alm�s�� half �f ��h� inc��as� in n��� w����h f�� Ea�l�� ���m��s has c�m� f��m

ass��� app��cia��i�n, wh���as a�� ��h� sam� ag� ��h� Sil�n��s ��li�d �n saving ���

inc��as� ��h�i� n��� w����h (Exhibi�� 5).

A�� ��h� sam� ��im�, ��h� ���m��s b����w�d m���. Th� sha�� �f h��s�h�lds wi��h

m����gag�s alm�s�� d��bl�d, and ��h� p��c�n��ag� wi��h ��v�lving c��di�� inc��as�d b��

Exhibit 4

BOOMER SAVING RATES HAVE NOT PEAKED DURING PRIME EARNING YEARS LIKE PREVIOUS GENERATIONS

-15

-10

-5

0

5

10

15

20

25

30

35

25 30 35 40 45 50 55 60 65

Saving rate by cohort, household balance sheet measure% of disposable income

Age (cohort midpoint)

Source: McKinsey Global Institute US Consumer Model, v7.2

Late BoomersEarly BoomersLate SilentEarly SilentForecast

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25 p��c�n��. Th� n��� �ff�c�� is ��ha�� ��h� ���m��s a�� ca����ing fa� m��� d�b�� la���� in

lif� ��han p��vi��s g�n��a��i�ns. Th� ���m��s hav� n�a�l�� 1.5 ��im�s ��h� am��n��

�f liabili��i�s, and ��h�i� av��ag� liabili����-���-n��� w����h �a��i� is 54 p��c�n�� high�� ��han

��h� Sil�n��s a�� ��h� sam� ag�. This is �v�n b�f��� ��h� f�ll �ff�c��s �f ��h� h��sing

ma�k��� d�clin� hav� pla���d ����.

TWO-THIRDS OF BOOMERS ARE UNPREPARED FOR RETIREMENT

W� �s��ima��� ��h� n��� ��s�l�� �f ��h� Ea�l�� ���m��s’ w�ak saving is ��ha�� app��xi-

ma���l�� ��w�-��hi�ds �f ��h�s� h��s�h�lds a�� �np��pa��d f�� ����i��m�n��—��ha�� is,

��h��� will n��� b� abl� ��� s�s��ain app��xima���l�� 80 p��c�n�� �f ��h�i� sp�nding as

��h��� ag�.2 Ev�n if w� all�w ��ha�� ��h�s� h��s�h�lds can ��ap ��h�i� h�m� �q�i����, ��h�

p��p����i�n �f p��pa��d Ea�l�� ���m�� h��s�h�lds is n� high�� ��han �8 p��c�n��

(Exhibi�� 6). Th�s, wi��h���� maj�� chang�s in b�havi��, ab���� ��w�-��hi�ds �f ���m��

h��s�h�lds a�� h�ading f�� sha�p d��ps in ��h�i� lif�s����l�.

This ��s�l�� ma�� b� s��p�ising ��� s�m� b�ca�s� b���h agg��ga��� and av��ag� ��al

n��� w����h a�� high�� f�� ��h� ���m��s ��han f�� ��h� Sil�n�� g�n��a��i�n. ���� ��h�

agg��ga��� and av��ag� fig���s a�� h�ld �p b�� a c�nc�n���a��i�n �f ���m��s wh�

a�� ind��d v���� �ich. F�� �xampl�, Ea�l�� ���m��s wi��h n��� w����h ab�v� $125,000

in 2005 �wn�d 42 p��c�n�� �f �����al c�h���� n��� w����h, v��s�s �6 p��c�n�� f�� Ea�l��

Sil�n��s a�� ��h� sam� ag�.

