In a speech to the Economic Club in Toronto, deputy governor Jean Boiven said the aging workforce will reduce potential growth in Canada by about 0.2 percentage points by 2014, and the impact grows from there.
"The aging of the population has begun and it will soon accelerate," he said in notes of the speech released in Ottawa.
"Ultimately, if we ignore the reality of aging and make no adjustments, the consequence will be a lower standard of living."
By 2031, one if four people will be over 65, he said.
By the central bank's calculations, the average income of Canadians could be as much as 20 per cent lower in two decades than it otherwise would be due to the aging population.
Boiven said the demographic squeeze — caused baby boomers, low birth rates and longer life expectancy — has major implications for both governments and businesses.
Aging will put pressure on the labour markets, he said, as well as individual savings rates, government finances and the redistribution of wealth across generations.
"The pressure points show that change is upon us no matter what we do," he said. "To avoid drastic declines in our living standards or shifting too great a burden on the next generations, there are only three options — more work, greater productivity and higher savings."
The federal government has already taken some action to adjust. In December, Finance Minister Jim Flaherty capped future growth in federal health care spending to match the growth in the economy.
And in last week's budget, Ottawa announced it will move the retirement age for the purpose of receiving Old Age Security benefits to 67 years from 65, starting in 2023, in part to encourage Canadians to work longer.
Boiven said the most effective way to minimize the impact of aging is for Canadian firms to become more productive.
As much as two-thirds of expected average income loss caused by aging could be regained, he said, if the country's productivity rate returned to its average over the past 50 years.
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