The End of Old

The End of Old

The face of aging will never be the same, as 78 million Americans approaching retirement, and millions more overseas, transform how we live, work and invest

ALL ACROSS THE GLOBE, COMPANIES, governments and society are scrambling to harness the energy and meet the needs of an aging global population. Consider a few of the ways the world is preparing for this longevity revolution:

In the U.S., according to the Global Coalition on Aging, a drugstore chain noticed that aging customers, the core of its clientele and crucial for the company's profitability, tended to seek out older employees for assistance. To encourage would-be retirees to keep working, the chain offered those who spent their winters in warmer climes the opportunity to split their time between store locations and to work flexible hours.

Also according to the Global Coalition on Aging, at a car plant in Bavaria, managers surveyed workers and consulted physical therapists and ergonomics experts about how to accommodate older employees. Keeping them happy and on the job was a necessity in Germany, which, according to The Guardian, has long been plagued by the lowest birth rate in Europe and has a dire shortage of younger workers. The changes the factory made weren't dramatic or futuristic—softer wooden floors and chairs for breaks, adjustable worktables and orthopedic shoes—but they had the intended effect. Absenteeism at the plant plummeted and productivity soared.

The World Health Organization's honor roll of 115 Global Age-Friendly Cities includes Portland, Ore., and New York City. These cities meet a long list of criteria ranging from having plenty of public transportation to offering job opportunities, accessible spaces and socially inclusive policies for older residents. These attributes "also make them better places for everyone to live," says Michael Hodin, executive director of the Global Coalition on Aging.

While retrofitting factories, accommodating older workers' lifestyles and making cities "age-friendly" may seem incremental and intuitive, they're merely the leading edge of a response to an emerging demographic reality. The number of people over age 60 is already close to 1 billion and is expected to double by mid-century—to nearly a quarter of the planet's population, according to the United Nations Department of Economic and Social Affairs. And, financial forecasting firm Oxford Economics has found that, in the U.S. alone, the "longevity economy"—the products and services Americans over 50 consume and the industries that serve them—already generates $7.1 trillion annually and should grow to $13.5 trillion by 2032, when it is expected to account for more than half of U.S. gross domestic product.

A Demographic Tidal Wave

In the U.S., that economy within an economy revolves around the 78 million people of the baby boom generation who are now surging into their retirement years. "Boomers are the largest demographic force we have, in terms of volume, wealth, consumer spending and jobs," says Chris Hyzy, chief investment officer at U.S. Trust. "And as they age, they're likely to spend more to maintain their active lifestyles than any previous generation in history."

That spending, in the U.S. and around the globe, is expected to create a range of opportunities for investors, with stocks of forward-looking companies likely to emerge as appealing long-term investments. At the same time, all of us, across the generations, will need to come to grips with how this demographic megashift will affect our personal lives and finances.

For example, if you are nearing retirement or are already there, you will need to think how to spend the extra years you can now expect to live—30 years more than in 1900—and how to deploy your resources to finance them. Meanwhile, younger generations will want to start planning for lives that may be remarkably different from those of their parents. Careers that extend over five or six decades may require multiple phases of education and training, and paying for health care into old age will necessitate new financial solutions and sustainable models of care, says Hodin.

"History has never before experienced such a demographic shift, and no one is untouched by it," Hodin says. "The aging of countries will literally transform how we, our children and our children's children live in the 21st century; everything will change."

An Engine for Growth

Although life expectancy has been increasing for decades, it's the baby boom generation, which, according to Oxford Economics, controls about 80% of U.S. aggregate net worth, that has brought things to a head. According to the PEW Research Center, some 10,000 people in this group reach age 65 every day, a never-before-seen surge that will peak at 4.3 million annually by 2025.

There have been worries that this demographic groundswell may change society for the worse, as a shrinking cohort of younger workers is called upon to carry the tax burden and other costs of supporting older generations. Yet older Americans are emerging as a tremendous economic asset. They are working longer, buying more goods and generally propelling economic growth. "This generation has redefined industry after industry," says David Tyrie, head of Personal Wealth & Retirement for Bank of America Merrill Lynch. "They have reinvented how we work and play, and they have no plans to slow down."

