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The Income of the Swedish Baby Boomers

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Author Info

  • Flood, Lennart

    ()
    (University of Gothenburg)

  • Klevmarken, N. Anders

    ()
    (Uppsala University)

  • Mitrut, Andreea

    ()
    (University of Gothenburg)

Abstract

This paper studies the income of Swedish households belonging to the baby boom generation, i.e. those born in the 1940-50. An international comparison as well as an historical presentation of income patterns is given. However, the main purpose is to generate the future income of the baby boom generation as they get older. A major result is that the income standard of the young-old will become much higher than that of the very old. If our simulations bear the stamp of realism, they suggest that we will see new and large poverty in Sweden among the very old in the future. The pension system contributes to this result. The “front loaded” design gives with its reduced wage indexation a higher income immediately after retirement but a much lower income at older age. From this perspective it is unfortunate that so much attention is given to the discussion of replacement rates. The replacement rate, although interesting in itself, completely misses the long run effect and just provides a comparison of incomes shortly after with incomes before retirement. If we instead focus on the relative income of older pensioners, the results become quite different. Our results challenge the conception of a sustainable pension system. If the relative income of older pensioner’s drops and at the same time expenditures for health and care increase, one might wonder how the old in our society will make both ends meet. If pensions become too small to meet “minimum standards,” the requirement of financial sustainability of the pension system results in an increasing financial burden on other parts of the general social protection system.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2354.

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Length: 74 pages
Date of creation: Oct 2006
Date of revision:
Publication status: published in A. Klevmarken and B. Lindgren (eds.), Simulating an Ageing Population. A microsimulation approach to Sweden, Contributions to Economic Analysis No 285, Emerald Group Publishing Limited, Bingley, U.K. 2008
Handle: RePEc:iza:izadps:dp2354

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Keywords: replacement rate; micro simulation; pension system;

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References

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  1. Mantovani, Daniela & Papadopoulos, Fotis & Sutherland, Holly & Tsakloglou, Panos, 2005. "Pension Incomes in the European Union: Policy Reform Strategies in Comparative Perspective," IZA Discussion Papers 1537, Institute for the Study of Labor (IZA).
  2. Whitehouse, Edward & Queisser, Monika, 2007. "Pensions at a glance: public policies across OECD countries," MPRA Paper 16349, University Library of Munich, Germany.
  3. Alicia H. Munnell & Mauricio Soto, 2006. "What Replacement Rates Do Households Actually Experience In Retirement?," Working Papers, Center for Retirement Research at Boston College wp2005-10, Center for Retirement Research.
  4. Michael Hurd & Susann Rohwedder, 2003. "The Retirement-Consumption Puzzle: Anticipated and Actual Declines in Spending at Retirement," NBER Working Papers 9586, National Bureau of Economic Research, Inc.
  5. Louise Sheiner & David N. Weil, 1992. "The Housing Wealth of the Aged," NBER Working Papers 4115, National Bureau of Economic Research, Inc.
  6. Zvi Bodie & John B. Shoven & David A. Wise, 1987. "Issues in Pension Economics," NBER Books, National Bureau of Economic Research, Inc, number bodi87-1.
  7. Disney, Richard & Whitehouse, Edward, 2002. "The economic well-being of older people in international perspective: a critical review," MPRA Paper 10398, University Library of Munich, Germany.
  8. Michael J. Boskin & John B. Shoven, 1987. "Concepts and Measures of Earnings Replacement During Retirement," NBER Chapters, in: Issues in Pension Economics, pages 113-146 National Bureau of Economic Research, Inc.
  9. Quinn, Joseph F, 1987. "The Economic Status of the Elderly: Beware of the Mean," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 33(1), pages 63-82, March.
  10. Michael J. Boskin & John B. Shoven, 1987. "Concepts and Measures of Earnings Replacement During Retirement," NBER Working Papers 1360, National Bureau of Economic Research, Inc.
  11. Hurd, Michael D, 1990. "Research on the Elderly: Economic Status, Retirement, and Consumption and Saving," Journal of Economic Literature, American Economic Association, vol. 28(2), pages 565-637, June.
  12. James P. Smith, 2003. "Trends and Projections in Income Replacement during Retirement," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 21(4), pages 755-782, October.
  13. Michael Hurd & Susann Rohwedder, 2006. "Consumption and Economic Well-Being at Older Ages: Income- and Consumption-Based Poverty Measures in the HRS," Working Papers, University of Michigan, Michigan Retirement Research Center wp110, University of Michigan, Michigan Retirement Research Center.
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Cited by:
  1. repec:cep:sticas:case161 is not listed on IDEAS
  2. Aaron George Grech, 2012. "Evaluating the possible impact of pension reforms on future living standards in Europe," CASE Papers, Centre for Analysis of Social Exclusion, LSE /161, Centre for Analysis of Social Exclusion, LSE.

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