Funding the Retirement of Baby Boomers

After World War II the number of births per woman rose above 3.0 and remained there until 1965. The peak of 3.6 was reached in 1961. Since 1961, falling birth rates and longer life spans have combined to produce a steadily ageing population. Women today are bearing around 1.75 children on average, a substantial fall from the three children produced by women in the 1950s. An Australian man born in 1920 could expect to live until the age of 59 years, while a woman could expect to live until age 63 years. Today, the average man can expect to live until 77 years and the average woman until 82 years (ABS, 2002). Australians retiring in their 50s and 60s can now expect to spend two to three decades in retirement. These trends mean that the proportion of the population who are aged 65 years and over will roughly double over the next 40 years, to almost one in every four Australians by 2042. At the same time, there will be almost zero growth in the number of Australians of workforce age. As a result, the elderly dependency ratio — people aged 65 years or more to the of working age (15-64 years) population — is projected to increase from 18 per cent in 2000 to over 37 per cent in 2050 (Table 1). In other words, in the future there will be fewer workers to support each retired person. The increasing elderly dependency ratio for Australia is not as severe as in some other countries (notably Italy, Germany and Japan) but it is still significant and the economic aspects are a major issue.