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HURRAH! BRILLIANT! "Greenspan Floats Higher Retirement Age" Friday August 27, 11:59 am ET By Rebecca Byrne, Senior Writer Updated from 11:23 a.m. EDT An aging population will put significant stresses on the budget deficit over the next three decades, a problem that could be solved by raising the retirement age, Federal Reserve Chief Alan Greenspan said in a speech Friday. At a symposium sponsored by the Fed Bank of Kansas in Jackson Hole, Wyo., Greenspan said the economy is not prepared to cope with a doubling in the elderly population by 2035, and said changes to benefit programs must be made before the baby boom generation retires. "As a nation, we owe it to our retirees to promise only the benefits that can be delivered," he said. "If we have promised more than our economy has the ability to deliver to retirees ... we must recalibrate our public programs so that pending retirees have time to adjust through other channels." Greenspan's speech didn't address monetary policy or the current state of the economy. Financing expected future shortfalls in Social Security and Medicare solely through increased payroll taxes is not the answer, Greenspan said, because higher taxes would lower the incentive to work and therefore reduce the pool of workers who pay into the system. Instead, Greenspan suggested that the government promote policies to extend working life, saying this could "ameliorate some of the potential demographic stresses." "Changes to the age for receiving full retirement benefits or initiatives to slow the growth of Medicare spending could affect retirement decisions, the size of the labor force and saving behavior," he said. The growth rate of the working-age population in the U.S. is expected to slow to about 0.25% per year by 2035 from 1.0% today, according to Greenspan. At the same time, the percentage of the population over the age of 65 is anticipated to rise to about 20% in 2035 from just 12% today. Unless actions are taken, these demographic changes will place a huge burden on the budget deficit. "Most observers expect Social Security, under existing law, to be in chronic deficit over the long haul," Greenspan said. The shortfalls in the Medicare program will be even larger and much more difficult to eliminate, he continued. "Medicare faces financial pressure not only from the changing composition of the population, but also from continually increased per recipient demand for medical services," he said. While the changes projected for the U.S. aren't as dramatic as those projected for Europe and Japan, "they nonetheless present substantial challenges," Greenspan said. Strong productivity gains "offer the greatest potential for boosting U.S. gross domestic product to a level that would enable future retirees to maintain their expected standard of living without unduly burdening future workers," Greenspan said. But a continuation of the exceptional productivity gains seen in recent years would be unprecedented. The decade-long rise in productivity growth has been due to "the effectiveness with which we have invested both domestic saving and funds attracted from abroad.... But...it is difficult to imagine that we can continue indefinitely to borrow saving from abroad at a rate equivalent to 5% of U.S. gross domestic product." In an election year, Greenspan's remarks resonate loudly. President Bush has advocated privatizing social security while Sen. John Kerry has said he would like to keep the system as it is. "I will not privatize social security," he said in his acceptance speech at the Democratic National Convention on July 29. "I will not cut benefits." Greenspan has tried to straddle the debate, saying only that "tough policy choices lie ahead." Still, he has endorsed the president's tax cuts and has said tax increases alone won't help to solve the deficit problem. If early initiatives aren't taken to address the effects of baby boom retirements, Greenspan said adjustments could be "abrupt and painful." "Curbing benefits once bestowed has proved so difficult in the past, fiscal policymakers must be especially vigilant to create new benefits only when their sustainability under the most adverse projections is virtually ensured," he said. The Federal Reserve raised rates earlier this month, saying that the economy is "poised to resume a stronger pace of expansion." Central bankers next meet on Sept. 21. yahoo.com | ||||||||||||
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