5 Things To Ponder: Demographics

Tyler Durden's picture

Submitted by Lance Roberts of STA Wealth Management,

"Blessed are the young, for they shall inherit the National Debt."  -  Herbert Hoover

I turned 49 this past Monday.  I don't feel like I am half a century old and my wife regularly tells me that she has five children to take of - our four plus me. But yet, here I am, about to be the proud owner of regular prostrate exams.  Oh...the joy.

I am not technically a "baby boomer" as I am one year outside the designated range of individuals born between 1946-1964.  However, the roll off of this massive slice of the population in the years ahead will have a significant and profound impact on the economy and the markets. In my opinion, there is simply not enough attention paid this issue and it is an important one.  However, since demographic impacts take a very long time to mature, they are ignored by the mainstream media which are focused on the 24-hour news and market cycles.  

The impact on the economy and the markets is real.  As I wrote earlier this week:

:With 24% of 'baby boomers' postponing retirement, due to an inability to retire, it is not surprising that the employment level of individuals OVER the age of 65, as a percent of the working age population 16 and over, has risen sharply in recent years."

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In this regard, this week's "Things To Ponder" is a collection of articles about the "aging of America" and the potential impacts to the financial markets and the economy.

1) Median Household Income By State by Doug Short via Advisor Perspectives

"Back to the big picture: The median household incomes in 17 states plus DC have fared better than the US median as measured by the real percent declines from peak years. A total of 33 states have suffered greater declines, with four states dropping more than 20%. Delaware is the biggest loser, down a whopping 27.1% since its real median income peak in 2000."

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2) 22 Facts About The Coming Demographic Shockwave by Michael Synder via Zero Hedge

"Today, more than 10,000 Baby Boomers will retire.  This is going to happen day after day, month after month, year after year until 2030.  It is the greatest demographic tsunami in the history of the United States, and we are woefully unprepared for it.  We have made financial promises to the Baby Boomers worth tens of trillions of dollars that we simply are not going to be able to keep.

The Baby Boomer generation is so massive that it has fundamentally changed America with each stage that it has gone through.  When the Baby Boomers were young, sales of diapers and toys absolutely skyrocketed.  When they became young adults, they pioneered social changes that permanently altered our society."

3) Aging America Heading For Disaster? by Kyle Smith via New York Post

"People tend, for instance, to buy houses at about the same age — age 31 or so. Around age 53 is when people tend to buy their luxury cars — after the kids have finished college, before old age sets in. Demographics can even tell us when your household spending on potato chips is likely to peak — when the head of it is about 42.

Ultimately the size of the US economy is simply the total of what we’re all spending. Overall household spending hits a high when we’re about 46. So the peak of the Baby Boom (1961) plus 46 suggests that a high point in the US economy should be about 2007, with a long, slow decline to follow for years to come."

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4) Baby Boomers Reluctant To Retire by Gallup

"Concerns about money likely play a significant role in explaining why so many baby boomers see themselves working longer. Even before the 2008-2009 recession, financial advisers were warning that some baby boomers were carrying too much debt, saving too little, and relying too heavily on Social Security to retire comfortably. And then came the economic collapse -- a perfect storm of layoffs, pension and stock losses, and plummeting home values -- which was particularly ill-timed for boomers who might otherwise have been in financial shape to retire on schedule with the start of their Social Security benefits.

Whether by choice or necessity, baby boomers will remain a sizeable proportion of the workforce in the years ahead, with many expecting to work past the average U.S. retirement age of 61 and even the traditional retirement age of 65."

Also Read: 12 Ways Baby Boomers Will Affect The Nation

5) Baby Boomer's Retirement On The Economy by Ben Casselman via 538

"The U.S. dependency ratio has been improving in recent decades, falling from 65 in 1980 to 61 in 2000 to 59 in 2010. But now the trend is set to reverse. By 2020, the Census Bureau estimates, the U.S. dependency ratio will be back to 65; in 2030, it will be 75, the worst since the 1960s and 1970s, when the baby boomers were children.

By 2050, more than 4 percent of the population will be at least 85 years old, more than double today’s figure."

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The demographic shift will have an increasing importance over the next decade or so on the economy and the financial markets.  Ignoring the issue won't make it go away and, somewhat unfortunately, fiscal policy has yet to address any of the issues concerning entitlement reform.

The aging population will provide both headwinds and opportunities for investors and the economy over the years ahead.  However, I suspect that the investment opportunities won't be found in a simple "indexing strategy" but through rather specific targeting of investments relating to the aging of America.

Of course, I'm old, so maybe I am just biased.