A] Prelude*
* For more information about U.S. pension plans and pensions and investments in general, feel free to visit our dedicated webpages:
https://expatpensionholland.nl/usa-expat-pensions
https://expatpensionholland.nl/global-pillars-systems
https://expatpensionholland.nl/global-investments-risks-0
B] The Numbers
More than 4 million Baby Boomers, born 1946-1964, are reaching 65 each year through 2027 and they are exiting the labor force in droves. Meanwhile, the core labor force is growing at a snail’s pace. Since 2000, the population of 25-54 year-olds has grown by only 7%. How the U.S. manages these converging demographic trends will be a monumental challenge in the years ahead.
With an aging population, the government will face higher obligations for medical and Social Security costs. There will be fewer workers relative to the number of retirees because of a decades-long decline in birth rates, making it more difficult to support government programs without tax increases, benefit cuts or growing debt. In the long term, immigration and higher productivity are the only real solutions to our structural labor shortage.
C] A Silver Tsunami
In the short to intermediate term, things don’t look as bleak. That’s because Baby Boomers are the economy’s golden goose. The wealthiest generation in our country’s history is entering its golden years carrying a massive nest egg. With an astounding $78 trillion in net wealth, Baby Boomers account for more than half of the total wealth in this country.
Baby Boomers are a major reason why services spending has been robust, ranging from the growth in cruise line passengers to air travel and elevated spending at restaurants.
Moreover, Baby Boomers haven’t been as affected as younger generations by higher interest rates. More than half of Baby Boomers who own their homes own them outright without any mortgage obligations. Furthermore, of the Baby Boomers who do have a mortgage, many are locked into low mortgage rates for homes purchased when prices were much lower.
With age come age-related health issues and the healthcare industry is another area of rising spending for Baby Boomers, adding to economic growth. Healthcare is expensive and represents a significant and growing portion of U.S. economic activity, accounting for 17% of U.S. GDP. From March 2022 to March 2024, the healthcare sector surpassed all other industries in growth.
D] The Rise Of The Millennials
Yet Baby Boomers aren’t our only golden goose. Another robust contributor to the U.S. economy is the Millennial generation, born 1981-1996. Baby Boomers are the nation’s wealthiest generation but Millennials are our largest generation and their economic impact is growing fast. With an estimated 73 million Millennials, their economic impact will only continue to grow.
Millennials are following in the footsteps of past generations but with a lag. They have delayed getting married, having children and buying homes until later in life. For example, birth rates for women aged 35-39 were up over 73% in 2023 compared to 1990 and up 126% over the same period for women aged 40-44, while birth rates are down substantially for women under 30.
Since 2020, Millennials’ net worth has more than tripled, rising from $4.5 trillion to $14.2 trillion, marking the fastest growth in wealth among all generations. With the oldest Millennials turning 43 this year, they are in their peak household formation years and are entering their peak earnings years. And as Millennial families grow, their need for more space, larger homes and more stuff also grows.
E] Demographic Challenges Bring Opportunity
These demographic trends suggest some interesting opportunities.
Long-term investment may focus more on high-quality bonds, as an aging population may increase demand for fixed income and thus drive yields downward. (When yields fall, bond prices rise.) There may also be more demand for healthcare and pharmaceuticals. Artificial intelligence and robotics may be needed to make up for the labor shortages, so investing around these themes may be another long-term opportunity.
The long-term impact on housing is less certain. Many Baby Boomers are aging in place and high interest rates and prices are currently stifling housing activity. But eventually, this generation will likely move into smaller homes and senior living facilities. This could free up housing inventories for younger generations, who will likely spend money on renovating these older homes and on more durable goods such as appliances. Homebuilders may also increase output to meet pent-up Millennial housing demand in the years ahead.
F] Finally
An old truism states that “demography is destiny.” Major demographic trends, while presenting challenges, do create a landscape ripe for strategic investments. By understanding and anticipating the needs and behaviors of distinct generations, investors can position themselves to benefit from the evolving economic environment.