As Americans over age 50 continue to outspend other age groups across most industry sectors, established companies and start-ups alike are vying for their business. The over-50 market, which now includes more than 100 million people in the U.S., will likely swell by an additional third during the next 20 years, according to Oxford Economics. "It's not so much a question of which industries are likely to benefit from the longevity boom," says Joe Coughlin, director of the MIT AgeLab. "It's harder to identify those that won't."

And, says Coughlin, "the real premium will be on sectors and companies that help us live how we want to live, even as we age. Previous generations were expected to age politely and cope with the aches and pains that defined retirement. Boomers are saying, 'I will not just live longer, I will live better.'"

Coughlin calls this "stealth aging," with boomers seeking products and technologies that can minimize impairments associated with advancing years. "They may no longer be young, but they perceive themselves to be perennially youthful," he says. "Any product that is defined as being for an old person, generally speaking, is rejected." Looking for companies that get it right, providing products and services that benefit older Americans without seeming to, could be part of an effective investment strategy.

The Anti-Aging Boom

Longevity has not only increased life spans but has also granted many more years of good health. Forty-two percent of people age 65 to 69 and 33% age 75 to 79 say they are in excellent or very good health, according to a study published in the November 17, 2013, issue of the Journals of Gerontology. And 56% of Americans 85 and older say they have no limitations on their ability to work or to live their lives. At the same time, however, the incidence of Alzheimer's disease and debilitating conditions such as Huntington's disease is rising as the population ages, and two-thirds of people past age 65 say they must cope with multiple chronic illnesses, according to the Centers for Disease Control and Prevention.

Those apparently conflicting trends—of a population that still feels young yet is also beginning to suffer inevitable consequences of getting older—hint at the enormous diversity of the boomer generation and at the breadth of products and services being developed to serve its needs.

Coughlin expects many in this demographic group to spend their later years in "smart" homes in which technology will control everything from appliances and sprinkler systems to bathrooms that serve as "centers of health and well-being" equipped with mirrors that analyze skin conditions and devices that remind you to take your medications. Service robots, already in use in Japan, will do the housework and other chores and even provide "companionship" for a generation increasingly able to "age in place," according to Larry Polivka, director of the Claude Pepper Center at Florida State University. Pioneering companies offering advanced technological solutions could profit.

Meanwhile, anti-aging treatments, biotechnology start-ups focused on regenerative medicine, and telemedicine applications that let physicians and families monitor health data from older people living independently at home all are areas of rapid development. The medical device industry is likely to flourish as ever more intricate technology helps the country compensate for an expected shortage of doctors, says Christopher J. Wolfe, chief investment officer, Portfolio Solutions for the Private Banking and Investment Group at Merrill Lynch. "Devices will send blood pressure readings and other data to physicians in real time, greatly reducing the need for office visits and waiting rooms," he says. "Technology is going to change the definition of what's normal in health care practice."

Other companies are altering products to fit the needs of older consumers, and then finding that the broader market also welcomes changes that vary from the futuristic to the seemingly mundane—ranging not only from cars that warn of impending collisions and park themselves but also to hotels undergoing renovations to accommodate older travelers with disabilities. The most promising stocks in the travel and leisure industries, for example, will come from companies offering this demographic group unique adventures and educational opportunities, adds Wolfe.

The need for home health workers and assisted-living facilities will also mushroom, helping people to live independently for many years. The number of people in nursing homes is already declining, says Polivka, who predicts dramatic changes in those facilities as they are replaced by what he describes as the "greenhouse model." "People will live in units of four to 10 beds that provide a more normal and much less regimented environment," Polivka says. Due to baby boomers' demands for respect and control over their lives, large chains that meet this mandate could separate themselves from their peers. This could create a sector that should provide increasing investment opportunities as the longevity revolution gains momentum.

The Cost of Living Longer

As robust and multifaceted as the longevity economy is already proving to be, the challenges of today's shifting demographic reality are complex and daunting. Consider, for example, the older generation's inclination to stay on the job.

According to a 2013 Merrill Lynch retirement study, 71% of pre-retirees expect to work during their retirement years and hope to find jobs that offer flexible hours. Entrepreneurism among older people is also projected to rise; already, people in their fifties and sixties start nearly twice the number of companies as those launched by twentysomethings, according to the Ewing Marion Kauffman Foundation, which studies American entrepreneurism.

