The world is ageing – fast. The World Health Organization estimates that by 2030, more than 1.4 billion people will be over the age of 60 – more than double the number in 2000. By 2050, one in six people globally will be over 65. These figures carry profound implications for pensions, healthcare, housing, and labour markets. What do they mean for investors?
3 unstoppable trends
Demographic data is uniquely reliable in forecasting future realities. We know how many 65-year-olds a country will have in 20 years – just count the number of 45-year-olds today.
There are three core signals every investor should pay attention to:
- The global over-65 population is expanding dramatically – much faster than the working-age population.
- The working-age cohort is stagnating or shrinking across most of the developed world.
- People are living longer, often significantly beyond historical retirement ages.
According to the World Bank, just under 10% of the global population is currently over the age of 65 – a figure the United Nations projects will rise to 16% by 2050. In developed economies, the over-65 share is already around 19% and is expected to reach 24% by 2035, according to the UN’s World Population Prospects.
In contrast, the number of people under 25 continues to drop as a proportion of the total population. For example, there are now more than twice as many Japanese in the 75-79 age cohort as in the 0-4 cohort. An interesting fact: according to the Nikkei Asian Review, adult diaper sales in Japan surpassed baby nappy sales back in 2011.
Meanwhile, the working-age population (ages 15-64) in countries like Germany, Italy and Japan has been shrinking for over a decade – a trend now spreading across much of Europe and East Asia.
And longevity? Since 1995, life expectancy has risen by more than eight years globally. In most developed nations, it’s now pushing 83.
Welfare states: unpopular choices
When Otto von Bismarck introduced the modern welfare model in the 1880s, there were more than 12 workers paying taxes for every pensioner. Today in Germany, that number is under three. By 2035, it will fall below two. As Germany’s Chancellor Friedrich Merz recently remarked: ‘The German welfare state can no longer be financed.’
The same story is playing out across Europe and parts of Asia – with one major exception: the US, which continues to see a more favourable demographic structure due to immigration and birth rates.
Governments around the developed world with large welfare burdens will be forced to make unpopular but unavoidable choices:
- Raising retirement ages
- Reducing pension and healthcare benefits
- Increasing tax contributions
- Embracing immigration
- Demanding more productivity from fewer workers.
Investment implications
From an investment perspective, here’s how we see the implications of the demographic shift evolving:
- Growth premiums will remain elevated. Global growth will slow as the developed-world working-age population stagnates. The average business is likely to grow more slowly than historically and the premium the market pays for growth businesses should remain high.
- Government debt will rise. Developed-world bonds are likely to deliver anaemic returns. Emerging markets with relatively lower debt burdens could see currency strength.
- Healthcare regulation is likely to increase. As healthcare costs surge with ageing populations, policymakers will look to cap prices and control spending. This could pressure margins in some sectors.
- Immigration will increase further. Rising migration from developing to developed countries may strain social cohesion and fuel support for nationalist and populist politics.
- The need for improved efficiency will support the growth of AI. Fewer workers means more machines. Capital will increasingly flow into AI, robotics and automation as labour productivity becomes non-negotiable.
What this means for you
Investors should note the following:
- Tax burdens will increase. Wealth preservation now requires deliberate structuring through trusts, investment vehicles and appropriate jurisdictions.
- Pivot your investment portfolio later. The appropriate age to shift a portfolio towards a more conservative allocation is now later than before. A 65-year-old retiree today has a 20-year investment horizon, not 10 – and portfolios should be structured accordingly.
Efficient restructuring
At Sanlam Private Wealth, we’ve been building portfolios with this future in mind. We offer a range of fiduciary and tax services to ensure efficient structuring of investments, as well as investment options for a variety of risk appetites.
Our multi-asset portfolios are well diversified and hold relatively less developed-market debt. Within equities, we have healthy AI exposure, and our quality bias means we expect the businesses we hold to grow faster than the overall economy.
We don’t pretend to predict the next quarter. But we do position for the next decade – and beyond.