2 S�� Chap���� 4 f�� m��� d���ails �n ��� app��ach ��� d�fining ����i��m�n�� p��pa��dn�ss.

Exhibit 5

9881 81

50

2

1.1

EarlySilent1965-1975

19

2.0

LateSilent1975-1985

19

3.2

EarlyBoomers1985-1995

50

5.3

LateBoomers1995-2005

Impact ofsavings

Impact of financial &real estate capitalgains

= 100%

BOOMERS HAVE BENEFITED DISPROPORTIONATELY FROM ASSET APPRECIATION

* Age refers to cohort midpoint.Source: McKinsey Global Institute US Consumer Model, v7.2

109 108

57

-9

1.7

EarlySilent1975-1985

-8

2.9

EarlyBoomers1995-2005

5.7

43

LateSilent1985-1995

Cohort ages 35-45 Cohort ages 45-55

Change in household net worth at the same age*$ trillion, 2000; %

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L��king m��� cl�s�l�� ac��ss ��h� dis���ib���i�n �f inc�m�, �n� s��s ��ha�� man��

middl�-inc�m� and �v�n �pp��-inc�m� famili�s will s����ggl� ��� main��ain ��h�i�

lif�s����l�s. L�ss ��han half �f Ea�l�� ���m�� h��s�h�lds �a�ning $60,000 ���

$90,000 p�� ���a� a�� p��pa��d f�� ����i��m�n��, �v�n if h�m� �q�i���� is incl�d�d. Of

c���s�, l�w��-inc�m� famili�s will fac� ��h� g��a���s�� diffic�l��i�s—j�s�� 18 p��c�n��

�f h��s�h�lds �a�ning l�ss ��han $�0,000 p�� ���a� a�� p��pa��d f�� ����i��m�n��

(25 p��c�n�� if h��sing �q�i���� is incl�d�d).

In ��� s��v���, w� f��nd ��ha�� man�� �np��pa��d h��s�h�lds a�� w���i�d ab����

��h�i� financial f������ b��� ��ha�� man�� ���h��s a�� �nawa�� �f ��h�i� si���a��i�n. W�

c�ncl�d�d ��ha�� ��h� ���m��s, in facing ����i��m�n��, c��ld b� divid�d in��� ��h���

dis��inc�� a����i���dinal g���ps—��h� confident, ��h� vulnerable, and ��h� disadvantaged

(Exhibi�� 7). Th�s� g���ps b��adl�� c����la���d wi��h ��h� �c�n�mic c�ndi��i�n �f ��h�

h��s�h�lds in ��h�m, b��� had a n�mb�� �f sp�cific cha�ac����is��ics�

Confident—This g���p acc��n��s f�� alm�s�� half �f ���m�� h��s�h�lds, and

��h��� b�li�v� ��h��� a�� w�ll-p��pa��d financiall�� f�� ��h� f������. This is ��h� �ich�s��,

h�al��hi�s��, b�s�� �d�ca���d, m�s�� ma��i�d, and m�s�� �p��imis��ic g���p. H�w�v��,

��h��� a�� ��w� ����p�s �f c�nfid�n�� h��s�h�lds ��ha�� sha�� simila� a����i���d�s and

aspi�a��i�ns b��� hav� diff���n�� financial m�ans. Th� “affl��n�� c�nfid�n��s” hav�

��h� wh���wi��hal ��� f�lfill ��h�i� aspi�a��i�ns, whil� ��h� “�nawa�� c�nfid�n��s”

sha�� ��h�s� aspi�a��i�ns b��� d� n��� hav� ��h� ��s���c�s ��� m���� ��h�m.

Exhibit 6

PROLONGING SAVING HAS A DRAMATIC IMPACT ON THE NUMBER OF BOOMERS WHO CAN MAINTAIN THEIR LIVING STANDARDS

69

40

31

20.6

Baseline

60

20.6

Prolonged savings scenario

Unprepared

Prepared

100% =

Source: McKinsey Global Institute US Consumer Model, v7.2; US Aging Consumer Survey, 2007

62

31

38

20.6

Baseline

69

20.6

Prolonged savings scenario

100% =

Net financial assets onlyNet financial assets and monetize home equity

Early Boomer households retirement preparation, 2006millions of households; %

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Vulnerable—This g���p acc��n��s f�� a li����l� m��� ��han a q�a����� �f ��h�

