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2015 Annual Report

Exploring the impact of America’s
changing demographic profile on the
nation’s potential for economic growth.

Learn more at frbatlanta.org/AnnualReport.

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Contents
P r e s i d e n t ’s M e s s a g e

Soaring Numbers of Elderly
Reshaping U.S. Economy

C h a l l e n ge s of Ag ing
A r e N o t H o peless

F i s ca l M a t h I s D a u n t i n g

7
11

A l o n g w i t h Am er ic a,
t h e Wo r l d I s Gr ay ing

D e m e n t i a Tak es Lar g e and
G r o w i n g E c onom ic Toll

Boards of Directors

Ma n a ge me n t C o m m i t t e e
& O t h e r O ff i c e r s

A dv i s o r y C o u n c i l

Mi l e s t o n e s

F i n a n c i a l an d
Au d i t S t a t em e n t

Federal Reserve Bank of Atlanta

President’s Message
In our 2015 annual report, “The Graying of the
American Economy,” we explore the impact of America’s
changing demographic profile on the nation’s potential
for economic growth.
Between 2010 and 2030, the number of Americans over 65 will nearly double, from 40
million to 74 million. As Americans live longer, they are retiring later—but the sheer number
of older Americans and the slow growth in the number of 20- to 64-year-olds are combining to
slow labor force growth.
The graying economy has broad implications for the nation’s economic growth and employment
trends, and perhaps even for monetary policy. We at the Atlanta Fed are pleased to present
some evidence-based insights to help navigate this challenging topic.
This year, we’re releasing many components of our Annual Report as we always have, including
the first two of four essays. But for the first time ever, we’re serializing the release of the
remaining two essays.
In part one of this report, we begin by describing our nation’s changing demographic profile.
In part two, we examine the fiscal challenges of a graying population, including the implications
for benefits, social programs, and public pensions.
In part three, we’ll consider the impact demographic change will have on the labor force.
And in part four, we’ll examine the impact of these trends on consumption, GDP growth, and
monetary policy.
As we release additional material, we hope to draw increasing attention to the implications
and challenges of this demographic shift ... and “The Graying of the American Economy.”

The Graying of the American Economy

Dennis Lockhart
President and Chief Executive Officer
of the Federal Reserve Bank of Atlanta

Federal Reserve Bank of Atlanta

Soaring Numbers of Elderly Reshaping U.S. Economy
In the next few decades, the nation will experience dramatic demographic change
as the ranks of the old grow faster than the rest of the population.
These changes will bring fiscal challenges and will affect the
nation’s labor supply and demand for products and services.
The graying of the population is expected to be a significant
driver of U.S. government spending over the next quartercentury, the Congressional Budget Office has projected,
because older people tend to depend heavily on entitlements
such as Social Security; Medicare, the national insurance
program for those 65 and older; and needs-based programs
such as Medicaid and Supplemental Social Security Income.

Living to 85 and beyond
People are living longer, thanks to medical advances and
a public focus on healthy lifestyles. The average baby born
in the United States in 2013 can expect to live 79 years,

which is 25 years longer than an ancestor born in 1920 and
16 years longer than someone born in 1940, according to
the Centers for Disease Control–National Center for Health
Statistics (NCHS; see chart 1).
Another demographic trend: women are having fewer
babies than decades ago. In recent years, the U.S. fertility
rate reached record lows, falling about 1 percent in 2013
to 62.5 births per 1,000 women aged 15 to 44, NCHS data
show. Teen births have also dropped to historic lows. The
U.S. Census Bureau projects that fertility rates will continue
to drop and the pace of immigration will decline modestly.
(See chart 2.)
These trends will slow the nation’s overall population growth
just as the youngest baby boomers approach retirement. The

Chart 1
Americans are living longer
80

Life expectancy at birth

73
70

1990

1995

2010

2013

55
1940

1950

1960

1970

1975

1980

1985

Sources: CDC–National Center for Health Statistics, University of California–Berkeley

2000

2005

U.S. civilian noninstitutional population—that is, those people
16 years old and older who are neither in an institution nor
on active duty in the armed services—is projected to rise
0.8 percent between 2014 and 2024, down from 1 percent
growth in the previous 10-year period, according to the U.S.
Census Bureau.
These two factors in conjunction with the aging of the baby
boomers imply that the share of Americans 65 and older will
rise from about 15 percent of the population today, or about
48 million people, to 21 percent, or 74 million, by 2030,
the year the youngest baby boomers turn 65, according to
U.S. Census Bureau projections. By 2050, that number is
expected to nearly double to 88 million people, or 22 percent
of the total U.S. populace. (See chart 3.)

The oldest of the old, those 85 and over, will account for a
significant portion of the overall growth in the mature public.
By the year 2050, adults at least 85 years old will account
for 5 percent of the U.S. population, more than double their
current 2 percent share, as their numbers triple to 18.9 mil–
lion from 6.3 million now.
As the number of older people climbs, the proportion of
working-age residents in the United States will shrink. Those
18 to 64 years old currently constitute 62 percent of the
total population, but their share will drop to 58 percent by
2030 and 56.7 percent by 2060, Census figures show.

Chart 2
Repercussions of baby boom not nearly over

Births per 1,000 women age 15-44

130
120
110
100
90
80
70
60
1940

1950

1960

Source: CDC–National Center for Health Statistics, 2015

1970

1980

1990

2000

2010

Federal Reserve Bank of Atlanta

Shrinking labor market clouds future
China have raised market jitters worldwide and depressed the
value of stock equities that help many build assets to sustain
them through retirement.
The emergence of an aging population is likely to have
profound economic effects that may not be readily apparent.
People of working age largely contribute more support and
resources to society than they receive, while the very young
and old generally consume more than they produce. Much of
the consumption of older people is funded by the government
through programs such as Social Security. As declining births
reduce the supply of the nation’s labor market producers, gov–
ernment’s ability to support older people will become strained.
The imbalance of consumers and producers is already spurring
debate about difficult policy choices among legislators.
A 2015 report from the U.S. Bureau of Labor Statistics
forecasted average annual growth in gross domestic product
of 2.2 percent over the next decade, flat with the levels from
2010 through 2014, but slowing from 3 percent annually
between 1960 and 2007. The agency cited slowing growth
in the labor supply, which is mainly the result of aging.

The consequence of declining births and longer life expec–
tancy is that in the future, proportionally fewer people of
prime employment age will be around to pay the taxes that
help fund Medicare, Social Security, and other government
programs that support older people and children. (That goes
also for critical national needs such as defense, security,
border control, and education.)
By 2030, there will be 2.86 people of working age (18 to
64 years old) for each U.S. citizen over 65. That compares
with 5 people per older person in 2000 and 9.09 people in
1940. The decreased ranks of the working-age population and
the higher costs of funding entitlements for retirees threaten
to depress economic activity and slow economic growth.
These population changes are set to occur against the
backdrop of an economy that has not fully recovered from the
Great Recession, which left many U.S. households worse off
financially. As some baby boomers look to their golden years,
several million Americans have seen the value of their homes,
their biggest source of wealth, decline. (Some home values
have recovered and increased.) Skittishness about world
markets, low oil prices, and the specter of slower growth in

Chart 3
Americans 65 and older
120,000

100,000

In thousands

80,000

60,000

40,000

20,000

0
1920

1940

1960

Source: U.S. Census Bureau, Population Division, 2015

1980

2000

2020

2040

2060

The Graying of the American Economy

Health a critical factor
Neil Mehta, a demographer and assistant professor of global
health at Emory University in Atlanta, says the critical issue is
not how many more older people there will be in the coming
decades. “A lot of the ramifications that aging will have for
society are going to be dependent on health,” he said.
He pointed out that while chronic disease is always a risk
with aging, the health of older people has generally improved
in the past 20 to 30 years. And while people reaching the age
of traditional retirement may not want to work 9 to 5, they may
desire and need to be active in the labor market, he added.
With this in mind, Mehta said policies that allow alternative
workplace arrangements, such as working at home or oppor–
tunities to work part-time, are the kinds of solutions that
should be discussed to help mitigate the perceived adverse
macroeconomic effects of an aging population.
“There may be creative ways to tap into the potential for older
people to contribute to the economy,” Mehta said. (See the
sidebar “Challenges of Aging Are Not Hopeless.”)
The next section, “Fiscal Math Is Daunting,” offers more
details about the hard fiscal reality the United States is

The critical issue
is not how many
more older people
there will be in the
coming decades.

facing because of its aging population, especially when it
comes to Social Security and Medicare.
Section 3, “Profound Changes in Store for Labor Market,” to
be released in April, looks at how baby boomers are affecting
the U.S. labor force participation rate. Finally, section 4, “Is an
Older Economy a Weaker Economy?” explores the spending and
saving habits of older people, including expenditures on health
care and housing. Section 4 will be released in late May.

Federal Reserve Bank of Atlanta

Challenges of Aging Are Not Hopeless
While the aging of the population will produce economic
and fiscal challenges, the outlook is not uniformly grim.
There are reasons for optimism on several fronts, from the
labor market to health care costs to the general dynamism
of the U.S. economy.
For starters, the nature of retirement as we know it appears
to be changing in ways that could lighten the burden on
programs like Medicare and Social Security and benefit the
macroeconomy. After steadily falling for decades, the average
age of retirement in the United States began climbing in the
late 1990s.
Nearly three times as many people age 65 and older are
employed now as were employed in the late 1980s, according
to the U.S. Bureau of Labor Statistics (BLS; see chart 4). The
labor force participation rate among older Americans is likely to
keep rising, even as the rate for the overall population declines
(see chart 5). For example, the participation rate for those 75
and older will reach 10.6 percent in 2024, roughly double the
rate in 1994, according to BLS projections.

Why are people retiring later? The answers are not cer
tain, according to Atlanta Fed economists Toni Braun and
Karen Kopecky.
“It’s not necessarily clear that these higher labor force
participation rates later in life reflect that people are feeling
poor and need to work longer,” Braun says. “It could be that
technology is changing in ways such that it’s easier for them
to transition into retirement, as opposed to abruptly stopping
work entirely. That may not be a bad thing.”

Smooth labor supply,
not abrupt changes, is optimal
Basic economic models say a gradual transition into retirement
is optimal for the macroeconomy, and probably for most
individuals, too, Kopecky explains.
Even though older people are likely to continue working later
in life, overall labor force growth will slow. The BLS projects
that the labor force participation rate will continue to decline
through 2024. The decline, coupled with comparatively slow

Chart 4
Labor force statistics from the Current Population Survey
10,000

Number employed (in thousands)

9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
1980

1985

Source: U.S. Bureau of Labor Statistics

1990

1995

2000

2005

2010

2015

The Graying of the American Economy

growth in the working-age population, will produce labor force
growth of just 0.5 percent a year on average through 2040,
according to the Congressional Budget Office. That’s less than
a third of the average annual rate of labor force growth, 1.7
percent, between 1970 and 2007.
Slower labor force growth could pose a challenge to
economic growth, says Julie Hotchkiss, an Atlanta Fed
research economist and senior policy adviser. Then again,
a slower-growing labor force is not necessarily a recipe for
lower productivity and stunted economic growth.
It is true that as baby boomers enter old age, they become
net consumers and not net producers. On the other hand,
some older people amass lots of wealth by saving for many
years. So the economy is transitioning from one with an
age structure favorable to production—with a bigger share
of working-age people—to one more favorable to deepening
capital for investment, points out Gretchen Donehower, a
demographer at the University of California-Berkeley’s Center
on the Economics and Demography of Aging.

“If the amount of available labor goes down, you can
perhaps compensate by giving each worker more capital to
make them more productive,” Donehower says. “This would
counteract the population aging panic.”

