The Aging of the Population Model
Addressing the pain points of living longer lives and this demographic shift
Yesterday we introduced our Rebuilding America investment model, and today even though many are focused on Fed Chair Powell’s second day of testimony or perhaps the June Flash PMI data, we recognize there is no stopping Father Time. With that in mind, we are introducing our Aging of the Population model, which many are likely to think focuses on drug companies such as Johnson & Johnson (JNJ), Abbott Labs (ABT), or Pfizer (PFE) but that simply isn’t the case.
Aging of the Population
As we look around us, it’s rather obvious that people are living longer, which in many respects is a good thing, but those extra years 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.
Source: 2020 - Older Americans 2020: Key Indicators of Well-Being
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 boom generation 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 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 and question the ongoing viability of social service programs like Medicare, Medicaid, and Social Security.
However, 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 1 billion. By 2050 the number of seniors is expected to pass the 2 billion.
This phenomenon of living longer is the basis for our Aging of the Population investment theme. It will lead to new products and services that cater to the needs of this increasing “older population” 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 but not by much with an average of $172,000 saved for retirement. We’ll spare you the average monthly income equivalents for both of 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 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 the “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 particular needs of consumers aged 65 and older. With the aging population only expected to grow over the coming years, it likely means that more companies will tailor products and services to meet this opportunity.
When we look at Tematica’s Aging of the Population model, one that much like Rebuilding America, has its 8 constituents primarily focused on the U.S. market. In addition to serving this demographic-focused thematic, most companies in the current basket are dividend payers with the basket producing an aggregate dividend per share of $9.73.
Of the 6 dividend payers in the basket, all are REITs, which as we know have several criteria they need to meet including distributing at least 90 percent of their taxable income to shareholders annually in the form of dividends. As we called out above, there is no fighting Father Time, only delaying him a bit, which positions these companies well as the demographic wave of the Aging Population pushes on their respective businesses.