The long-term solvency of pension plans - both public and private - is a growing concern across the developed world. Policy-makers must wrestle with the fiscal consequences of aging populations, while business leaders and investors seek to understand how changing demographics will affect global markets for goods, capital, and labor.

The answer to all these issues depends largely on a fundamental though often overlooked question:  How will aging affect future levels of household wealth and economic well-being? New research by the McKinsey Global Institute (MGI) reveals the aging of the developed world is fueling an impending global capital crunch that will radically transform the financial wealth of households and, therefore, the wealth of nations.

MGI’s key finding is that over the next 2 decades, absent dramatic changes in population trends, saving behavior, or returns on financial assets, growth in household financial wealth will slow by more than two-thirds, from 4.5 percent historically to 1.3 percent going forward. If left unchecked, this shortfall could significantly reduce future economic well-being in two ways: by driving up the cost of capital for businesses, which could in turn reduce private investment; and by exacerbating the challenge of funding the retirement and health care needs of an aging population.