The more we save for retirement,
the better for us and the macroeconomy
Of course, a surge of investment in human and physi–
cal capital won’t happen by itself. Various policies and
incentives would be required to channel wealth toward
capital investment. And it’s not certain this will happen.
Braun does not subscribe to the theory that wealth
accumulated by elderly people will lead to heavy capital
investment and thus more productive, if fewer, workers.
He points to research suggesting that while elderly
people save throughout their lives, they tend to spend
their wealth in retirement. Moreover, shocks during old
age—a spouse’s death, a major health problem—tend
to quickly wipe out wealth, according to research by

Chart 5
Labor force participation rates by age group: 1994
100%
90%
80%
70%

67%

60%
50%
40%
30%

12%

20%

17%
5%

10%
0%
Total

65–older

* projected
Source: U.S. Bureau of Labor Statistics, December 2015

65–74

75–older

Federal Reserve Bank of Atlanta

economist James Poterba of the Massachusetts Institute
of Technology.
Clearly, the more that all Americans save, the less difficult
will be the demographic shift.
Pegging how much the elderly have saved is no simple
matter, though. Many are well off. A 2012 study by Poterba,
Steven Venti of Dartmouth College, and David Wise of
Harvard University found that between 1993 and 2008, the
median wealth of married senior-citizen couples, about a year
before they died, exceeded $600,000. Yet they also found
that 46 percent of the elderly in the United States had less
than $10,000 in financial assets when they died.
The economist Ronald Lee of the UC-Berkeley Center on
the Economics and Demography of Aging took wealth into
account in constructing an alternative to the standard old-age
support ratio. In a paper presented at the Federal Reserve
Bank of Kansas City’s 2014 Jackson Hole Economic Policy
Symposium, Lee noted that the support ratio ignores capital
and reflects only labor income in relation to consumption.
He concluded that “the impact of population aging is cut
by three-fourths using the general support ratio,” his new
formulation. Using his general support ratio, he calculated
that the growth of output per hypothetical consumer declines
by 0.06 percent a year from 2010 to 2050, instead of 0.26
percent annually under the ordinary old-age dependency, or
support, ratio. The standard support ratio refers to the ratio
of elderly people to working-age people.

Another hopeful sign in the battle against the demographic
wave: the growth in health care spending has slowed in recent
years. Part of the story is that older people today generally
are healthier than older people of earlier generations,
thus requiring less expensive care, Donehower says. The
percentage of people in nursing homes is declining as older
people are generally healthier and as programs encourage
people to avoid the very costly care nursing homes provide.
Population aging will have many and diverse economic
impacts. But that alone is no cause to despair.
“The bottom line is that the nation has many good
options for responding to population aging,” notes Aging
and the Macroeconomy: Long-Term Implications of an
Older Population, a 2012 report compiled by the National
Research Council for the U.S. Congress. “On the whole,
America is strong and healthy enough to pay for increased
years of consumption through increased years of work, if we
so choose. Alternatively, we will be healthy enough to enjoy
additional active years of retirement leisure if that is our
decision, individually or collectively.”

The Graying of the American Economy

There are reasons for
optimism on several fronts,
from the labor market to
health care costs to the
general dynamism of the
U.S. economy.

Federal Reserve Bank of Atlanta

Fiscal Math Is Daunting
It’s simple arithmetic, really. Thanks to increasing life expectancy and falling fertility
rates, the share of older Americans is on the rise—and the number of working-age
people is declining.
As a result, the United States and many other countries are
experiencing large increases in the old-age dependency ratio.
Americans 65 and older are disproportionately supported
by social insurance programs like Social Security (Old Age,
Survivors, and Disability Insurance, or OASDI), Medicare,
Medicaid, and Supplementary Security Income (SSI). In the
coming years, this oldest segment of the population is going
to grow dramatically, as the working-age segment of the
country, the people who mostly fund these programs through
payroll and income taxes, will dwindle by comparison.
That’s problematic, as it upsets the “support ratio,” or,
put another way, the old-age dependency ratio. The balance
of the working-age population and the elderly—the old-age

dependency ratio—is a key gauge of a country’s ability to
sustain old-age social insurance programs, points out Karen
Kopecky, an Atlanta Fed research economist and associate
policy adviser, who has studied the fiscal and economic effects
of aging in the United States.
In 2010, there were 4.8 workers for each retiree. However,
as the baby boomers—those born between about 1946 and
1964—age, this number will decline to just 2.7 by 2040,
according to U.S. Census Bureau projections. (See chart 1.)
The math is daunting. Eventually either social insurance
benefits must decline or taxes must increase, or some
combination of both, according to Toni Braun, Atlanta Fed
research economist and senior adviser.

Chart 1
Number of working-age people for each person 65 and over
10
9
8
7
6
5
4
3
2
1
0
1940

1950

1960

Source: U.S. Census Bureau

1970

1980

1990

2000

2010

2020

2030

2040

2050

“This increase in fiscal burdens is one of the key
macroeconomic effects of an aging population,”
Massachusetts Institute of Technology economist James
Poterba writes in a 2014 research paper.

Aging to be the biggest driver of federal spending
Government transfers, or benefits, to retirees are large and
increase with age. The nonpartisan Congressional Budget

Office (CBO) reports that in 2006, the most recent year data
are available, the 15 percent of U.S. households headed by
someone 65 or older received more than 60 percent of net
federal transfers, or government payments minus taxes paid.
(See the infographic and charts 2 and 3.)
What this will mean in 25 years is that the aging of the
population will be the single largest factor affecting U.S.
government spending on major health care programs and

Chart
Chart
Chart
22 2
Per
capita
taxes
and
social
contributions
paid
byby
age,
2011
Per
Per
capita
capita
taxes
taxes
and
and
social
social
contributions
contributions
paid
paid
by
age,
age,
2011
2011
Income
TaxTax
Income
Income
Tax
Property
TaxTax
Property
Property
Tax

Payroll
TaxTax
(FICA)
Sales
TaxTax
Payroll
Payroll
Tax
(FICA)
(FICA)
Sales
Sales
Tax
Other
Taxes
and
Fees
Other
Other
Taxes
Taxes
andand
Fees
Fees

$25,000
$25,000
$25,000

Total
Total dollars
dollars paid
paid
Total dollars paid

$20,000
$20,000
$20,000

$15,000
$15,000
$15,000

$10,000
$10,000
$10,000

$5,000
$5,000
$5,000

5
110
0
10
115
5
15
220
0
20
225
5
25
330
0
30
335
5
35
440
0
40
445
5
45
550
0
50
555
5
55
660
0
60
665
5
65
770
0
70
775
5
880 75
0--8
80 844
**8-84
85
*8 5++
5+

00
0
55

$0$0
$0
Age
Age
Age

Source:
Gretchen
Donehower,
National
Transfer
Accounts
Project
AgeAge
(www.ntaccounts.org)
Source:
Source:
Gretchen
Gretchen
Donehower,
Donehower,
National
National
Transfer
Transfer
Accounts
Accounts
Project
Project
Age
(www.ntaccounts.org)
(www.ntaccounts.org)

Federal Reserve Bank of Atlanta

Social Security, according to the CBO. Expenditures for those
two areas together already exceed all other noninterest spend–
ing, and that gap is likely to grow. In particular, expenditures on
social insurance for retirees are predicted to more than double
by 2040, according to CBO projections.
What is likely to happen varies by program.

Social Security and Medicare
The two biggest public programs that support the elderly are
Social Security and Medicare. In 2014, Social Security outlays
totaled about 5 percent of gross domestic product (GDP), and
Medicare spending equaled about 3.5 percent of GDP. The Social
Security Administration projects that Social Security expenditures
will rise to 6 percent of GDP in 2034 and that Medicare costs will
increase to 5.4 percent of GDP.

The Graying of the American Economy

Increases in the old-age dependency ratio—more retirees per
worker—significantly affect the sustainability of these programs
because benefits to current retirees are largely financed by
payroll taxes paid by current workers. If benefits are maintained
at their current levels, the projected increases in the old-age
dependency ratio will put a big dent in the paychecks of our
children and grandchildren.
This is not a new issue. Congress has known of this
problem for decades and created trust funds to ease the
tax burden on future workers. However, Social Security
Administration projections indicate that the funds are too
small. Those projections show that the Medicare Trust Fund
will be depleted in 2030 and the Social Security Trust Fund
will be exhausted in 2034. Once the trust funds are gone,
under current law, payments to retirees would have to fall
suddenly and sharply. (See chart 4.)
Medicare in some ways presents a more urgent and
complex challenge than does Social Security, Kopecky
notes. Medicare outlays are projected to grow more rapidly
than Social Security spending, mainly because health care
costs are rising faster than inflation, although the rate of

increase has slowed in recent years. But because the size
of Medicare outlays is so closely tied to health care costs,
the growth rate of Medicare spending is more uncertain than
that of Social Security.

Medicaid, SSI, and other means-tested
benefits for retirees
In means-tested social insurance programs, benefit eligibility
depends on a person’s financial situation—their current income
and wealth, for example. Put simply, the more you already
have, the less you get. Medicaid and SSI, the two largest
means-tested social insurance programs for retirees, are small
compared to Social Security and Medicare. Together, outlays
from Medicaid and SSI accounted for about 1 percent of GDP
in 2014. These programs are smaller because instead of paying
benefits to all retirees, they target those with the greatest
financial and medical need.
Although Medicaid expenditures on retirees are less than 1
percent of GDP, expenditures per enrollee age 65 and older are
large and growing. They were about $15,000 in 2014—versus
about $4,000 for working-age adults—and are projected to

Chart
3
Chart
Chart
3 3
Per
capita
public
benefits
received
by age,
2011
Per
capita
public
benefits
received
age,
2011
Per
capita
public
benefits
received
byby
age,
2011
Education
Education
Education
Medicaid
Medicaid
Medicaid

Medicare (HI+SMI)
Social Security (OASDI)
Medicare
(HI+SMI)
Social
Security
(OASDI)
Medicare
(HI+SMI)
Social
Security
(OASDI)
Other (includes SSI)
Other
(includes
Other
(includes
SSI)SSI)

5
101
0
10
151
5
15
202
0
20
252
5
25
303
0
30
353
5
35
404
0
40
454
5
45
505
0
50
555
5
55
606
0
60
656
5
65
707
0
70
757
5
808 7
–08–5
80 484
*8–*84
58
*8 +5+
5+

0
55

Total
Totalbenefits
benefitsreceived
received
Total benefits received

$50,000
$50,000
$50,000
$45,000
$45,000
$45,000
$40,000
$40,000
$40,000
$35,000
$35,000
$35,000
$30,000
$30,000
$30,000
$25,000
$25,000
$25,000
$20,000
$20,000
$20,000
$15,000
$15,000
$15,000
$10,000
$10,000
$10,000
$5,000
$5,000
$5,000
$0
$0 $0
00

Age
AgeAge

*Slope rises dramatically because numbers represent all people 85 and older and not individuals of a single age.
*Slope
dramatically
because
numbers
represent
all people
85 older
and older
andindividuals
not individuals
a single
*Slope
risesrises
dramatically
because
numbers
represent
all people
85 and
and not
of a of
single
age.age.
Source: Gretchen Donehower, National Transfer Accounts Project Age (www.ntaaccounts.org)
Source:
Gretchen
Donehower,
National
Transfer
Accounts
Project
(www.ntaaccounts.org)
Source:
Gretchen
Donehower,
National
Transfer
Accounts
Project
Age Age
(www.ntaaccounts.org)

Federal Reserve Bank of Atlanta

Chart 4
Chart
Social 4Security Trust Fund balance
Social Security Trust Fund balance
4
4

Trust
Trust
Fund
Fund
balance
balance
(in(in
trillions)
trillions)

2
2
0
0
-2
-2
-4
-4
-6
-6
-8
-8
-10
-10

20 20
14 14
20 20
17 17
20 20
20 20
20 20
23 23
20 20
26 26
20 20
29 29
20 20
32 32
20 20
35 35
20 20
38 38
20 20
41 41
20 20
44 44
20 20
47 47
20 20
50 50
20 20
53 53
20 20
56 56
20 20
59 59
20 20
62 62
20 20
65 65
20 20
68 68
20 20
71 71
20 20
74 74
20 20
77 77
20 20
80 80
20 20
83 83
20 20
86 86
20 20
89 89

-12
-12
Source: 2015 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Trust
Source: 2015 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Trust
Funds
Funds

exceed $23,000 by 2023, according to the Centers for Medi–
care and Medicaid Services (CMS).
Large costs for older enrollees are fueled by expenditures
of the “oldest old” retirees—those age 85 and older—many
of whom rely on Medicaid to finance long-term care costs
including nursing home stays. As Kopecky notes, among public
health care programs, Medicaid is the largest funder of longterm care for the elderly. In 2013, it financed 41 percent of all
long-term care expenses, according to CMS, while Medicare
covered just 18 percent.
SSI, the Supplementary Security Income program, is run and
funded by the federal government. Medicaid is jointly operated
and funded by the federal government and the states. These
programs rely on revenue from income, payroll, sales, and
property taxes, the bulk of which is collected from working-age
individuals. (See the infographic.) As the old-age dependency
ratio increases, total tax revenues from working-age individuals
will decline relative to outlays to retirees from these programs.