�����al. Th�s� h��s�h�lds hav� l�w�� inc�m� ��han ��h� c�nfid�n��s and l�ss

��han half ��h� n��� w����h. Th��� als� ���nd ��� hav� l�w�� �d�ca��i�n l�v�ls and

a l�w�� lik�lih��d �f b�ing ma��i�d. N�a�l�� 70 p��c�n�� �f ��h�s� h��s�h�lds

a�� �np��pa��d f�� ����i��m�n��—b��� ��h��� a�� awa�� �f ��h�i� p��dicam�n��. Th�

v�ln��abl� h��s�h�lds hav� w���i�s ab���� ��h�i� financ�s, ��h�i� h�al��h, and ��h�

dang�� �f l�n�lin�ss in ����i��m�n��. �an�� a�� f��s���a���d wi��h ��h�i� liv�s and

p�ssimis��ic ab���� ��h� f������ and d� n��� b�li�v� ��h��� can c��n�� �n famil�� ��

��h� g�v��nm�n�� ��� bail ��h�m ����.

Disadvantaged—A li����l� m��� ��han a q�a����� �f ���m�� h��s�h�lds falls in���

��h� disadvan��ag�d ca���g����. Th�s� ���m��s hav� had l�w inc�m�s ��h���gh-

���� ��h�i� liv�s and a�� ��h� l�as�� �d�ca���d, l�as�� lik�l�� ��� b� ma��i�d, and ��h�

m�s�� lik�l�� ��� hav� ��h� p����s�� h�al��h. Th��� w����� ab���� ��h� aff��dabili���� �f

h�al��h ca�� and wh���h�� g�v��nm�n�� p��g�ams will b� ��h��� ��� s�pp���� ��h�m.

���� ��han ��h���-q�a�����s a�� �np��pa��d f�� ����i��m�n��.

WORKING TWO YEARS LONGER CAN SIGNIFICANTLY BOOST BOOMER

PROSPECTS

D�spi��� ��h� s��a�k p��dicam�n�� �f man�� ���m�� famili�s, i�� is n��� ���� la��� ��� ��ak�

ac��i�n. Th� ���m��s will hav� ��� p�s��p�n� ����i��m�n�� ��� financ� i��—w��king l�n-

g�� ��� b�ild ��h� savings ��h��� will n��d. O�� anal��sis sh�ws ��ha�� if Ea�l�� ���m��s

Exhibit 7

BOOMERS FALL INTO THREE ATTITUDINAL GROUPS

Note: Boomers aged 50-61 when surveyed used as a proxy for total Boomer cohort.Source: McKinsey Global Institute US Consumer Model, v7.2; US Aging Consumer Survey, 2007

46%(9.5 million households)

26%(5.4 million

households)

28%(5.7 million

households)

Distribution of Early Boomer household by attitudes, 2006100% = 20.6 million households; $ thousand, 2000

Confident (affluent & unaware):

Mean

Median

After-taxincome

Networth

111

79 414

878

Vulnerable (aware):

Mean

Median

After-taxincome

Networth

86

69 148

366

Disadvantaged:

Mean

Median

After-taxincome

Networth

19

17 8

130

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can c�n��in�� ��� acc�m�la��� ass���s f�� an �x���a fiv� ���a�s, shif��ing ��h� av��ag�

p�in�� a�� which ��h��� b�gin ��� d�aw d�wn ��h�i� ass���s f��m ag� 65 ��� 70, ��h� n�mb��

�f �np��pa��d h��s�h�lds w��ld b� c��� b�� ab���� half (s�� Exhibi�� 6). W� �s��ima���

��ha�� ��his w��ld ��q�i�� ��h�i� m�dian ����i��m�n�� ag� ��� �is� f��m 62.6 ���da�� ���

64.1 b�� 2015—an inc��as� �f ab���� ��w� ���a�s.