The longer older Americans keep working, however, the larger the roadblock they may put in the way of younger workers trying to move up to senior positions in their fields. "Older workers have one of the lowest unemployment rates of any group, which is good for them," Wolfe says. But for workers in their twenties, thirties and forties, the delay in reaching upper pay levels may complicate their ability to prepare for their own longevity bonus.

Others believe such worries may be mitigated by other parts of the longevity economy. "There was a time when people feared that having women in the workforce would take jobs away from men," says Hodin. "That didn't happen, and female workers instead added trillions of dollars to the economy. The same thing has to happen with older Americans"—that is, they need to continue to fuel economic growth—"or our social-insurance programs will become fiscally unsustainable."

What will happen to Social Security and Medicare as the flood of baby boomers collects benefits? "The mathematics are that the number of people leaving the workforce will be greater than the number of young people coming into it," says Michael Hartnett, chief investment strategist, BofA Merrill Lynch Global Research. "Thus, the tax base will shrink while government spending is expanding, which in the absence of fiscal reform could create a certain amount of 'social insecurity.'"

Indeed, in 1935, when the U.S. established 65 as the minimum age for drawing Social Security benefits, the average life expectancy was 65 for women and only 62 for men, says Woody Carlson, the Charles B. Nam Professor in Sociology of Population at Florida State University's Center for Demography and Population Health. "Today, it's pushing 80," Carlson says. "If the retirement age increased along with life expectancy, people would now retire at 75."

Still, raising the age at which people can begin receiving Social Security benefits by even a year or two would be politically dicey, and in the short term, the U.S. will face the challenge of not having enough workers from the much smaller Generation X to support the millions of baby boomers moving into retirement. "But the U.S. has what no other country in the world has—a new generation that is even larger than the boomer generation," says Carlson. There are approximately 90 million people born between 1983 and 2001 who are living in the U.S.— children of the boomers and of immigrants—compared with 78 million baby boomers. "In Germany, this cohort is called the 'disappearing generation,' and that country is closing schools and laying off teachers because there are no kids," says Carlson. "The U.S. has plenty of kids, and once they enter the labor force, they will be very good for the economy."

Until then, reforms of Social Security and Medicare and the dynamism and adaptability of the American economy will see the country through the graying of the baby boomers. "Our economy is flexible and movable, and we have a diverse labor force and steady immigration," says Hyzy. In the end, moreover, ruminations about whether the longevity miracle and having a fifth of the U.S. population over age 65 by 2050 will have a positive or negative impact are almost beside the point. The wave is upon us already, and it is changing the world. "Today is not only the first day of the rest of our lives," says Coughlin. "It's also the first day of the future."

Preparing for the Road Ahead

Longevity isn't just reshaping the whole world. It's changing individual retirement needs.

Statistically speaking, people who are in or nearing traditional "retirement age" can expect to live longer than any previous generation. Whereas earlier generations could rely on savings, company pensions and Social Security, you now must plan virtually every aspect of your own retirement. "Longevity is a miracle, but it's also people's biggest fear," says David Tyrie, head of Personal Wealth & Retirement for Bank of America Merrill Lynch. "It's on their shoulders to put all this together."

Just aiming to reach a certain savings figure can't begin to meet all of the needs and desires that together will comprise a fulfilling retirement—including providing for health security, making key decisions on where to live and how best to provide a legacy for one's family and for charitable causes. With specific goals in mind, it is possible to determine appropriate strategies for each of them.

A NEW APPROACH

Investments will be essential, but so will other kinds of assets. Starting a new career or fulfilling an entrepreneurial dream, for example, could provide new income to augment one's savings. "Matching your assets against your goals reveals choices and possible trade-offs." Could a more modest retirement home than the one you previously envisioned help fulfill a goal of seeing the world? Could working for a couple of years longer than planned help ease some concerns about long-term care, or outliving one's assets?

As life changes, so do your goals. "Retirement isn't something you 'set and forget,'" Tyrie adds. That's one reason why boomers, for all of their celebrated independence, cite having a trusted advisor as a priority. "An advisor can help you identify your goals and how to achieve them, how to anticipate and plan for health contingencies," Tyrie says. "These are big issues and it's not always easy to start those conversations, but once you do, it often happens that everything starts to look clearer."

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