How to fix the funding shortfalls today
To get a handle on how daunting the fiscal math is, consider
what measures would be required to fix the budget imbalances

immediately. To maintain Social Security benefits at their current
levels over the next 75 years, the payroll tax would have to
be immediately and permanently increased from its current
level of 12.40 percent to 15.02 percent, the Social Security
Administration estimates. In that scenario, a person earning
$60,000 a year would pay about $1,500 more per year in taxes.
Alternatively, to keep taxes unchanged, benefits would have
to be immediately slashed by 16.4 percent for all retirees. If
that happened, a retiree receiving $20,000 a year in Social
Security payments, roughly the average for someone who
retired in 2014, would see a $3,280 cut in annual benefits.
To maintain Medicare benefits at their current levels, the payroll
tax rate would have to be immediately increased by 0.26 per–
centage points or, to keep taxes unchanged, benefits would
have to be immediately reduced by 15 percent.
For fiscal policymakers, it would surely be very difficult to
enact these drastic measures.
Unlike Social Security and Medicare, Medicaid and SSI
are not funded by a dedicated revenue source and trust
fund. Thus, the solvency of these programs is not an issue.
Moreover, growth in Medicaid spending on long-term care has
been somewhat mitigated by efforts to steer the elderly away

The Graying of the American Economy

from nursing home care in favor of less costly alternatives
such as home care. Still, Medicaid and SSI combined con–
stitute a significant portion of the federal budget, and Medicaid
makes up a large portion of the states’ budgets, Kopecky and
Braun point out. In 2013, for example, these two programs
accounted for 10 percent of federal spending and 19 percent of
all state spending.

The costs of delaying reform
Digging out of this fiscal hole is a thorny political challenge.
It is very difficult to legislate large increases in payroll or
income taxes. And higher taxes have a depressing effect on
the economy. Also, it is difficult to push through legislation that
reduces benefits for retirees, who tend to be politically active.
So there is a tendency for policymakers to delay taking either
action. But the longer policymakers wait to address the fiscal
challenges of aging, the more intractable the problems become,
Braun observes, citing the case of Japan. (See the sidebar
“Along with America, the World Is Graying.”)
It’s clear we need reform. So what do economists say about
what potentially good reforms might look like?

An economic perspective on policy reforms
Social Security, Medicare, Medicaid, and SSI insure the
elderly against various risks. Social Security furnishes a steady
income to help insulate people from poverty very late in life. The
size of one’s Social Security benefits depends on one’s earnings
history. SSI provides additional transfers to elderly individuals
whose Social Security benefits are especially low.
Of course, the elderly also face a high risk of large health
care expenses. Medicare provides health insurance to all
Americans 65 and older, but it does not cover long-term care
expenses. That matters, as the prospect of long-term care
is one of the two largest financial risks individuals face over
their lifetime, second only to the risk of low lifetime earnings,
according to a 2014 research paper by the Atlanta Fed’s
Kopecky and Tatyana Koreshkova of Concordia University.
Nursing home stays are particularly expensive. In 2010, it
cost an average of $75,000 to spend a year in a semi-private
room. Some seniors are fairly likely to face these costs. The
average 50-year-old woman has a 38 percent chance of
spending more than 100 days in a nursing home, and for the
average 50-year-old male, the chance is 20 percent, Rand
Corporation economist Michael Hurd and coauthors estimate
in a 2014 research paper. Kopecky and Koreshkova report

that 40 percent of those who enter a nursing home will stay for
more than a year, 20 percent for more than three years, and 11
percent for more than five years.
Medicaid is the largest public insurer of long-term care. How–
ever, because only poorer individuals who meet a means test
are covered by Medicaid, most of nursing home expenses are
paid for out of pocket, from savings. Kopecky and Koreshkova
calculate that savings for anticipated nursing home expenses
account for 3.7 percent of private wealth in the U.S. economy,
or more than $1 trillion. That’s enough money to purchase
the nation’s entire stock of cars, pickup trucks, heavy cargo
trucks, airplanes, ships, and every other form of transporta–
tion equipment.

Relatives are most common caregivers
Given how expensive long-term care can be, it is not sur–
prising that family members provide much of this type of
assistance. In fact, unpaid female family members are the
most common care providers. As noted, females are also
more likely to require long-term care.
Alzheimer’s disease and other dementias are among the
biggest reasons why people end up needing long-term care.
Women and older minorities face heightened risks of dementia,
numerous studies have found. In fact, women account for nearly
two-thirds of Americans with Alzheimer’s, according to the
Alzheimer’s Foundation. Taken together, these results suggest
that minority females are most likely to require formal long-term
care. (See the sidebar “Dementia Takes Large and Growing
Economic Toll.”)

Reforming social insurance for retirees
Though retirees face significant risks, it doesn’t necessarily
mean the government has a special role to insure against these
risks, Kopecky and Braun point out. Americans, after all, have
many years to prepare for retirement, and on average retirees
have substantial savings. Private insurance markets sell a
range of products that are specifically designed for retirees.
Private annuities and reverse mortgages offer stable cash flows
through the end of life, and private insurance markets also offer
long-term care insurance.
Nevertheless, even if they plan well for retirement, some
retirees will survive to an old age and find themselves sick,
alone, and poor. This sad state may result from the death
of a spouse or burdensome long-term care expenses due
to dementia. And, again, this risk is particularly significant for

Federal Reserve Bank of Atlanta

females and minorities. What is special about the people who
end up sick, alone, and poor is that they can’t cope on their own
by returning to work.
So in this sense, there is a special role for social insurance.
In a formal analysis in 2016, Braun, Kopecky, and Koreshkova
found that even though Medicaid, SSI, and other means-tested
social insurance programs for retirees are relatively small, they
provide valuable protections against these risks: households
with both low and high lifetime earnings receive benefits, and
means testing holds down the public costs of providing these
benefits. Indeed, this research suggests that the current scale
of these means-tested programs for retirees may be too small.
And even if the government were to fix the fiscal imbalances
in the U.S. Social Security system now, its pay-as-you-go
structure—current workers fund the benefits of current retirees—
means that workers in future years will face larger payroll taxes
to cover benefits of retirees.
Perhaps, then, it is time to consider an alternative way to
provide public pensions, Braun and Kopecky suggest. One
reform that has received considerable attention is a definedcontribution public pension, something like a 401(k) plan.
Under this system, part of a worker’s payroll taxes are used to
fund a mandatory retirement savings account that belongs to
an individual worker.
Defined-contribution public pensions have several advan–
tages, the Atlanta Fed economists note. They work well
when the old-age dependency ratio is high—the situation
the United States is facing—because workers are saving for
their own retirement. There is also less political uncertainty
about the eventual size of benefits because the accounts are
in workers’ names, so there is not a shrinking pool of money
that must be divvied up among all retirees. Contributions to
these savings accounts also offer individuals a higher rate
of return than their contributions to a pay-as-you-go social
security system. Earlier research by economists including
Atlanta Fed research director Dave Altig found that this type
of social security reform enhances general social welfare.
The biggest hurdle would be in managing the transition
from the current plan to a defined-contribution public pen–
sion system. In particular, how do you grandfather in current
retirees? Economists have suggested strategies for dealing
with this issue. One approach proposed by Juan Carlos Conesa
of the Universitat Autonoma de Barcelona and Carlos Garriga,
an economist at the Federal Reserve Bank of St. Louis, is to
increase government debt to fund a couple of costly measures:

to give those who are relatively close to retirement a deposit
into their account for their previous contributions to Social
Security, since they wouldn’t be contributing to the savings
account for an entire career, and to continue Social Security
payments for existing retirees.
In this scenario, citizens at some future date would pay a
minimal tax to cover interest on the newly issued government
debt. The economists argue that this is good for future citizens
because they have the benefit of their own personal retirement
savings accounts and avoid high payroll taxes to support
retirees in a society with a large old-age dependency ratio.
Other countries have done this. Sweden and a number of
Latin American nations have implemented reforms along these
lines. A lesson from Latin America: less affluent retirees still
need a safety net, say Stephen Kay, a senior economist and
director of the Atlanta Fed’s Americas Center, and Tapen Sinha,
an economist at Instituto Technologico de Mexico, who edited
the 2008 book Lessons from Pension Reform in the Americas.

Means testing Social Security and Medicare
As an alternative to defined-contribution public pension
plans, a somewhat less radical but perhaps more contentious
solution would be to means test Social Security and Medicare
benefits. Some countries, including Australia and the United
Kingdom, have adopted means-tested public pension benefits.
In those countries, the middle class and the needy continue
to receive benefits. But benefits gradually fall with wealth, and
the most affluent receive few or no benefits. In Australia, for
instance, only about half of retirees receive public pensions.
In the United States, the sustainability of Social Security and
Medicare is going to receive far more attention as the programs’
trust funds dwindle. What specific reforms to make and how to
implement them are difficult questions. Yet it is important to
begin these discussions now and to take actions soon.
Japan’s experience suggests that delaying public pension
reforms casts a pall on the economy. The longer we wait, the
larger are the tax increases or spending cuts needed to restore
balance. And uncertainty about the nature of the eventual
reforms makes it difficult for individuals to plan for retirement.

The Graying of the American Economy

74MILLION

THE NUMBER OF AMERICANS
OVER AGE 65 BY 2030, AN
85% INCREASE FROM 2010
Source: U.S. Census Bureau

Federal Reserve Bank of Atlanta

Along with America, the World Is Graying
Much of the world is undergoing a fundamental demo
graphic shift.
Most developed nations, in fact, are graying even faster than
America. Among large developed countries, only Russia was
younger than the United States in 2012, according to the U.S.
Census Bureau. Japan, meanwhile, has aged more—and faster—
than any other country.
This demographic wave originated as a global baby boom
that started right after World War II. The boom is following its
predictable course: it produced lots of children, then a quartercentury later lots of working-age adults, and now lots of elderly
people, according to Population Aging and the Generational
Economy: A Global Perspective, a 2011 book edited by Ronald
Lee, director for the Center for the Economics and Demography of
Aging at the University of California-Berkeley, and Andrew Mason,
professor of economics at the University of Hawaii at Manoa.
A surge in fertility meant the portion of children in the world’s
population swelled to a peak in 1975, Lee and Mason write.
Then the second wave began in the mid-1970s as the huge
baby-boom cohort entered adulthood, initiating rapid growth in
the working-age population.
Rising numbers of workers, supplemented in some countries
by greater numbers of women entering the workforce, fueled
economic growth. Some economists and demographers even
labeled this phenomenon a “demographic dividend.”

The coming Old World
Now a third demographic phase is beginning: global growth in
the older population. Worldwide, the working-age population in
2011 outnumbered those 60 and older by 4 to 1, according to
Lee and Mason. By 2050, that ratio is projected to drop
to 2 to 1.
“This third phase of the global age transition is without
precedent,” they write. “Populations in the future will be much
older than ever before in human experience.”
This phase will present fiscal and economic challenges.
Older people are net consumers—they consume more than
they produce—and compared to working-age adults, more of
the consumption of the elderly is publicly funded. In the United
States, for example, about 35 percent of the consumption
of 75- to 79-year-olds in 2011 was financed publicly, versus

roughly 20 percent of the consumption of those aged 40 to
44, according to the National Transfer Accounts, a database
maintained by researchers at the University of CaliforniaBerkeley and the East-West Center in Hawaii.

So far, Japan offers a cautionary example
No country has aged as much or as quickly as Japan. The share
of Japanese people 65 and older, nearly 25 percent, is already
larger than the portion of Americans who will be elderly in 2050,
the Census Bureau reports. (See chart 5.)
Japan offers a cautionary tale in grappling with the fiscal
challenges of a rapidly aging population. As recently as 1990,
Japan was the youngest of the “Group of 6” large, developed
countries, Atlanta Fed economist Anton Braun and coauthor
Douglas Joines of the University of Southern California write in
a 2015 research paper. But the graying of the baby-boomer
generation, combined with low fertility rates—the same forces
changing the makeup of the U.S. population—produced rapid
aging. From 1990 to 2005, the share of Japan’s population 65
and older rose from 12 percent to 20 percent.
Along with sluggish economic growth since 1990, the rapid
aging of the Japanese population has been associated with a
dramatic increase in government debt, Braun and Joines found.
Japan’s net public sector debt increased from 8 percent of
its GDP in 1990 to 150 percent of GDP in 2012. Meanwhile,
spending on social insurance nearly doubled to 31.4 percent of
government general account expenditures in 2013.
The accumulating debt is worrisome, Braun and Joines point
out, because the government will spend even more on public
pensions and medical care as the population continues to age.
In other words, the fiscal challenges will only intensify.
A key measure of a country’s capacity to support pay-as-yougo programs for the elderly is the so-called old-age dependency
ratio—the proportion of the population 65 and older compared
to those 18–64. Japan’s dependency ratio will peak around
2080 at some 88 elderly residents for every 100 working-age
people, Braun and Joines note.
By comparison, the United States’ old-age dependency ratio
is expected to crest at about 37 elderly residents for every 100
working-age people in 2040, according to the Census Bureau.

