The wealth of aging nations

Most discussion of aging focuses on the rapidly escalating cost of pensions and health care, not the potentially far more damaging effects on wealth, savings, and economic well-being. A McKinsey Global Institute (MGI) study of Germany, Italy, Japan, the United Kingdom, and the United States shows that as more and more people retire, lower savings rates will hold back growth in household financial wealth. By 2024, it will be 36 percent—$31 trillion—less than it would have been if historical rates of expansion had persisted. This reality will depress investment, growth, and living standards in the largest, wealthiest economies and threaten the future development of poor ones.

 
MGI argues that the policy changes fashionable today—promoting immigration, raising the retirement age, and encouraging households to have more children—won't mitigate the crisis. Yet a sustained effort to allocate capital more efficiently, boost savings rates, and close government deficits could. "The demographic deficit: How aging will reduce global wealth" (Web exclusive, March 2005) explains the solutions as well as the problems.