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Investing in an Era of an Aging Population
The U.S. is experiencing an aging population. By 2070, the number of people over 65 will outnumber children, making retirement planning crucial.
This graphic, created in partnership with New York Life Investments, gives context to how this long-term trend in demographics unfolded over the last few decades. It also delves into how investors can prepare for it.
An Aging Nation
The share of the U.S. population above the age of 65 has grown over time. This trend is expected to continue gaining momentum in the coming decades. In fact, the Census Bureau predicts that by 2060 nearly one-quarter (24.4%) of the U.S. population will be above retirement age.
| Year | Share of population 65+ (with projections) |
|---|---|
| 1960 | 9.2 |
| 1970 | 9.8 |
| 1980 | 11.3 |
| 1990 | 12.3 |
| 2000 | 12.3 |
| 2010 | 13.0 |
| 2020 | 16.2 |
| 2030 | 20.6 |
| 2040 | 22.0 |
| 2050 | 22.8 |
| 2060 | 24.4 |
Additionally, the Census Bureau estimates that the share of the older population in the U.S. grew at the fastest rate between 2010 and 2020 since between 1880 and 1890. The rapid growth was largely driven by aging Baby Boomers, the first of which turned 65 in 2011.
The Aging Population: Challenge for Bond Investors
Historically, as investors approach retirement, they have tended to allocate more of their portfolio to bonds. Bonds traditionally offer lower risk and steadier income potential versus equities. However, with decades of decline in bond yields and investor life expectancy trending longer, it may be time to rethink retirement portfolio allocation strategies.
| S&P 500 Health Care Equipment & Supplies | S&P 500 Pharmaceuticals Biotechnology & Life Sciences | S&P 500 Health Care REITs | |
|---|---|---|---|
| YTD Returns (%) | 9.7 | 12.8 | 26.7 |
Even though rates have risen in recent months, bond yields remain near historic lows. This could potentially limit future gains for bond investors.
The Aging Population: Opportunities for Equity Investors
Conversely, the nation’s demographic shifts could present several opportunities in the stock market. Equity investors can invest in an aging population by adding exposure to several sub-sectors in the S&P 500 that cater to older populations.
Such sub-sectors could include—but are not limited to—healthcare equipment and services, pharmaceuticals and biotechnology, and healthcare real estate investment trusts.
| Date | 5-year Treasury yield (%) | 10-year Treasury yield (%) | 30-year Treasury yield (%) |
|---|---|---|---|
| 1980-01-02 | 10.5 | 10.5 | 10.2 |
| 1990-01-02 | 7.9 | 7.9 | 8.0 |
| 2000-01-03 | 6.5 | 6.6 | 6.6 |
| 2010-01-04 | 2.7 | 3.9 | 4.7 |
| 2020-01-02 | 1.7 | 1.9 | 2.3 |
| 2024-01-02 | 3.9 | 4.0 | 4.1 |
Keep in mind, however, that diversification across different sectors remains essential for reducing overall equity risk.
A Structural Shift
As the population continues to age, a structural shift could impact markets for years to come. To stay ahead, investors should regularly review and adjust their investments to adapt to changing market dynamics and trends.