The Graying of the American Economy

Along with America, the World Is Graying
Repairing Japan’s fiscal imbalances will require both higher
taxes and cuts in government spending, according to Braun
and Joines. “We find that Japan faces a severe fiscal crisis if
remedial action is not undertaken soon,” they wrote.
In Braun’s view, the main lesson from Japan’s experience: the
longer policymakers wait to take action, the worse the situation
becomes, and thus the more severe the actions they must take.

For more information on the economic situation in Japan,
listen to a podcast with Braun and Professor Masaaki
Shirakawa, former governor of the Bank of Japan, at
frbatlanta.org/podcasts/transcripts/economymatters/160321-the-graying-of-the-japanese-economy.

Chart 5
Percent 65 and over in selected developed countries: 2012, 2030, and
2050
65+
2012
2030

Japan

2050

Germany

2012
2030
2050

Italy

2012
2030
2050
2012

France

2030
2050

Spain

2012
2030
2050

United
Kingdom

2012
2030
2050

Canada

2012
2030
2050

Ukraine

2012
2030
2050

Poland

2012
2030
2050
2012
2030

United
States

2050
2012
2030
2050

Russia
0

Percent
Source: U.S. Census Bureau, 2012 Population Estimates, 2012 National Projections, and International Data Base

Federal Reserve Bank of Atlanta

Dementia Takes Large and Growing Economic Toll
Dementia directly costs the U.S. economy upwards of $100
billion a year, more than cancer or heart disease. Add the cost
of “informal care,” including earnings people forgo to look after
suffering relatives, and the overall cost was an estimated $159
billion to $215 billion in 2010, according to research by Michael
Hurd, an economist and director of the RAND Corporation’s
Center for the Study of Aging.
Dementia is strongly age-related, so as the country’s pop–
ulation gets older, more and more people will develop the
disease. Consequently, annual costs to the economy could
exceed $500 billion by 2040, Hurd and other economists
at RAND predict. Hurd was lead author of a groundbreaking
2013 study on the monetary cost of dementia in the United
States. He defines dementia as a “serious loss of cognitive
ability in a previously unimpaired person, beyond what might
be expected from normal aging, leading to disability.”
Dementia is a major driver of health care costs not just in the
United States but throughout the developed world, according
to Sube Banerjee, director of the Centre for Dementia Studies
at the University of Sussex in the United Kingdom. “Dementia
is the highest-ticket health and social care item that we have,
making up 60 percent of long-term care spending according to
some estimates,” Banerjee wrote in the November 2012 edition
of Archives of Medical Research.

Incidence of dementia rises with age
In the United States, dementia afflicts about 10 percent of
people 75 to 79 years old, 20 percent of 80- to 84-yearolds, 35 percent of those aged 85 to 89, and more than
50 percent of people 90 and older, Hurd’s research shows.
By 2050, the portion of the U.S. population 85 and older
will rise from 2 percent to 5 percent, according to the U.S.
Census Bureau. The share of Americans 65 and older is
projected to climb from 15 percent now to nearly 25 percent
by 2060.
So if the rates of developing dementia hold steady, the ranks
of sufferers will grow significantly.
Hurd wrote the 2013 paper along with four other economists
and scientists. They arrived at a monetary cost of dementia
that includes out-of-pocket spending by households, Medicare
and Medicaid spending, and private insurance expenditures.

Most dementia costs go toward institutional and homebased long-term care, and not medical services, as dementia
sufferers typically require round-the-clock attention, Hurd said
during an October 2015 presentation at the Federal Reserve
Bank of Atlanta.
Hurd and his collaborators pegged the total, direct monetary
cost of dementia at about $109 billion for the year 2010.
Add the estimated costs for informal caregivers’ time—or,
alternatively, the cost to replace that time with hours of formal
care in the marketplace—and the estimated 2010 cost for
dementia totaled $159 billion to $215 billion, Hurd and his
collaborators calculated. By 2020, the direct monetary cost will
rise to $129 billion, while the wider cost will reach roughly $189
billion to $255 billion.
As much as 84 percent of dementia-related costs are
attributable to long-term services and support, much of which
is supplied by relatives and friends of dementia sufferers,
according to an October 2015 RAND study. Overall, informal
caregivers, mainly relatives and mostly daughters, provided 83
percent of the hours of care for the elderly. The percentage of
informal care hours was a little lower for adults who likely had
dementia, the RAND researchers found.
“Short of major technological breakthroughs, the need for
care is only going to rise in the future as the population grows
older,” Hurd and his colleagues wrote in the October 2015
issue of the journal Health Affairs. “Future efforts to reform
the U.S. system of long-term services and supports should
include a focus on policies to supplement and support
informal caregivers.”
The need to care for dementia patients will contribute to
the expected dramatic growth in demand for personal care
and home health aides. The U.S. Bureau of Labor Statistics
(BLS) projects that over the next decade, there will be more
new jobs for personal care aides than for any occupation
in the economy. A similar occupation, home health aide, is
projected to add the third most jobs. “In both occupations,”
the BLS reports, “aides assist people, primarily the elderly,
living in their own homes or in large care communities.”
Watch a video of Hurd discussing his work at frbatlanta.org/
news/paforum/2015/1021-hurd.aspx.

The Graying of the American Economy

“The need for care is
only going to rise in the
future as the population
grows older.”

Federal Reserve Bank of Atlanta

Profound Changes in Store for Labor Market
Working more years before retiring might not sound appealing to everyone. But it
could be critical to the nation’s future economic health.
The macroeconomic impact of population aging will depend
significantly on how long people remain in the workforce as
they age. That’s because the decision on whether to continue
working, or continuing to look for work, will affect the size of
the overall labor force. In turn, the size of the labor force is a
key ingredient in the economy’s growth potential. Put in the
simplest terms, the economy’s long-term growth rate is the sum
of the growth rate of labor employed plus the growth rate of the
productivity of that labor.
For the moment, at least, the first part of that equation—
labor force growth—doesn’t look especially promising. Already
slowing, the rate of labor force growth is projected to decline
further as 77 million baby boomers continue moving into older

age and retirement. The oldest boomers hit 62 in 2008 and
turn 70 in 2016. As large numbers of aging workers retire,
there is a comparatively smaller cohort of younger workers to
replenish the labor force. (See chart 1.)

Aging population a big reason
labor force growth is already slowing
The demographic erosion of the labor force from an aging
population is powerful and appears unstoppable, absent a
significant change such as a large influx of immigrants or a
steep decline in the rate of retirement.
Several organizations, including the U.S. Bureau of Labor
Statistics (BLS) and the Congressional Budget Office (CBO),

Chart 1
Seniority Rising
Percent change in civilian labor force by age group for 10-year periods
16–24

25–54

55 and older

48.0

47.1

45
30

19.8
15

8.8

3.9

3.0
0

-4.4

-15

-1.3
-13.1

-30
1994–2004
Source: U.S. Bureau of Labor Statistics

2004–14

2014–24

The Graying of the American Economy

More Work...

predict the labor force will expand about 0.5 to 0.6 percent
a year on average between now and 2050. That’s less than a
third of the annual growth rate of 1.7 percent between 1970
and 2007. That slowdown is largely the result of an aging
population, economists say.
Indeed, the rate of labor force growth has already slowed.
That’s partly because weak job prospects during the Great
Recession of 2007 to 2009 pushed some discouraged
job seekers out of the labor force entirely. To be counted
as part of the nation’s labor force, one must be working
or seeking a job. While cyclical economic factors played a
part, the dominant longer-term issue of population aging has
accounted for more than half of the decline in labor force
participation since 2007, according to the Federal Reserve
Bank of Atlanta’s Center for Human Capital Studies.
An aging population is not only slowing the growth of
the nation’s pool of workers. It could also be constraining
wages. Research published in March by San Francisco
Fed economists Mary C. Daly, Bart Hobijn, and Benjamin
Pyle suggests that since the Great Recession, aging is
partially responsible for slow growth in average wages.
(Go to frbsf.org/economic-research/publications/economicletter/2016/march/slow-wage-growth-and-the-labormarket/.)
Rising pay has been a key missing ingredient amid
otherwise healthy labor market indicators during the
recovery from the recession. There’s no consensus
explanation among economists of why growth in average
wages has lagged even as unemployment has declined.
But according to the new San Francisco Fed research, as
higher-earning baby boomers have retired, lower-wage
younger workers have taken new full-time jobs. So as lowerpaid workers move into the workforce and higher-paid baby
boomers retire, those two changes together have suppressed
measures of growth in wages.

Longer working lives could boost labor force
One important factor could stem at least some of the erosion of
labor force growth: longer working lives.
Labor economists concur that there is untapped capacity
for work among older Americans. For one, life expectancy
has increased, and people have become generally healthier
in their later years. A 67-year-old in 2007 had about the
same mortality rates as a 60-year-old in 1977, according
to Aging and the Macroeconomy, a 2012 book compiled by
the National Research Council (NRC). Plus, most jobs today
are not as physically demanding as they once were, so more
older people can perform them (See nap.edu/read/13465/
chapter/1.)
Careers are already lengthening. An almost 50-year trend
toward earlier retirement reversed in the mid-to-late 1990s.
From 1950 through 1995, the labor force participation rate of
men 55 and older dropped from nearly 70 percent to about 38
percent, according to Aging and the Macroeconomy. As more
men began retiring later, the participation rate for men 55 and
older has since moved back up to 46 percent, though it has
flattened and dipped a bit in the past couple of years, the BLS
reports. (See chart 2 and see sidebar, “Retirement as We Know
It Is a Modern Concept.”)
It’s clear there are more older workers—partly because there
are more older people in the population, and partly because
of a higher rate of labor force participation. The number of
employed wage and salary workers age 65 and older has more
than doubled in the 21st century, from 2.97 million in 2000 to
6.41 million in 2015, according to the BLS. Nearly two-thirds of
those older employees are working full-time, up from less than
half in 2000. (See chart 3.)
It appears the shift toward longer working lives will last. Even
as overall labor force participation is projected to keep falling,
the participation of older people is widely expected to resume
climbing. (See infographic on page 26.)

