World Reimagined

Investing in an Aging Population Amid a Structural Shift in Demographics

Credit: Photo by Anukrati Omar on Unsplash

As we look around us, moving though our lives, we are recognizing the demographic reality unfolding around us that people are living longer and the population is skewing grey. In many respects, this is a good thing, but those extra years can have a significant impact on society. As we age, our needs and abilities change, and with that, so do the services and products that we consume. That shift isn’t going unnoticed by companies that are looking to tap into that increasing pool of spending dollars.

According to a National Center for Health Statistics report released in 2016, the average life expectancy in the U.S. stands at 78.8 years on average, with women outlasting men by a few years 81.2 years of age vs. 76.6 years. By 2030, the Administration on Aging (AOA) estimates there will be about 72.1 million people aged 65 or older, more than twice their number in 2000. In 2010, the Baby Boomer generation (born 1946-1964) was between 46 and 64 years old, and that generation is now beginning to enter their 70s.

Over the next 10 years or so, all of the baby boomers will have moved into the senior generation, resulting in a major structural shift in demographics. According to data published by the World Health Organization, between 2015-2050, the proportion of the world's population over 60 years will double from nearly 12% to 22% and by 2020 the number of people aged 60 years and older will outnumber children younger than 5 years. At the same time, the percent of the U.S. population aged 20-64, the primary working years, will decrease from 60% and by 2030 one in five Americans is projected to be over 65 years old.

The broadening of the upper age pyramid is poised to significantly impact demands on healthcare, housing and transportation, putting even more fiscal demands on already pressured social service programs like Medicare, Medicaid and Social Security.

We in the U.S. are not alone. According to data published by The Brookings Institute, there are 750 million seniors in the world and by 2030 that figure will cross the one billion mark. By 2050 the number of seniors is expected to pass two billion, by some estimates accounting for roughly 1 out of every 5 people on the planet

This living longer will lead to new products and services that cater to the needs of this increasing demographic, but it also means greater demands on savings and investments. Unfortunately, according to data published by Transamerica Center for Retirement Studies, Americans in their 50s have only $117,000 saved on average for their retirement. Americans in the 60s are somewhat better off, but not by much, with an average of $172,000 saved for retirement. We'll spare you the average monthly income equivalents for both those figures.

The big issue facing the nation is the assumption of a 20-year retirement time period when data from the Social Security Administration shows one out of every four 65-year-olds today will live past the age of 90, while one out of 10 will live past 95. It's no wonder 60% of baby boomers claim they're more afraid of outliving their savings than actually dying. This is a massive problem across much of the world as rising life expectancies place much greater strains on government-managed retirement programs while the percent of the population paying into those programs declines. Payout levels are growing while relative contribution levels are declining.

The bottom line with this massive worldwide demographic shift towards a more senior population is a reallocation of spending and consumption habits. Money that was once dedicated to supporting a young and growing family will increasingly shift toward spending that serves an aging population. Pronounced spending shifts such as these can have a dramatic impact, and in this case, the snowballing of an older population likely means an even greater compounding effect will be had.

According to data compiled by Brookings, worldwide spending - remember the aging of the population is global - by mature consumers is forecasted to reach $15 trillion annually by 2030. That's a large opportunity for industries that are meeting the specific needs of consumers aged 65 and older. With the aging population only expected to grow over the coming years, it follows that more companies will tailor products and services to meet this opportunity.

There are a number of industries that will likely be beneficiaries. Some are obvious - healthcare, pharmaceuticals and medical technology are what come to mind for most people. Others are less obvious but just as important and likely to feel the same thematic impact. We're talking about:

  • A shift in demand for different types of housing as seniors give up on the homestead and move into easier-to-maintain condos, townhouses, retirement communities and assisted living facilities. Think Omega Healthcare (OHI) and Welltower (WELL) instead of DR Horton (DHI) and Toll Brothers (TOL).
  • An even greater focus on online retailers that will deliver purchases directly to the home, rather forcing consumers to have to go out and carry purchases from the store to the car and then into the home. Also driving this shift will be younger children making purchases for their aging parents and having them shipped directly to their home. Another reason to consider Amazon (AMZN) as it leverages its Prime and logistics businesses.
  • Financial Services stands right in the middle of the storm as the wealthiest generation in history starts to draw down on assets to fund retirement rather than accumulate more and more each year. Watch Morgan Stanley (MS)Charles Schwab (SCHW) and BlackRock (BLK).
  • Fountain of Youth goods and services will be in even higher demand as Baby Boomers have shown they are not likely to let go of their youth easily. Companies serving cosmetic need include Estee Lauder (EL) and Coty (COTY), while on the nutrition front investors should look to companies like Natural Health Trends Corp. (NHTC) and Nu Skin Enterprises (NUS) as well as Abbott Labs (ABT), the maker of Ensure.
  • And finally, technology and services that will help maintain independence - we're talking robots, digital assistants, monitoring equipment and even things such as the autonomous car.

We suspect that Best Buy (BBY) won’t be the only company tilting its business into the aging of the population tailwind. Last year the company scooped up Current Health, a home-based care technology platform, as part of its efforts to grow Best Buy Health. That business offers virtual care solutions, medical devices and communications technology designed for telehealth and other services with an emphasis on older adults covered by Medicare and/or Medicaid, as well as the senior living population.

While much of the focus on current demographic shifts has been on wealth transfer, our view is that Boomers will once again pick up the protest chant of “Hell no, we won’t go!” and use whatever resources they have to continue to live life to its fullest, for as long as they can.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

Read Chris' Bio

Mark Abssy

Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.

Read Mark's Bio