An inc��as� in ��h� m�dian ����i��m�n�� ag� �f ��his magni���d� ma�� n��� s��nd lik�

m�ch, b��� ��his is a n�mb�� ��ha�� has shif���d sl�wl��� Ov�� ��h� ��h��� d�cad�s f��m

1970 ��� 2000, ��h� m�dian ����i��m�n�� ag� d�clin�d b�� ��h� sam� am��n��. S� ��h�

chall�ng� is ��� ��v��s� ��ha�� ����nd, b��� a�� a m�ch m��� �apid pac�.

S�ch chang� is v���� p�ssibl�. Lif� �xp�c��anci�s a�� inc��asing. O�� s��v��� sh�ws

��ha�� m�s�� ���m��s a�� awa�� ��ha�� ��h��� will n��d ��� d� s�m� kind �f w��k pas�� ��h�

���adi��i�nal ����i��m�n�� ag�. As Exhibi�� 8 sh�ws, 85 p��c�n�� �f ���m��s ��hink i�� is

a�� l�as�� s�m�wha�� lik�l�� ��h��� will c�n��in�� ��� w��k. Tw�-��hi�ds �f ��h�s� m�s�� lik�l��

��� k��p w��king f���s�� ��h�ms�lv�s d�ing s� p�ima�il�� f�� financial ��as�ns.

Cl�a�l��, w��king l�ng�� will n��� b� �n��gh ��� �ns��� ��ha�� all �np��pa��d ���m��s

can main��ain ��h�i� living s��anda�ds in ����i��m�n��. Fi�s��, �v�n if ���m��s w��k l�n-

g��, ���ghl�� a ��hi�d a�� s��ill n��� p��pa��d f�� ����i��m�n��. Of ��his g���p, half hav�

ann�al inc�m�s b�l�w $�0,000 and ab���� ��h���-q�a�����s hav� inc�m�s b�l�w

$60,000. Nin�����-fiv� p��c�n�� �f ��h� �np��pa��d h��s�h�lds hav� n��� w����h l�w��

��han $100,000.

Exhibit 8

* Figures do not sum to 100 due to rounding.Source: US Aging Consumer Survey

Likelihood of returning to work% of non-retired boomers

FINANCIAL NEEDS ARE PRIMARY REASONS FOR WORKING LONGER

15

47

38Extremely likely,very likely

Somewhatlikely

Not very likely,not likely at all

18

115 1

7

24

35

1OtherMake positive changeEnjoy job, skillsin demandWant to stay busy,or social interactionNeed benefits

Maintain or improvelifestyle

Meeting expenses

*100% =

Primary reason for expecting to work in retirement% of boomers expecting to work

Financial reasons

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S�c�nd, n��� all �f ��h�s� sa��ing ��h��� in���nd ��� w��k will b� abl� ��� d� s�. �an��

will b� �nabl� ��� k��p w��king b�ca�s� �f h�al��h p��bl�ms �� ���h�� ag�-��la���d

diffic�l��i�s. O�� s��v��� f��nd ��ha�� half �f ��h� ���m��s wh� hav� ����i��d �a�l�� did

s� f�� h�al��h ��as�ns. A significan�� maj��i���� �f ��h�s� wh� ����i��d f�� h�al��h ��a-

s�ns a�� in v�ln��abl� �� disadvan��ag�d h��s�h�lds, p��cis�l�� ��h�s� wh� m�s��

n��d ��� k��p w��king. Als�, n�a�l�� half �f ���m��s a�� in ph��sicall�� d�manding

�cc�pa��i�ns s�ch as c�ns����c��i�n, p��d�c��i�n, and s�m� s��vic� j�bs ��ha�� ma��

mak� i�� n�c�ssa��� f�� ��h�m ��� swi��ch j�bs, which is diffic�l�� la���� in lif�.