Federal Reserve Bank of Atlanta

It’s not completely clear why older people began working
longer in the 1990s, according to many experts including
Atlanta Fed economists Julie Hotchkiss, Toni Braun, and

Karen Kopecky. There’s likely a combination of reasons.
Some elderly people keep working for financial reasons, while
others choose to work because they are healthy enough and

Chart 2
Labor Force Participation Rate, Men 55 and Over
75%
70%
65%
60%
55%
50%
45%
40%
35%
30%
1948

1958

1968

1978

1988

1998

2008

Source: U.S. Bureau of Labor Statistics

Chart 3
Working Overtime
Employed wage and salary workers, 65 and over, in millions
Workers

Full-time

7
6
5
4
3
2
1
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: U.S. Bureau of Labor Statistics

The Graying of the American Economy

simply want to stay busy. What’s more, the idea of “phased
retirement,” as opposed to abruptly walking away from work
entirely, is becoming more common in the United States and
other countries, according to the Organization for Economic
Cooperation and Development’s OECD Pensions Outlook 2014.
(See oecd.org/finance/oecd-pensions-outlook-23137649.
htm.) Allowing workers and employers more flexibility to
gradually phase in retirement is important to promote longer
working lives, according to the OECD and other researchers.
Changes in financial incentives can affect employment deci
sions. For example, certain tax rules and provisions in pension
plans and retiree health insurance plans encourage earlier
retirement and make it more costly for employers to keep older
workers on the payroll. An extensive body of research indicates

that average retirement age is strongly influenced by early
retirement incentives in plan provisions. For instance, public
pension plans in many countries do not allow those who delay
retirement to collect additional annual benefits to offset those
they would have collected had they retired sooner. In the United
States, however, Social Security is more “actuarially fair,” as
researchers term it, because if you retire later—say, at 67 instead
of the current earliest eligibility age of 62—you collect more
benefits each year than if you begin collecting benefits at 62.
Defined-benefit pension plans are another story. Tradi–
tional pension plans are much less common in the private
sector than they used to be, but are still widespread in
the public sector. In those plans, benefits generally do not
go up enough to make it worthwhile to delay retirement,

PERCENT

66.6 %

66.0 %

62.9 %

60.9 %

1994

2004

2014

2024

OVERALL LABOR FORCE PARTICIPATION RATE IS EXPECTED
TO KEEP FALLING... BUT NOT FOR OLDER PEOPLE
PERCENT

12.4

1994

10.6

8.0

6.1

2004
Total 65 - older

21.7

18.6

14.4
5.4

29.9

26.2

21.9

17.2

2014
65 -74

Source: U.S. Bureau of Labor Statistics

2024
75 - older

Federal Reserve Bank of Atlanta

according to the NRC. Thus, the advent of personal definedcontribution plans, such as 401(k)s in the 1980s, is pro–
bably one reason why older people began staying in the
workforce longer in the mid-1990s, the NRC says in Aging
and the Macroeconomy.
Another disincentive to work at older ages is a higher effec
tive tax rate. The Social Security and Medicare payroll tax
for those 60 and over is often a “pure tax” on work because
older workers have often already put in the 35 years that
count toward Social Security benefits, according to a 2011
paper by economists Gopi Shah Goda, John B. Shoven, and
Sita Nataraj Slavov at Stanford University and the American
Enterprise Institute. (Go to nber.org/chapters/c12222.pdf.)
Therefore, depending on their pay, older workers may earn no
incremental Social Security or Medicare benefits for staying in
the workforce longer.
Employer-provided health benefits also create an implicit
tax for many workers age 65 and over. If they receive health
insurance from an employer with more than 20 employees,
then Medicare doesn’t cover the workers. This policy is
known as “Medicare as a secondary payer.” Under such
circumstances, employees, along with their employer, pay for
health insurance even though those workers are otherwise
eligible for Medicare, according to the NRC. “This creates

another large gap between the employer’s cost of employing
an older worker and the employee’s net wage,” says the NRC’s
Aging and the Macroeconomy.

Changing tax, Medicare policies would
equate to a pay raise for older workers
Removing these extra costs would encourage workers to work
longer because they would effectively get a pay raise. At the
same time, employers’ costs of employing older workers would
also fall. Some economists have proposed creating a new
category of older workers who, having paid their share of Social
Security and Medicare payroll taxes over 35 or 40 years, would
no longer be subject to the tax.
The NRC book suggests eliminating the “Medicare as a
secondary payer” policy by simply granting Medicare benefits
to workers 65 and over regardless of whether their employer
provides a health plan. That way, neither the worker nor the
employer would pay for private health coverage. The worker
would theoretically also see a significant increase in net
wages. While these ideas might help to increase labor force
participation among older citizens, thus reducing the number
of people supported by social insurance, the measures might
also worsen the financial positions of the Social Security and
Medicare trust funds.

Chart 4
Immigration Ebbs and Flows
Millions of persons obtaining lawful permanent resident status, 1900-2013
2.0

1.5

1.0

0.5

0.0
1900

1920

Source: U.S. Department of Homeland Security

1940

1960

1980

2000

The Graying of the American Economy

Some European countries have had success with incentives
aimed at encouraging workers to retire later. While the labor
force participation rate of 55- to 64-year-olds in the United
States leveled off around 2007 after rising over the prior couple
of decades, the participation rate of this group continued
climbing in several euro area nations. In the past several years,
European nations raised retirement ages for pension benefits
by an average of about two years and restricted early retirement
eligibility. Also, Germany in the mid-2000s began instituting
policy incentives for hiring older workers.
Clearly, American policymakers face difficult choices when
it comes to aging and the course of the labor force and, more
broadly, the macroeconomy.

The role of immigration in
boosting labor force growth
Although a potentially effective tool for boosting the labor force,
immigration policy is particularly contentious. An increase
in future immigration would effectively be an increase in the
projected labor force, according to the BLS. Recent history supports that view. From 1996 to 2014, according to BLS figures,
the nation’s labor force increased by about 21.9 million people.
(Go to bls.gov/news.release/pdf/forbrn.pdf). Even though
foreign-born workers are only a small share of the nation’s
labor force, they accounted for more than half of the increase
in the labor force between 1996 and 2014. (See bls.gov/spotlight/2013/foreign-born/.)
Historically, immigration responds to labor shortages. In a
2012 paper, economists Federico Mandelman of the Atlanta
Fed and Andrei Zlate of the Federal Reserve Board of Governors wrote that as business conditions in the United States
improved, immigration from Mexico in particular increased.
(Go to sites.google.com/site/federicomandelmanhomepage/
PaperImmRem.JME.pdf.) Many of the foreign-born workers
then returned to their home country when job opportunities
in the United States dried up, and came back again when
jobs were plentiful.
However, that pattern has changed. Since the U.S. government stepped up border enforcement in 2000, many immigrant
workers have chosen to remain in America even during economic
downturns. They don’t want to risk going home and then not being
able to return to the States, according to Mandelman and Zlate.
One reason immigration is a potentially potent antidote to
slow labor force growth is that immigrants tend to be young. In
2012, for example, 76 percent of foreign-born members of the

labor force were between the ages of 25 and 54, compared
to 63 percent of the native-born labor force, the BLS reports.
Forecasting immigration, and thus its future impact on the
labor force, is fraught with uncertainty, as the Congressional
Budget Office notes. Immigration numbers have fluctuated
for a long time. Averaged over five-year periods, net annual
immigration has ranged from nearly seven to fewer than
two immigrants per 1,000 people in the U.S. population,
according to the CBO’s 2015 Long Term Budget Outlook.
Go to [cbo.gov/publication/50250]). Since 1970, the number
of people obtaining lawful permanent resident status in
the country has ranged from 373,000 in 1970 to 1.8 million in
1991, according to the U.S. Department of Homeland Security’s
2013 Yearbook of Immigration Statistics. (See chart 4.) While
warning of a “great deal of uncertainty” involved in long-range
predictions, the CBO projects net annual immigration of
1.2 million people in 2026 and 1.3 million in 2040. That would
not amount to a huge increase over recent levels. (Go to dhs.
gov/publication/yearbook-2013.)

Potential macroeconomic effects
The future population of older Americans is going to grow a
lot. That much is clear. Immigration would help mitigate the
effect of an aging population on labor force growth. But future
levels of immigration are highly uncertain. Also subject to some
uncertainty is the future rate of labor force participation of
older workers. Although the trend toward greater participation
has actually flattened in the last few years, the BLS projects
it will increase over the next decade. If this happens, longer
working lives would help fuel labor force growth and, in turn,
boost the macroeconomy. An increase in the number of older
workers would also lower the number of retirees that workers
help to support.
If older workers indeed raise their labor force participation
rate, tax revenues would also rise, which could strengthen
funding for public old-age support programs such as Social
Security and Medicare. If longer working lives lessen the burden on elderly support programs, they might also release more
resources to fund other public priorities, including education of
the young.
Government policy on retirement and work incentives will
have a significant effect on the future growth of the labor force.
Policy decisions will also affect the degree to which immigration
supports labor force growth.

Federal Reserve Bank of Atlanta

Retirement as We Know It Is a Modern Concept
Retirement as we know it is a relatively recent phenomenon.
We didn’t always spend the golden years traveling, gardening,
and cycling. Even though average retirement ages have been
inching upward since the mid-1990s, fewer than 20 percent of
Americans age 65 and older today are in the workforce.
“The United States was quite a different place in 1880,
when more than 75 percent of men over the age of 65 were
participating in the labor market,” Federal Reserve Bank of
Atlanta research economist Karen Kopecky writes in a 2011
research paper. (See onlinelibrary.wiley.com/doi/10.1111/
j.1468-2354.2011.00629.x/full.)
A graphic in Kopecky’s paper illustrates that in 1850, only
20 percent of men 75 to 79 were retired. Of course, a smaller
share of the population lived to 75 in the antebellum years.
Even 100 years later, in 1950, nearly half of U.S. men age
65 and older were in the labor force, according to the U.S.
Bureau of Labor Statistics. The share of senior men in the
workforce fell steadily to 16 percent by 1990 before starting
a gradual climb to about 19 percent today.

Men spend 50 percent more time
retired today than in the 1960s
In the big picture, though, retirement has become a more significant part of a typical American life. In the United States, the
median number of years men spend in retirement increased
almost 50 percent between 1965 and 2003, from 13 years to
almost 19 years, according to the National Research Council’s
(NRC) book Aging and the Macroeconomy. About half of these
additional years were a result of living longer and half were
thanks to retiring earlier, the NRC says.
Men appear to be using those retirement years to relax.
Kopecky writes that men age 55 to 64 years spend about
19 percent more time on recreation than men age 25 to 54,

whereas men 65 and older spend nearly 43 percent more
time in leisure activities than men 25 to 54. (She focused her
study on men because in the early years she studied, women
made up a tiny percentage of the nation’s workforce.)
Kopecky argues that a blend of cheaper and higher-quality
leisure goods—entertainment, books, sports gear, travel, and
so on—and rising real wages created the retirement culture
that emerged in the 20th century. Those two forces, she writes,
“have made the leisure-intensive retirement lifestyle more
affordable, driving a rise in retirement.”

The Graying of the American Economy

The demographic erosion
of the labor force from
an aging population is
powerful and appears
unstoppable.

Federal Reserve Bank of Atlanta

Is an Older Economy a Weaker Economy?
Since the Great Recession, many people have asked Federal Reserve officials if they
are penalizing senior citizens by keeping interest rates low. Questioners are concerned
about retirees living mainly off savings and earning low rates on those savings.
But Fed policymakers are not unconcerned about seniors.
In fact, the notion of monetary policy penalizing or reward–
ing one group or another highlights a misconception about
policy’s objectives and reach. Monetary policy does not seek
to pick economic winners and losers. It is, rather, a “blunt
tool” designed to create an environment conducive to broad
economic prosperity.
Channeling resources toward one or more groups based
on demographics or other factors—what economists call the
“distributional effect”—is the province of fiscal policy. Research,
including this from the Philadelphia Fed (see philadelphiafed.
org/research-and-data/publications/business-review/2015/
q2/brQ215_the_redistributive_consequences_of_monetary_
policy.pdf) finds that the distributional effects of monetary
policy are complex and uncertain.
Former Fed Chairman Ben Bernanke explained in a March
2015 post on his Brookings Institution blog that raising
interest rates too soon would hurt and not help seniors (see
brookings.edu/blogs/ben-bernanke/posts/2015/03/30why-interest-rates-so-low). Such a premature move, Bernanke
said, would likely slow the economy and lead to lower returns
on capital investments for seniors and everyone else. (See
the sidebar, “Graying of America Expected to Produce Slower
Economic Growth.”) “The slowing economy in turn would have
forced the Fed to capitulate and reduce market interest rates
again,” Bernanke wrote. Several major central banks faced
precisely that scenario in recent years.
The Federal Reserve concentrates on stable prices and low
unemployment, the dual mandate handed down by the U.S.
Congress. By law, the Fed sets policy for the economy as a
whole, not to target particular economic sectors or to favor any
demographic group, explains Atlanta Fed research economist
Toni Braun.

A different question: Aging’s impact on
the environment in which policy is made
But what effect does an aging population have on the
economic conditions in which monetary policy is formed?
Many researchers have found, for example, that an aging
population tends to put downward pressure on real interest
rates, the rates of return after allowing for inflation.
Aging affects the real interest rate in a couple of basic
ways. First, older people tend to be savers rather than bor–
rowers. Younger people, by contrast, tend to be borrowers.
Therefore, having relatively more savers and fewer borrowers
drives interest rates lower because of supply and demand.
More money flowing into savings means the banks and other
institutions gathering those savings need not boost rates to
attract those deposits.
Second, aggregate hours worked falls as the population ages
and workers move into retirement. Lower aggregate labor input
reduces the amount of output produced by each unit of capital.
This in turn acts to reduce the real return from investing in
capital, Braun explains.
Aging societies are already starting to experience down–ward
pressure on interest rates—most notably in Japan. A 2009
paper Braun authored with Daisuke Ikeda and Douglas Joines
was among the early research to document the implications
of population aging on the real interest rate in Japan (see
onlinelibrary.wiley.com/enhanced/doi/10.1111/j.14682354.2008.00531.x).(See the chart.) The authors found that
the two biggest factors underlying the decline in Japan’s real
interest rate from 6 percent to 3.9 percent between 1990 and
2000 were rapid population aging and lower productivity growth.
A large increase in life expectancy in Japan has meant
that the baby boomers need to plan for longer retirement.
Now, as they move into retirement, both the national savings

%
rate and the interest rate are falling. The decline in the real
interest rate is compounded by a declining fertility rate.
A lower fertility rate translates into a smaller fraction of
younger workers who seek to borrow funds to purchase
homes and cars. A subsequent 2015 paper by Braun
and Joines predicts the after-tax real interest rate in
Japan will decline by a further 2 percentage points
between 2010 and 2050, with aging a key driver of those
declines (see sciencedirect.com/science/article/pii/
S0165188915000780).

