This paper extends Gertler’s (1999) tractable overlapping generations model with life-cycle features by incorporating distortionary taxation, demographic transition, and stochastic variation in demographic structure. The model is used to study demographic change in Finland, highlighting the role of labor market responses to aging. Simulations show that when labor supply, wages, and private consumption respond to higher taxation, efficiency losses induced by demographic change can be significant. Stochastic simulations indicate that lengthening working time has a minor impact on the fiscal burden of aging, as only a small fraction of the stochastic variation in endogenously determined contribution rates is explained by changes in working time. The paper also discusses the implications of falling pension replacement rates and the potential pressure on other social security schemes. The current pension scheme, while financially sustainable, may generate costs for local and central governments due to higher expenditures on income support and other benefits.This paper extends Gertler’s (1999) tractable overlapping generations model with life-cycle features by incorporating distortionary taxation, demographic transition, and stochastic variation in demographic structure. The model is used to study demographic change in Finland, highlighting the role of labor market responses to aging. Simulations show that when labor supply, wages, and private consumption respond to higher taxation, efficiency losses induced by demographic change can be significant. Stochastic simulations indicate that lengthening working time has a minor impact on the fiscal burden of aging, as only a small fraction of the stochastic variation in endogenously determined contribution rates is explained by changes in working time. The paper also discusses the implications of falling pension replacement rates and the potential pressure on other social security schemes. The current pension scheme, while financially sustainable, may generate costs for local and central governments due to higher expenditures on income support and other benefits.