���� p�lic�� mak��s and b�sin�ss l�ad��s m�s�� ac�� ��� �nabl� ��h�s� wh� can

w��k l�ng�� ��� d� s�. W��king l�ng�� is als� ��h� b�s�� answ�� f�� ��h� �c�n�m��

as a wh�l�. T� mak� �p ��h� savings gap, ��h� ���m��s als� c��ld b�gin sha�pl��

c�����ing ��h�i� sp�nding. H�w�v��, as Exhibi�� 9 sh�ws, ��his w��ld damp�n �v��all

�c�n�mic g��w��h. W��king l�ng��, �n ��h� ���h�� hand, w��ld b��s�� lab�� f��c�

pa���icipa��i�n, ��h���b�� inc��asing ����p��� g��w��h. Enabling ���m��s ��� w��k l�ng��

w��ld add m��� ��han $12 ���illi�n ��� US �DP �v�� ��h� n�x�� ��h��� d�cad�s—an

am��n�� �q�ival�n�� ��� �n� ���a� �f �DP ���da��.

Al��h��gh ��h��� w��ld b� cl�a� b�n�fi��s ��� �nabling ��h� ���m��s ��� w��k l�ng��,

��h��� a�� significan�� l�gal and ins��i�����i�nal ba��i��s ��ha�� n��d ��� b� �v��c�m�.

Th��� incl�d� a va�i����� �f disinc�n��iv�s f�� b���h �mpl�����s and �ld�� w��k��s. ��v-

��nm�n�� p�lic�� mak��s and b�sin�ss�s sh��ld mak� s�v��al sp�cific chang�s.

Th��� incl�d��

Reallocating health insurance costs for older workers. Ins��anc� c�s��s climb

wi��h ag�, c��a��ing a disinc�n��iv� f�� b�sin�ss�s ��� ����ain �� hi�� �ld�� w��k-

��s. And al��h��gh ��dica�� c�v��s ����i���s ag�d 65 and �v��, ��h� p��g�am

c�v��s li����l� �� n�n� �f ��h� h�al��h ca�� c�s��s �f �mpl�����s a�� ��his ag� if ��h���

w��k f�� c�mpani�s p��viding ins��anc�. Th� iss��s �f ins��ing �ld�� w��k��s

hav� b��n la�g�l�� ign���d in ��h� d�ba��� �v�� h�al��h ��f��m, b��� ��h��� ��q�i��

a�����n��i�n and ac��i�n.

Enabling businesses to offer flexible work arrangements to mature workers.

�an�� ���m��s sa�� ��h��� a�� willing ��� k��p w��king if ��h��� can d� s� pa��� ��im�,

�� w��k f��m h�m�, �� g�ad�all�� ��d�c� ��h�i� h���s and pa��. S�ch p��g�ams

a�� al��ad�� wid�sp��ad in g�v��nm�n�� and �d�ca��i�nal ins��i�����i�ns, b��� b�si-

n�ss�s hav� h�ld back pa���l�� ���� �f c�nc��n ��h��� migh�� vi�la��� f�d��al laws

�n ��ax�s, p�nsi�ns, and ag� disc�imina��i�n. P�lic�� mak��s sh��ld am�nd

��h�s� laws ��� ��m�v� s�ch c�nc��ns. ��sin�ss�s ��h�n sh��ld �ff�� m���

fl�xibl� w��k a��ang�m�n��s. W��k��s, in ����n, will hav� ��� b� fl�xibl� �n pa��

and b�n�fi��s.

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Reforming private pensions and Social Security to remove disincentives to

working longer. �an�� d�fin�d b�n�fi�� p�nsi�n plans calc�la��� b�n�fi��s acc��d-

ing ��� f��m�las ��ha�� �nc���ag� w��k��s ��� ����i�� �a�l��. ��sin�ss�s and �ni�ns

sh��ld ��w�i��� ��h� ��l�s ��� ��m�v� disinc�n��iv�s ��� w��king l�ng��. Simila�l��,

lawmak��s sh��ld chang� ��h� wa�� S�cial S�c��i���� ����i��m�n�� b�n�fi��s a��

calc�la���d ��� ��d�c� disinc�n��iv�s ��� w��king m��� ��han �5 ���a�s.