Aging is acting to reduce interest rates in other advanced
economies, too. San Francisco Fed economist Fernanda
Nechio and coauthors Carlos Carvalho and Andrea Ferrero
find that population aging in a hypothetical representative
developed country can account for about a third to a half of the
total decline in the real interest rate between 1990 and 2014
(see frbsf.org/economic-research/files/wp2016-05.pdf). An
increase in life expectancy accounts for most of the drop,
the authors conclude. As people expect to live longer and
thus spend more years retired, they save more money for their

Japan's After-Tax Real Interest Rate
4%

0%
2008

2012

2016

2020

2024

2028

2032

2036

2040

2044

Source: R. Anton Braun and Douglas H. Joines, 2015 (www.sciencedirect.com/science/article/pii/S0165188915000780)

2048

Federal Reserve Bank of Atlanta

retirement. The authors forecast that the real interest rate in
their composite country will continue to fall for the next 40
years and then stabilize at about 2 percent.

Might monetary policy be less
effective as the population ages?
Because of demography’s downward pressure on interest rates,
formulating effective monetary policy might be more difficult as
the population ages. That’s because interest rates set by market forces tend to move lower regardless of policy, Braun notes.
Again, Japan offers a model. The Pacific Rim nation is aging
more than any other advanced country, as its working-age
population is shrinking by roughly a million people a year.
Aggressive monetary policy has made limited headway in
reversing years of sluggish economic growth and falling prices,
said Masaaki Shirakawa, professor of economics and former
governor of Japan’s central bank.
During a recent talk at the Atlanta Fed, Shirakawa said
the mild deflation Japan experienced during the 1990s was
often inaccurately cited as the cause of the country’s slow
economic growth. But the fundamental economic problem in
Japan, Shirakawa said, is not deflation but rather a rapidly
aging population.

Many researchers have
found that an aging
population tends to put
downward pressure on
real interest rates, the
rates of return after
allowing for inflation.

Research suggests that a big reason why younger people
react more strongly to interest-rate changes than do older
people is homeownership. Younger people generally carry larger
mortgages because older people have typically had more years
to pay down their home loans, according to research by Arlene
Wong (see sites.northwestern.edu/awo760/files/2015/10/
Arlene_Wong_JMP_Latest-2g9f9ga.pdf). Since they owe
more money, younger people have more reason to refinance
their mortgages when interest rates drop. And among those
who refinance when rates fall, consumption rises much more
than among those who don’t refinance, according to Wong.
It comes down to this: the conventional tool central banks
use to stimulate the economy is lowering short-term nominal
interest rates. However, when deposit rates become too low (or
even negative), eventually people and businesses will choose
to keep their cash to avoid “earning” a negative interest rate.
Stored at home, $1 today equals $1 next year. When short-term
nominal rates are negative, a deposit of $1 at a bank today will
be worth less than $1 if withdrawn after one year.
As short-term nominal rates approach this threshold—the
effective lower bound, or ELB—central banks have little recourse
but to rely on other measures such as quantitative easing
to stimulate the economy. This scenario happened during
the Great Recession. With an aging population that exerts
downward pressure on interest rates, it is possible—but not
certain—that the economy and policymakers could confront
the ELB more often.
Demographics is just one of many forces that determine
growth and interest rates. However, aging is occurring in all
advanced economies, and in some nations, the aging of the
population is widespread and rapid. How societies adapt to
a higher ratio of retirees to workers will no doubt influence
how the Federal Reserve seeks to achieve its congressional
mandate of low inflation and maximum employment.

The Graying of the American Economy

Federal Reserve Bank of Atlanta

Graying of America Expected to
Produce Slower Economic Growth
The changing age structure of the U.S. population is likely to
result in slower economic growth and consumption as labor
market participation declines. Much depends on the decisions
policymakers take to address the fiscal challenges of aging.
The good news: experts predict economic expansion, just
not as much compared with historical trends. The Bureau
of Labor Statistics forecast in December 2015 that the U.S.
economy will grow at a slower pace than before the 2007–09
recession, citing aging and declining labor force participation
(see bls.gov/opub/mlr/2015/article/overview-of-projectionsto-2024.htm).
Gross domestic product (GDP), the total value of goods and
services produced in the nation, expanded at an average rate of

2.1 percent annually from 2010 to 2014, down from 3 percent
or higher during the previous decades. The bureau expects GDP
to grow 2.2 percent over the 10 years that will end in 2024 (see
the chart).
Similarly, growth in personal consumption spending—
the biggest component of GDP—will also ease, the labor
agency said. From 2014 to 2024, personal consumption
expenditures are expected to rise 2.4 percent on average.
While that is stronger than the 2.2 percent growth from
2009 to 2014, it is lower than the 2.9 percent consumption expansion before the Great Recession and 3.8 percent
growth from 1994 to 2004.

U.S. GDP Growth

Annual rate of change (percent)

3.8%
3.0%

3.1%

3.4%

2.2%
2

1.6%

0
1964–74

1974–84

*Projected
Source: U.S. Bureau of Labor Statistics

1984–94

1994–2004

2004–14

2014–24*

The Graying of the American Economy

Many variables, many unknowns
Louise Sheiner, a senior fellow in economic studies and policy
director for the Hutchins Center on Fiscal and Monetary Policy
of the Brookings Institution, has coauthored research on aging
concluding that without a marked rise in labor market participation, consumption growth will have to fall (see aeaweb.org/
articles?id=10.1257/aer.104.5.218). In a 2006 research
paper, she and her coauthors identify a number of factors
that could affect consumption in the coming years (see federalreserve.gov/pubs/feds/2007/200701/200701pap.pdf).
These variables include the personal saving rate, productivity growth or contraction, and the cost of health care.
Still, uncertainty over the direction of U.S. fiscal policy, especially with regard to whether lawmakers cut or raise U.S. deficits
or change the rules governing Social Security and Medicare,
makes it hard to predict when any economic effects from aging
might materialize, she says.
“There are a lot of models that say consumption is going to
fall and savings will increase” as a consequence of aging, said
Sheiner, a former economist with the Federal Reserve Board
of Governors. “But a lot of them assume that the government
puts itself on a sustainable path and cuts benefits or raises
taxes for pensions.”
Additionally, policies that might address the consequences of
aging on issues such as labor force participation need to take
into account the widening inequality in mortality by income in
the United States, Sheiner said. For example, some have proposed boosting the retirement age as one possible solution to
try to keep older people in the workforce longer. But a January
2016 report from the Center for Retirement Research at Boston
College found a gap in life expectancy along lines of socioeconomic status, raising questions about the potential feasibility of
such a policy (see crr.bc.edu/wp-content/uploads/2016/01/
IB_16-1.pdf).

The report, titled Does a Uniform Retirement Age Make
Sense?, is based on research that estimated trends in
mortality from 1979 to 2011 by education. It concluded that
although all workers were likely to live longer today than in the
past, those with lower educational levels did not live as long
as people with higher socioeconomic status (SES). “Policies
seeking to extend work lives that treat all workers the same
will tend to cut into the retirement of low-SES workers more
than high-SES workers,” the center’s researchers wrote.

Now or later?
Ben Bernanke discussed various actions the nation’s policymakers could take to address changing U.S. demographics during
his time as Federal Reserve chairman, including reforming
entitlements, raising private savings rates, and making improvements to education. He warned that acting later rather than
sooner on these fiscal issues could lead to gloomy outcomes
for consumption and overall growth.
“If we decide to pass the burden on to future generations—that is, if we neither increase saving now nor reduce
the benefits to be paid in the future by Social Security and
Medicare—then the children and grandchildren of the baby
boomers are likely to face much higher tax rates,” Bernanke
said in a 2006 speech. “A large increase in tax rates would
surely have adverse effects on a wide range of economic
incentives, including the incentives to work and save, which
would hamper economic performance” (federalreserve.gov/
newsevents/speech/bernanke20061004a.htm).
Karen Jacobs
Staff writer for Economy Matters

Federal Reserve Bank of Atlanta

Sixth Federal Reserve District
Directors 2015
Federal Reserve Banks each have a board of nine direc–
tors. Directors provide economic information, have broad
over–sight responsibility for their bank’s operations, and,
with the Board of Governors’ approval, appoint the bank’s
president and first vice president. Six directors—three class
A, representing the banking industry, and three class B—are
elected by banks that are members of the Federal Reserve
System. Three class C directors (including the chair and
deputy chair) are appointed by the Board of Governors.
Class B and C directors represent agriculture, commerce,
industry, labor, and consumers in the district; they cannot be
officers, directors, or employees of a bank; class C directors
cannot be bank stockholders. Fed branch office boards have
five or seven directors; the majority are appointed by headoffice directors and the rest by the Board of Governors.

The Graying of the American Economy

Federal Reserve Bank of Atlanta

Atlanta Board of Directors

Thomas A. Fanning, CHAIR
Chairman, President, and
Chief Executive Officer
Southern Company
Atlanta, Georgia

Myron A. Gray
President, U. S. Operations
United Parcel Service
Atlanta, Georgia

Gerard R. Host
President and
Chief Executive Officer
Trustmark Corporation
Jackson, Mississippi

T. Anthony Humphries
President and
Chief Executive Officer
NobleBank & Trust
Anniston, Alabama

Michael J. Jackson,
DEPUTY CHAIR
Chairman and
Chief Executive Officer
AutoNation Inc.
Fort Lauderdale, Florida

Clarence Otis Jr.
Former Chairman and
Chief Executive Officer
Darden Restaurants Inc.
Orlando, Florida

Jonathan T. M. Reckford
Chief Executive Officer
Habitat for Humanity
International
Atlanta, GA

William H. Rogers Jr.
Chairman and
Chief Executive Officer
SunTrust Banks Inc.
Atlanta, Georgia

José S. Suquet
Chairman, President, and
Chief Executive Officer
Pan-American Life
Insurance Group
New Orleans, Louisiana

The Graying of the American Economy

Birmingham Board of Directors

Pamela B. Hudson, M.D., Chair
Chief Executive Officer
Crestwood Medical Center
Huntsville, Alabama

Brandon W. Bishop
Representative, Southern
Region International Union of
Operating Engineers
Birmingham, Alabama

Robert W. Dumas
President and
Chief Executive Officer
AuburnBank
Auburn, Alabama

Herschell L. Hamilton
Managing Partner
BLOC Global Group
Birmingham, Alabama

John A. Langloh
President and
Chief Executive Officer
United Way of Central Alabama
Birmingham, Alabama

James K. Lyons
Director and
Chief Executive Officer
Alabama State Port Authority
Mobile, Alabama

Nancy C. Goedecke
Chairman and
Chief Executive Officer
Mayer Electric Supply Company
Birmingham, Alabama

Federal Reserve Bank of Atlanta

Jacksonville Board of Directors

Harold Mills, Chair
Chief Executive Officer
ZeroChaos
Orlando, Florida

David L. Brown
Chairman, Chief Executive
Officer, and President
Web.com
Jacksonville, Florida

Carolyn M. Fennell
Senior Director of Public Affairs
and Community Relations
Greater Orlando Aviation Authority
Orlando International Airport
Orlando, Florida

Oscar J. Horton
President and
Chief Executive Officer
Sun State International
Trucks LLC
Tampa, Florida

D. Kevin Jones
President and
Chief Executive Officer
MIDFLORIDA Credit Union
Lakeland, Florida

Dana S. Kilborne
President and
Chief Executive Officer
Florida Bank of Commerce
Orlando, Florida

Michael J. Grebe
Chairman and
Chief Executive Officer
Interline Brands Inc.
Jacksonville, Florida

The Graying of the American Economy

Miami Board of Directors

Alberto Dosal, Chair
Chairman and
Chief Executive Officer
Dosal Capital LLC
Doral, Florida

