The retirement of massive numbers of baby boomers over the next decade or so will put a drag on the U.S. economy, say two executives with J.P. Morgan Funds.

The U.S. economy expanded by an average 3 percent a year for nearly 50 years, until baby boomers started hitting retirement age. Now for the past five years, it has expanded on average 2.2 percent a year, says Dr. David Kelly, chief global strategist for J.P. Morgan Funds.

The economy is experiencing a slower expansion rate because the civilian labor force is shrinking. This could lead investors to look to emerging markets and even Europe for higher returns. Despite their aging population, many European countries have a large capacity for increasing the workforce because of their high youth unemployment rate, Kelly said during a Webinar, "Retiring Baby Boomers: How They Impact The Economy, Markets and Retirement Planning," sponsored by J.P. Morgan Funds and J.P. Morgan Asset Management.

U.S. job productivity growth has slowed with the shrinking workforce and there is not enough capital spending to counter it, he adds. These trends are not short term because more baby boomers will be retiring for the next 15 years.

“The economic problems caused by retiring baby boomers could be eased if the government gave seniors more incentive to keep working and if increased legal immigration was allowed to boost the workforce,” Kelly says.

The slow economic growth also has implications for retirement planning, says S. Katherine Roy, chief retirement strategist for J.P. Morgan Funds.

“Individuals who are younger should think of saving 15 percent of their gross salary a year rather than the 10 percent that is usually cited,” Roy says.

For older workers, more will remain in the workforce. Now one in five people over age 65 are working. By 2020, that number will be one in three, she says.

That also impacts Social Security as more people are learning it would be advantageous for them to wait to claim benefits and let their benefits grow by about 8 percent a year plus the cost of living increase.

“If your client is trying to decide between taking Social Security benefits at age 62 and age 66, he only has to live to about age 74 to receive more benefits by waiting,” Roy says. “If the client is trying to decide between starting benefits 66 or 70, he only has to live to about 79 to receive more by waiting.”