Musings

13 February 2013 - 23:28, by , in Musings, No comments

We hear a lot about the “aging” of the modern economies – it is true that most of the developed world economies are aging.  Whether it is better nutrition or healthcare, people are now living longer lives.

When Social Security first started paying benefits in 1940, there were 159.4 workers per retiree, in 2010 that same number stood at 2.9 workers per retiree.1

As a society ages there are less people paying into the programs designed to support the older cohorts of the population. The older we get, more of the family budget tends to be spent on healthcare.  At the present time 5% of the population is responsible for 50% of the healthcare spending.  Healthcare spending is running about 18% of GDP – that means that a fraction of the population is consuming a huge amount of resources.  These two numbers were given to me by a speaker from AHIP.

In the past when the US had a younger population this imbalance was masked by the baby boomers – the proverbial pig in the python, as can be seen in the following picture.  The spending of the baby bombers propelled strong economic growth.

US 1983

However now the baby boomers are aging(aged) and we no longer have the demographics in our favor.  We have gone from a pyramid to a tree.

US 2013

We are not as bad as Japan –  an inverted wedge:

Japan 2013

But we are certainly not Brazil:

Brazil 2013

Peak spending seems to occur in the age bracket of 35-50. As a society ages the rate of spending declines and economic growth starts to stagnate.  Government policies aside, as a society starts to age more resources are dedicated to the care of the age and personal spending declines. The housing requirements change, no more McMansions but single story residences devoted to the care of the aged.

Japan has an enormous population problem, the US has the beginnings of a population problem and Brazil has a strong tailwind.

The consequence of these population demographics changes may lead to rising health care costs, needs for a change in the type of homes being built and the stagnant economic growth.

What’s an investor to do – budget for rising health care costs.  Premiums for small businesses under the ACA, will be rising about 20% this year (slightly more than inflation… I don’t think TIPS will help with this). Investors will have to have an allocation to growth investments, if demographics play a role in global growth perhaps countries with solid populations will show the countries with the potential for growth, then the search for investments can begin.

That’s it from me and bye for now.

 

1                           http://www.ssa.gov/history/ratios.html

2                           Charts are from http://www.census.gov/population/international/data/idb/informationGateway.php

About author:
Damien is the founder and owner of Lanyon Advisory Services and has a extensive knowledge and experience in financial planning and wealth management.

Leave a Reply