Thomas W. Hurley
Chairman and
Chief Executive Officer
Becker Holding Corporation
Vero Beach, Florida

Carol C. Lang
President
HealthLink Enterprises Inc.
Miami Beach, Florida

Gary L. Tice
Chairman and
Chief Executive Officer
First Florida Integrity Bank
Naples, Florida

Victoria E. Villalba
Chief Executive Officer
Victoria & Associates
Career Services
Miami, Florida

Millar Wilson
Vice Chairman and
Chief Executive Officer
Mercantil Commercebank
Coral Gables, Florida

Rolando Montoya
Provost
Miami Dade College
Miami, Florida

Federal Reserve Bank of Atlanta

Nashville Board of Directors

William J. Krueger, Chair
Executive Vice President
JATCO, USA Inc.
Franklin, Tennessee

Kent M. Adams
President and
Chief Executive Officer
Caterpillar Financial
Services Corporation
Vice President, Caterpillar Inc.
Nashville, Tennessee

Jennifer S. Banner
Chief Executive Officer
Schaad Companies LLC
Knoxville, Tennessee

William Y. Carroll Jr.
President and
Chief Executive Officer
SmartBank
Pigeon Forge, Tennessee

R. Craig Holley
Chairman, President, and
Chief Executive Officer
CapitalMark Bank & Trust
Chattanooga, Tennessee

Scott McWilliams
Executive Chairman and
Chief Customer Officer
OHL
Brentwood, Tennessee

Kathleen Calligan
Chief Executive Officer
Better Business Bureau
Middle Tennessee
Nashville, Tennessee

The Graying of the American Economy

New Orleans Board of Directors

Terrie P. Sterling, Chair
Executive Vice President and
Chief Operating Officer
Our Lady of the Lake Regional
Medical Center
Baton Rouge, Louisiana

Elizabeth A. Ardoin
Senior Executive Vice President
Director of Communications
IBERIABANK
Lafayette, Louisiana

Lampkin Butts
President and
Chief Operating Officer
Sanderson Farms Inc.
Laurel, Mississippi

Phillip R. May
President and
Chief Executive Officer
Entergy Louisiana LLC and
Entergy Gulf States Louisiana,
L.L.C.
Jefferson, Louisiana

Suzanne T. Mestayer
Managing Principal
ThirtyNorth Investments LLC
New Orleans, Louisiana

Fred T. Stimpson III
President, U. S.
South Operations
Canfor Scotch Gulf
Mobile, Alabama

Art E. Favre
President and
Chief Executive Officer
Performance Contractors Inc.
Baton Rouge, Louisiana

Federal Reserve Bank of Atlanta

Management Committee & Other Officers

Dennis P. Lockhart
President and
Chief Executive Officer

Marie C. Gooding
First Vice President and
Chief Operating Officer

David E. Altig
Executive Vice President and
Director of Research

Michael E. Johnson
Executive Vice President,
Supervision and Regulation

André T. Anderson
Senior Vice President and
Corporate Engagement Officer

Brian Bowling
Senior Vice President and
General Auditor

Leah L. Davenport
Senior Vice President,
Operations and Administrative
Services

Anne M. DeBeer
Senior Vice President, Chief
Information Officer, and Chief
Financial Officer

Richard Jones
Senior Vice President and
General Counsel

Mary M. Kepler
Senior Vice President, Chief
Risk and Compliance Officer

Cheryl L. Venable
Senior Vice President and
Retail Payments Product
Manager

The Graying of the American Economy

SENIOR VICE PRESIDENTS
Scott H. Dake
Senior Vice President and
Retail Payments Office
Portfolio Manager

Brian D. Egan
Senior Vice President

VICE PRESIDENTS
Kelly A. Bernard
Vice President
Dwight S. Blackwood
Vice President and Assistant
General Counsel
Anita F. Brown
Vice President and Financial
Management and Planning
Controller

Karen Brown Gilmore
Vice President and Regional
Executive, Miami
Amy S. Goodman
Vice President
Cynthia C. Goodwin
Vice President

Doris Quiros
Vice President
Cynthia L. Rasche
Vice President
Juan C. Sanchez
Vice President

Todd H. Greene
Vice President

Adrienne L. Slack
Vice President and Regional
Executive, New Orleans

Paul W. Graham
Vice President and
Branch Manager, Miami

Paula A. Tkac
Vice President and Senior
Economist

Joan H. Buchanan
Vice President and
Chief Diversity Officer

Kevin T. Jansen
Vice President

Charles L. Weems
Vice President

Annella D. Campbell-Drake
Vice President

Gregory S. Johnston
Vice President

Julius Weyman
Vice President

Michael J. Chriszt
Vice President and
Public Affairs Officer

Lee C. Jones
Vice President and Regional
Executive, Nashville

Christina M. Wilson
Vice President and Branch
Manager, Jacksonville

Suzanna J. Costello
Vice President

John A. Kolb Jr.
Vice President

Stephen W. Wise
Vice President

William J. Devine
Vice President

D. Blake Lyons
Vice President

William Russell Eubanks
Vice President and Chief
Information Security Officer

Lesley A. McClure
Vice President and Regional
Executive, Birmingham

Richard Fraher
Vice President and Counsel
to the Retail Payments Office

Christopher Oakley
Vice President and Regional
Executive, Jacksonville

Michael F. Bryan
Vice President and Senior
Economist

Federal Reserve Bank of Atlanta

ASSISTANT VICE PRESIDENTS
Christopher N. Alexander
Assistant Vice President
Daniel M. Baum
Assistant Vice President
Kim Blythe
Assistant Vice President
Jonathan L. Burns
Assistant Vice President
Tonya D. Byrd-Sorrells
Assistant Vice President
Karen W. Clayton
Assistant Vice President,
EEO Officer, and
Deputy Diversity Officer
Chapelle D. Davis
Assistant Vice President
S. Paige Dennard
Assistant Vice President
Patrick R. Dierberger
Assistant Vice President
Angela H. Dirr
Assistant Vice President
and Assistant General
Counsel

James M. Gibson
Assistant Vice President and
Assistant General Auditor

J. Elaine Phifer
Assistant Vice President and
Compliance Officer

Rebecca L. Gunn
Assistant Vice President

Jaswanth G. Rao
Assistant Vice President

Paige B. Harris
Assistant Vice President

Robin R. Ratliff
Assistant Vice President and
Public Information Officer

Carolyn Ann Healy
Assistant Vice President
Kathryn G. Hinton
Assistant Vice President
Evette H. Jones
Assistant Vice President
Torion L. Kent
Assistant Vice President
Karl Lamb
Assistant Vice President
Lisa Lee-Fogarty
Assistant Vice President
Karen Leone de Nie
Assistant Vice President
Stephen A. Levy
Assistant Vice President

Michael E. Duren
Assistant Vice President

Margaret Darlene Martin
Assistant Vice President

Shilpa S. Dutt
Assistant Vice President

Daniel A. Maslaney
Assistant Vice President

Patrick E. Dyer
Assistant Vice President

Lani N. Mauriello
Assistant Vice President

Gregory S. Fuller
Assistant Vice President

Srinivas V. Nori
Assistant Vice President

Jennifer L. Gibilterra
Assistant Vice President

John C. Pelick
Assistant Vice President

Paul D. Roberts
Assistant Vice President
Princeton G. Rose
Assistant Vice President
Jeffrey F. Schiele
Assistant Vice President
Maria Smith
Assistant Vice President
Richard H. Squires
Assistant Vice President
Anthony S. Stallings
Assistant Vice President
Allen D. Stanley
Assistant Vice President
Jeffrey W. Thomas
Assistant Vice President
William R. Wheeler III
Assistant Vice President
Kenneth Wilcox
Assistant Vice President
Michael R. Williams
Assistant Vice President
Molly T. Willison
Assistant Vice President

The Graying of the American Economy

Advisory Councils
FEDERAL ADVISORY COUNCIL REPRESENTATIVE
O. B. Grayson Hall Jr.
Chairman, President, and
Chief Executive Officer
Regions Financial Corporation
Birmingham, AL

REGIONAL ECONOMIC INFORMATION NETWORK ADVISORY COUNCILS
Agriculture
David Bertrand
Owner
Bertrand Rice LLC
Elton, LA

David Kahn
President
Pizza 120 LLC
Birmingham, AL

Robert Thomas
President
Two Rivers Ranch Inc.
Thonotosassa, FL

Lorraine Bertrand
Owner
Bertrand Rice LLC
Elton, LA

Bart Krisle
Chief Executive Officer
Tennessee Farmers Co-op
La Vergne, TN

John Williams
President and
Chief Executive Officer
Zen-Noh Grain Corporation
Mandeville, LA

Donna Jo Curtis
Owner/Operator
Curtis Farms
Athens, AL

Gaylon Lawrence Jr.
Partner
The Lawrence Group
Nashville, TN

Marsha Folsom
Chief Development Officer
Resource Fiber
Cullman, AL

Larkin Martin
Managing Partner
Martin Farms
Courtland, AL

Mike Giles
President
Georgia Poultry Federation
Gainesville, GA

James “Jimmy” Sanford
Chairman of the Board
Home Place Farm Inc.
Prattville, AL

George Hamner Jr.
President
Indian River Exchange
Packers Inc.
Vero Beach, FL

Gray Skipper
Vice President
Scotch Plywood Company
Fulton, AL

Federal Reserve Bank of Atlanta

Energy
Kenneth Beer
Executive Vice President and
Chief Financial Officer
Stone Energy Corporation
Lafayette, LA

C. Michael Illane
Vice President
Gulf of Mexico Unit
Chevron North America
Covington, LA

Donald “Boysie” Bollinger
Former Chairman and
Chief Executive Officer
Bollinger Shipyards Inc.
Lockport, LA

Luther “Luke” Kissam
President and
Chief Executive Officer
Albemarle Corporation
Baton Rouge, LA

W. Paul Bowers
Chairman, President, and
Chief Executive Officer
Georgia Power Company
Atlanta, GA

Mark Maisto
President
Commodities, Trading, and
Commercial Services
Nextera Energy Inc.
Juno Beach, FL

Charles Goodson
President and
Chief Executive Officer
PetroQuest Energy
Lafayette, LA

Michael “Mike” Mansfield
Chief Executive Officer
Mansfield Oil Company
Gainesville, GA

Deloy Miller
Former Executive Chairman
Miller Energy Resources Inc.
Huntsville, TN
Jeffrey “Jeff” Platt
President, Chief Executive Officer,
and Director
Tidewater
New Orleans, LA
John Ramil
President and
Chief Executive Officer
TECO Energy
Tampa, FL
Earl Shipp
Vice President
Dow Chemical Texas Operations
Freeport, TX

Trade and Transportation
Adriene Bailey
Chief Strategy Officer
Yusen Logistics (Americas) Inc.
Jacksonville, FL

Clarence Gooden
President
CSX Transportation
Jacksonville, FL

Mark Bostick
President
Comcar Industries
Auburndale, FL

Chris Mangos
Director, Marketing Division
Miami-Dade Aviation Department
Miami, FL

Curtis Foltz
Executive Director
Georgia Ports Authority
Savannah, GA

Deborah A. McDowell
Director of Customer Service
and Business Development
Seaonus
Jacksonville, FL

John Giles
Chief Executive Officer
Central Maine & Quebec Railway
Ponte Vedra Beach, FL

Clifford K. Otto
President
Saddle Creek Logistics Services
Lakeland, FL

David Parker
Chairman, President, and Chief
Executive Officer
Covenant Transportation Group
Chattanooga, TN
Andy Powell
Vice President and General
Manager
Grieg Star Shipping Inc.
Atlanta, GA
Ken Roberts
President
WorldCity Inc.
Coral Gables, FL

Stephen Toups
Senior Vice President and
Chief Information Officer
Turner Industries LLC
Baton Rouge, LA

The Graying of the American Economy

Travel and Tourism
Robert “Bob” Dearden
Chief Financial Officer
Florida Restaurant & Lodging
Association
Tallahassee, FL

Amanda Hite
President and
Chief Operating Officer
STR Inc.
Hendersonville, TN

Shelly Smith Fano
Director of Hospitality
Management
Miami Dade College
Miami, FL

Kevin Lansberry
Senior Vice President of
Worldwide Travel Operations
Walt Disney Parks and
Resorts U.S.
Orlando, FL

Nicki Grossman
President and
Chief Executive Officer
Greater Fort Lauderdale Convention & Visitors Bureau
Fort Lauderdale, FL

