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Retiring boomers to inherit trillions and will leave even more

Unabridged from my Bonus Years column in the Lifestyle section of The Sunday Capital, Annapolis, Maryland.

Hello 2015.

Presumably we’ve all made our resolutions and, undoubtedly, we’ve already broken some. That’s not cynicism. That’s reality.

Many other realities will become clearer in 2015. I’m not thinking of old realities, such as politicians not telling the truth or scandalous waste, fraud and abuse by governments.

Instead, I’m talking about realities associated with rising longevity — both in the United States and globally. The change is dramatic when viewed in the context of history.

Recall that life expectancy lingered around 30 to 40 years for thousands of years and was only 47 years by 1900. Yet, 100 years later, for the first time in history, Earth had more people over the age of 60 than under 5. By 2050, the generation 60 years and older will out-number those under 15.

Reasons for this explosion in longevity that is rapidly changing the age structure of every nation are familiar: improved diets, better sanitation, medical advances and greater prosperity, which also prompt falling birth rates. All these are combining to change the age profile of many nations from the familiar age “pyramid” to an age “rectangle.”

The aging of our world includes both emerging nations and developed nations, led by Japan, the world’s “oldest” major nation with a median age of 45.

But others are not far behind, as ever-larger numbers and percentages of the world’s population move into their bonus years. After Japan, the major nations with the highest percentage of people over 65 include China, Russia and most of the EU countries. The U.S., with a much younger population, is far down on the list.

The U.S. is younger and is therefore spared many of the economic disadvantages of an aging society by immigration.

In the U.S., many of the disruptive effects of longevity are mitigated by a new mainstream being shaped by Latino and Asian immigrants. This is fortunate because there is high alignment between traditional American values and those of America’s Latino and Asian immigrants.

This alignment includes the centrality of family, faith and community; a strong affirmation of gender equality and human rights; a strong work ethic; and a commitment to education for all and upward mobility.

In Europe, by contrast, immigrant populations have cultural values and worldviews that often vary sharply from those of the established populations — think of immigrant communities in the U.K. and France seeking to impose Sharia law, for example.

In the U.S., we are fortunate that the unprecedented global migration that is underway and is affecting nearly all nations is largely reinforcing rather than challenging our deeply-rooted values and widely-shared worldviews. France, the U.K. and others in Europe should be so lucky.

Another important emerging reality related to longevity is the huge transfer of wealth that is starting to occur. According to Bank of America’s Sarbjit Nahal and Beijia Ma, we are now witnessing what they call “the great transfer” of wealth from the “Greatest Generation” that fought and won World War II to their offspring, the baby boomers.

The numbers are staggering. As those born in the 1920s and 1930s of the last century pass on, they will transfer about $12 trillion to their boomer heirs.

But, according to Nahal and Ma, “a second and even larger wealth transfer from boomers to their heirs is starting now and will continue over the next 30 to 40 years.”

This second transfer, already underway, will hand over some $30 trillion in assets in the U.S. alone — mostly in real estate and business-related assets but also stocks, bonds and other savings accumulated over a lifetime of increasing prosperity.

Because capital is essential to drive entrepreneurship and fund innovation, these assets can ignite a new burst of productivity and wealth creation in America. Or they can be frittered away.

For example, there is no reason to believe that a future U.S. government — with debt already topping $18 trillion and growing at the rate of more than $2 billion a day — will not be tempted to tax these assets before they are transferred to heirs.

There are few governments in the world that have not confiscated the assets of its citizens, so it could happen here if voters refuse to demand fiscal discipline from their elected leaders and if elected officials refuse to rein in spending.

Whether that happens or not will largely depend on how wisely we navigate fiscal and monetary policy-making in the next decade. It will also reflect how much tolerance we will have for reforming Social Security, Medicare and other entitlements that are already headed for bankruptcy.

For example, since 2010, we are paying out more each month in Social Security payments than we are taking in, a practice that cannot be sustained. If we indexed Social Security retirement age to longevity in 1935, when FDR signed it into law, the retirement age today would be 82!

Certainly, we can consider increasing the retirement age just a few years, which is all we need to make Social Security solvent. But maybe not?

The question, going forward, is whether the “silver dollars” of retiring boomers will be passed on intact for private investment and entrepreneurship, or whether they will be consumed by a government unable to control its appetite for expanding its scope and increasing spending.

These issues of fiscal and constitutional responsibility are areas where both the boomers and the millennials can make common cause as we enter a new political season.

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