Ea�l�� ���m��s, ag�d 54 ��� 6� ���da��, wh� a�� �np��pa��d f�� ����i��m�n�� will

hav� ��� ��l�� p�ima�il�� �n w��king l�ng�� ��� b�ls���� ��h�i� financ�s. ���� ��h� La���

���m��s, ag�d 44 ��� 5�, hav� m��� ��im� ��� als� b��s�� savings b�� ���imming ��h�i�

sp�nding. Th��� sh��ld d� s�, b��� ��h��� n��d h�lp. Lawmak��s sh��ld ��f��m and

simplif�� ��h� ��ax c�d� ��� inc��as� inc�n��iv�s ��� sav�. ���� b�sin�ss�s sh��ld

�ff�� �mpl����� savings p��g�ams, s�ch as 401(k) plans and individ�al ����i��-

m�n�� acc��n��s (IRAs) wi��h “a����ma��ic” f�a�����s, s�ch as a����ma��ic �n��llm�n��,

�scala��i�n �f savings �a��� �v�� ��im�, and inv�s��m�n�� in��� div��sifi�d p����f�li�s.

Ev�n wi��h all ��h�s� ac��i�ns, man�� ���m��s will ��l�� �n S�cial S�c��i���� and ��di-

ca�� in ��h�i� s�ni�� ���a�s. P�lic�� mak��s will hav� ��� find wa��s ��� s�s��ain ��h�s�

p��g�ams, a�� l�as�� f�� ��h� m�s�� disadvan��ag�d h��s�h�lds. O��h��wis�, w� will

s�� a ��s��g�nc� �f p�v������ am�ng ��h� �ld��l��—p��cis�l�� ��h� p��bl�m ��h�s�

p��g�ams w��� c��a���d ��� ��adica���.

Exhibit 9

WORKING LONGER IS THE BEST OPTION BECAUSE OF WIDER SPILLOVERS IN THE ECONOMY

Source: McKinsey Global Institute US Consumer Model, v7.2

Real GDP growth under different scenarios, 2000-2025CAGR

3.01985-2006

2.62007-2016

2.52007-2025

2.42007-2035

3.0

2.5

2.4

2.3

3.0

2.9

2.7

2.5

Cumulative GDP difference versus baseline$ billion, 2000

-5,382+12,911

Baseline Restrain SpendingWorking Longer

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Th�s� chang�s can b� mad�. ���� all �f ��h� pa���i�s inv�lv�d—g�v��nm�n��, �m-

pl�����s, �ni�ns, and ��h� ���m��s ��h�ms�lv�s—will n��d ��� ac��.

•••

Wi��h ��h� imp�nding ����i��m�n�� �f ��h� �ab�� ���m��s, ��h� Uni���d S��a���s is facing

a m�l��i-d�cad� �c�n�mic chall�ng�. H�w�v��, ��h� ���m��s a�� als� a ��sili�n��

and inn�va��iv� g�n��a��i�n ��ha�� has liv�d ��h���gh and d�iv�n maj�� s�cial and

���chn�l�gical chang�s. Th� ���m��s wh� c����n��l�� l�ad ��� b�sin�ss�s and

p�li��ical ins��i�����i�ns n��d ��� ��inv�n�� ����i��m�n�� and c��a��� a m��� fl�xibl�

lab�� ma�k��� ��ha�� �nabl�s and �nc���ag�s ��his g�n��a��i�n ��� w��k and sav�

la���� in lif�.

Th� ���m��s in ��h�i� s�ns��� ���a�s fac� a ch�ic�. Th��� can l�av� ��h� �c�n�mic

s��ag� as ��h� g�n��a��i�n ��ha�� had i��, sp�n�� i��, and l�f�� h�l�s in ��h� US �c�n�m�� f��

f������ g�n��a��i�ns ��� fill. O� ��h��� can b� ��h� g�n��a��i�n ��ha�� ��inv�n���d Am��ica

��h���gh���� ��h�i� liv�s.

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