Jason Liberty
Chief Financial Officer
Royal Caribbean Cruises Ltd.
Miami, FL

Mark Romig
President and Chief Executive
Officer
New Orleans Tourism Marketing
Corporation
New Orleans, LA
Will Seccombe
President and Chief Executive
Officer
VISIT FLORIDA
Tallahassee, FL
Mark Vaughan
Executive Vice President and
Chief Sales Officer
Atlanta Convention and Visitors
Bureau
Atlanta, GA

Jack Wert
Executive Director
Naples, Marco Island, Everglades
Convention & Visitors Bureau
Naples, FL
Alvin L. West
Chief Financial Officer and
Senior Vice President, Finance
and Administration
Greater Miami Convention &
Visitors Bureau
Miami, FL
Andrew Wexler
Chief Executive Officer
Herschend Family Entertainment
Corporation
Peachtree Corners, GA

Federal Reserve Bank of Atlanta

OTHER ADVISORY COUNCILS
Center for Quantitative Economic Research
Lawrence Christiano
Department of Economics
Northwestern University
Martin Eichenbaum
Ethel and John Lindgren
Professor of Economics
Northwestern University

Sergio Rebelo
Department of Economics
Kellogg School of Management
Northwestern University

Thomas Sargent
Leonard N. Stern School
of Business
New York University

Richard Rogerson
Department of Economics
and Public Affairs
Princeton University

Chris Sims
Department of Economics
Princeton University

Community Depository Institutions
Earl O. Bradley III
Chief Executive Officer
First Advantage Bank
Clarksville, TN
Alvin J. Cowans
President and
Chief Executive Officer
McCoy Federal Credit Union
Orlando, FL
Cynthia N. Day
President and
Chief Executive Officer
Citizens Trust Bank
Atlanta, GA

Robert R. Jones III
President and
Chief Executive Officer
United Bank of Atmore
Atmore, AL

Mark E. Rosa
President and
Chief Executive Officer
Jefferson Financial Credit Union
Metairie, LA

Terry West
President and
Chief Executive Officer
VyStar Credit Union
Jacksonville, FL

Miriam Lopez
President and
Chief Lending Officer
Marquis Bank
Coral Gables, FL

Claire W. Tucker
President and
Chief Executive Officer
CapStar Bank
Nashville, TN

Douglas L. Williams
(National Representative)
President and Chief Executive
Officer
Atlantic Capital Bank
Atlanta, GA

Joseph F. Quinlan III
President and
Chief Executive Officer
First National Bankers Bank
Baton Rouge, LA

Agustin Velasco
President and
Chief Executive Officer
Interamerican Bank, FSB
Miami, FL

The Graying of the American Economy

Labor, Education, and Health
Richard Hobbie
Visiting Scholar
Rutgers University
New Brunswick, NJ
Keith Jackson
Vice President,
Human Resources
AT&T Services
Atlanta, GA
Rob Kight
Senior Vice President
Global HR Services and Labor
Relations
Delta Air Lines
Atlanta, GA

Ann Machado
Founder and Chief Executive
Officer
Creative Staffing
Miami, FL
Anoop Mishra
Chief Operating Executive
EDPM
Birmingham, AL
Les Range
Regional Administrator
U.S. Department of Labor
Atlanta, GA

Ken Richards
President
Resource Mosaic
Atlanta, GA
Veronica Snyder
President
Career Professionals Inc.
Morristown, TN
Mike Stockard
Executive Vice President
Elwood Staffing
Birmingham, AL

Andrew Tavi
Vice President, Legal, Government
Affairs, and Human Resources,
Secretary and General Counsel
Nissan Group of North America
and Latin America
Franklin, TN
Victoria Villalba
President
Victoria & Associates Career
Services Inc.
Miami, FL

Federal Reserve Bank of Atlanta

Federal Reserve Bank of
Atlanta Milestones

The Graying of the American Economy

Federal Reserve Bank of Atlanta

Milestones
Research and Monetary Policy
The Atlanta Fed held the 20th annual Financial Markets
Conference in March. The Reserve Bank’s signature research
and policy event assembled financial and economic policy–
makers, academics, economists, and executives who
explored the future of traditional commercial banks and non
bank financial firms, or “shadow banks.” Speakers included
Fed Vice Chairman Stanley Fischer and former U.S. Treasury
Secretary Robert Rubin.

GDPNow was widely hailed for accurately predicting quarterly
economic growth. In 2015, the Bank introduced the Wage
Growth Tracker to trace all-important readings of aggregate
U.S. worker pay, and myCPI, which allows users to calculate
their personal cost of living.
The Atlanta Fed’s Americas Center cohosted with New York
University’s Stern School of Business a research conference
on international economics.
The Americas Center in August hosted a trade delegation
from Panama led by Minister of Commerce and Industry Melitón
Arrocha and Panama City Deputy Mayor Raisa Banfield. Fed
staff spoke to the delegation about outreach, monetary policy,
bank supervision, and payments operations.
In February, the Americas Center and the Inter-American
Development Bank cohosted “Non-Contributory Pensions,
Social Assistance Programs, and Household Savings in Latin
America and the Caribbean.” Economists presented new
research on noncontributory pensions in Argentina, Bolivia,
Brazil, and Mexico. The keynote speaker was Atlanta Fed
research economist Toni Braun.
The Community and Economic Development (CED) group
convened conferences and published research on such topics
as community development finance, links between education
and labor market dynamics, neighborhood redevelopment
and blight remediation, workforce development, and eco–
nomic dynamism in smaller metropolitan areas.
The CED group collaborated with the Kansas City Fed and
Rutgers University’s Heldrich Center to publish Transforming
U.S. Workforce Development Policies for the 21st Century.
The book includes contributions from leading academics,
policymakers, and practitioners.

Education and Public Outreach
Atlanta Fed economists produced research and analysis on
timely topics such as the federal rescue of Fannie Mae and
Freddie Mac, methods of forecasting unemployment, financial
stability, the health and dynamics of labor markets, China’s
macroeconomy, and stock market volatility.
Atlanta Fed economists received media attention for online
tools that transform complex economic data and concepts
into digestible packages. The real-time forecasting instrument

The economic education team created a series of four
personal finance infographics on the following topics: the
importance of financial planning, building and maintaining
good credit, the development of human capital, and banking.
The team distributed more than 8,000 copies of the printed
posters to teachers.
Attendance at economic education workshops increased
12 percent, to 5,781 attendees, and participation at

The Graying of the American Economy

economic research, banking, regional, and community and
economic development topics.

Payments

presentations rose about 8 percent, to 5,468. Through its
economic education programs, the team met a strategic
objective to reach 75 percent of high schools in the Sixth
District that are identified as inner city, majority-minority, or
girls’ schools.
Atlanta Fed President Dennis Lockhart delivered more than
a dozen public speeches on monetary policy and various
aspects of the macroeconomy, including consumer spending,
public pensions, and banking regulation. In the second half
of the year, his talks focused increasingly on conditions he
viewed as appropriate for raising the federal funds rate.
President Lockhart joined a roster of Atlanta business and
civic legends when he was inducted into the Junior Achievement
Atlanta Business Hall of Fame. In the group’s hall, Lockhart
joined luminaries such as cable TV pioneer Ted Turner, baseball
great and businessman Henry Aaron, Ambassador Andrew
Young, and Coca-Cola founder Asa Candler.
In the ECONversations series of webcasts, Atlanta Fed
experts discussed subjects including oil markets, the state of
the macroeconomy, inflation, and the nation’s labor market. One
ECONversation was held before a live audience at the Atlanta
Fed headquarters.
Six Public Affairs Forums brought leading authorities to
Atlanta Fed offices to offer economic perspectives on public
policy issues. Forums explored topics including the monetary
costs of dementia, the emergence of the “sharing economy,”
a historical perspective on financial crises, and the economic
value of the Mississippi River.
In August, the Atlanta Fed launched Economy Matters, a
continuously published digital magazine covering a variety of

The Retail Payments Office selected IBM’s Financial Transaction
Manager product to replace the current mainframe-based ACH
processing platform. Once installed, the replacement platform
will provide flexibility for future technology changes, promote
processing efficiencies, and enhance responsiveness to mar–
ket demands.
In support of the Federal Reserve’s Strategies for Improv–
ing the U.S. Payment System, the Retail Payments Office

collaborated across the payments industry and with the
National Automated Clearing House Association and the
Clearing House to support enhancements to same-day
ACH services. The enhancements, to be implemented in
phases beginning in September 2016, will facilitate the
use of the ACH network for certain time-critical payments,
accelerate final settlement, and improve funds availability
to payment recipients.

Supervision and Regulation
The Supervision and Regulation staff and its Fed System
counterparts put final touches on the latest round of stress
tests and Comprehensive Capital Analysis and Reviews (CCAR)
of the nation’s largest financial institutions. More than 100
examiners from around the System gathered at the Bank’s
headquarters to discuss the CCAR, which is an annual process
to ensure that the largest banking companies set aside enough
of a financial cushion to weather a severe business downturn.

Federal Reserve Bank of Atlanta

The Supervision and Regulation department expanded its
efforts to inform the banking industry and general public with
more ViewPoint Live webcasts. The online broadcast, which
allows participants to ask questions in real time, takes its name
from “ViewPoint,” the department’s quarterly publication on
banking conditions and trends.

Corporate Citizenship
Georgia Commute Options awarded the Atlanta Fed head–
quarters top honors for its efforts to promote clean commuting
options, including carpooling, taking public transit, walking or
biking to work, and teleworking.
Atlanta Fed employees logged 2,500 volunteer hours to
support more than 50 charities throughout the Sixth District,
with a focus on education, youth and workforce development,
and community development.
Fifty-three Atlanta Fed employees serve in leadership roles at
100 not-for-profit organizations, offering expertise in areas like
strategy development, financial planning, and operations.
Atlanta Fed staff members contributed nearly $300,000
to United Way and other charities through workplace giving
campaigns.

Diversity and Inclusion/Office of
Minority and Women Inclusion
The Bank received external recognition based on multiple
diversity and inclusion programs and initiatives. Recognitions included for the second straight year being named to
DiversityInc’s list of Top 10 Regional Companies for Diversity,
moving up to fifth place from ninth in 2014, and earning a
perfect score on the Human Rights Campaign’s Corporate
Equality Index.

The Urban Financial Services Coalition (UFSC), a group
focused on creating opportunities for minorities in the
financial services industry, held its annual summit at the
Bank’s headquarters in June. The Bank supported this
effort through in-kind donations as well as engagement
by Bank officers and staff through formal presentations,
panel discussions, and evaluations for the UFSC’s young
professionals’ oratorical competition.

The Graying of the American Economy

The graying economy has broad
implications for economic growth
and employment trends, and perhaps
even for economic policy.

Federal Reserve Bank of Atlanta

Financial and Audit Statements
Financial Statements
The Board of Governors and the Federal Reserve Banks annually prepare and
release audited financial statements reflecting balances (as of December 31)
and income and expenses for the year then ended. The financial statements for
the Atlanta Fed are available online at federalreserve.gov/monetarypolicy/files/
atlantafinstmt2015.pdf.

Audit Statement
The Federal Reserve Board engaged KPMG to audit the 2015 combined and
individual financial statements of the Reserve Banks and Maiden Lane LLC.*
In 2015, KPMG also conducted audits of internal controls over financial
reporting for each of the Reserve Banks. Fees for KPMG services totaled $6.7
million, of which $0.4 million was for the audit of Maiden Lane LLC. To ensure
auditor independence, the Board requires that KPMG be independent in all
matters relating to the audits. Specifically, KPMG may not perform services for
the Reserve Banks or others that would place it in a position of auditing its own
work, making management decisions on behalf of the Reserve Banks, or in any
other way impairing its audit independence. In 2015, the Bank did not engage
KPMG for any non-audit services.
* In addition, KPMG audited the Office of Employee Benefits of the Federal Reserve System (OEB), the Retirement
Plan for Employees of the Federal Reserve System (System Plan), and the Thrift Plan for Employees of the Federal
Reserve System (Thrift Plan). The System Plan and the Thrift Plan provide retirement benefits to employees of the
Board, the Federal Reserve Banks, the OEB, and the Consumer Financial Protection Bureau.

The Graying of the American Economy

2015 Annual Report

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Full text of Annual Report of the Federal Reserve Bank of Atlanta : 2015 Annual Report : The Graying of the American Economy : Annual Report

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