How America Will Age Over the Next 40 Years

We live in an economy with 150 million workers supporting 316 million people, 29 million businesses (80% of which will fail in the first three years), 11,000 lobbyists, 1.2 million lawyers, 17,000 pages of tax code, and half a million annual patent applications. There are so many moving parts that trying to spot trends can be nearly impossible. 

But once every generation, a big, broad trend emerges that has the potential to affect just about everything. Twenty years ago it was the Internet. Over the last decade it was the debt bubble. And if I had to pick one big trend that could stand out as the most important story and affect nearly every industry and every person in the decades to come, it would be this:

America is getting older.

Almost every major nation enjoyed a baby boom after World War II as soldiers came home and families were rebuilt, creating a bulge in the population. There were 2.7 million babies born in the U.S. in 1910, 2.3 million in 1930, 2.5 million in 1940, and then -- boom! -- 4 million a year from 1954 to 1964. Despite the overall population doubling, more babies were born in the U.S. in 1956 than in 2009.

That demographic bulge made its biggest mark on the economy when the boomers hit their 30s and 40s -- their prime earning and spending years. That period -- the 1980s and 1990s for the U.S. -- is when baby boomers worked the hardest, started companies, saved the most, bought homes, and took vacations, providing an economic tailwind.

But after the baby boom comes the baby bust. The first baby boomer turned 65 in 2011. Ten thousand more will turn 65 every day for the next decade. The boomer cohort that fueled economic growth 20 years ago will go from producing Matlock to watching Matlock, creating a drag on economic growth.

What does this shift look like? The Census Bureau produces detailed demographic projections. The following charts are made with data from its International Data Base.

Here's a broad view of the demographic shift that will take place between 1990 and 2050: 

It's serious stuff. Between today and 2025, the share of the population older than 60 will rise by 4 percentage points, or 23.1 million people.

Here's the shift in starker terms: 

Shown a different way, overall population growth is shifting from an increase in younger cohorts to an expansion of older cohorts (a phenomenon fueled by both the baby boomer group and an increase in life expectancy):

One of the most worrying figures is the projected decline in the share of America's working-age population, or those between the ages of 15 and 64. It will decline by 6 percentage points of the total population between now and 2050: 

This will be a drag on economic growth over the coming decades, as a larger share of the population will be drawing down savings and cashing in entitlements. 

Oddly, it does provide one stealth advantage. The aging population means the economy needs to add fewer jobs today to bring the unemployment rate down than it did a decade ago. The old rule of thumb was that the economy needed to add 150,000 jobs a month just to keep up with population growth. Many economists think that figure is now 100,000 a month and should decline further in the coming years.

So is there any good news on the demographic front? Actually, yes.

The U.S. population is still growing. While certain cohorts will make up a different share of the population in the coming decades, every cohort will be significantly larger in 2035 than it is this year: 

This is a huge advantage over other countries. China's working-age population declined in 2012 and is projected to plunge by 200 million between 2013 and 2050 as the effects of its one-child policy come due. Japan, Russia, and Italy will also see outright declines in working-age populations over the next four decades. America is aging, but it is one of the youngest countries in an aging world.

Another hopeful trend is an echo of what I'd call the "second baby boom."

After the baby boom, the birthrate plunged by about a quarter. By 1975 a million fewer babies were being born every year than were two decades prior. A consequence of that decline was that the population of those aged 30 to 44 -- again, the primary earning and spending group -- rose every year in the 1990s before peaking in 2001. Then, it declined. There are actually 3.8 million fewer Americans aged 30 to 44 today than there were a decade ago. That has undoubtedly had an impact on economic growth, and it helps explain a small part of the dismal growth of the last decade.

But we're now at a turning point. As the birthrate spike in the late 1970s and 1980s -- the "second baby boom" -- combines with higher immigration, the population of Americans aged 30 to 44 will resume increasing this year for the first time in 15 years and surge over the coming decade: 

Adding it up, there are two demographic stories going on. One is that America is aging, which will slow economic growth in the next half-century compared with what we enjoyed over the last half-century. The other is that the number of prime-age workers will begin to increase this year for the first time in 15 years, which will actually boost growth in the coming decade relative to what we've been through in the last decade.

"The trick is growing up without growing old," baseball great Casey Stengel once quipped. That's true for countries, too.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics. 

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Read/Post Comments (16) | Recommend This Article (27)

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  • Report this Comment On January 23, 2013, at 9:14 AM, tomsutc wrote:

    One could say these predictions, like stock market predictions, should all be predicated with something like "But in the future, nobody knows what will happen...".

    It's fascinating research, Morgan, but after the numerous number of articles on here and other sites lambasting pundits for their poor prediction performance, I can't take projections 20+ years into the future seriously.

    Who knows what's going happen between now and then? Medical science advancements, political policies like immigration and labor laws, and any number of economic swings could influence these ratios significantly.

  • Report this Comment On January 23, 2013, at 11:55 AM, famiglia112 wrote:

    "The aging population means the economy needs to add fewer jobs today to bring the unemployment rate down than it did a decade ago. "

    If anything, I think this statement points out the built-in stupidity that is the unemployment rate. Fewer people seeking work is not good for the economy.

  • Report this Comment On January 23, 2013, at 12:33 PM, AmcnFndrs wrote:

    I'm wondering if a significant piece of this needs to be recast - e.g. 30 to 44 being the largest earning and spending group. Given that many boomers and most likely X'rs plan on working longer and are living longer, this zone should be expanded. Also, who is accounting for 3rd and 4th acts that are now happening in record #'s due to the force of the economy and a change in mindset. Most of the boomers I know are holding on to the ability to earn up to their last breath and in complete denial about their age - "What, I'm already 6?," despite the obvious markers. I think the youngest boomers will surprize us yet as will the X's taking note of their tenacity as well as their mistakes.

  • Report this Comment On January 23, 2013, at 1:45 PM, ryanalexanderson wrote:

    > Who knows what's going happen between now and then? Medical science advancements...

    Well, that one, at least, emphasizes Morgan's point even more.

  • Report this Comment On January 23, 2013, at 4:43 PM, Darwood11 wrote:

    "the number of prime-age workers will begin to increase this year for the first time in 15 years, which will actually boost growth in the coming decade relative to what we've been through in the last decade.'

    Perhaps growth will boost, and perhaps not.

    All projections include underlying assumptions and this one is no different. Some are:

    1. The prime-age workers have proper education and training.

    2. The prime-age workers will find good (medium to high wage) jobs.

    3. The prime-age workers will not be overly burdened at the age of 30 with credit card debt and student loan debt. In other words, they'll have some cash to spend on the economy.

    It's just as likely that there will be additional government largess programs and these will siphon cash from the economy via taxes. I mean, "debt forgiveness" does transfer wealth and does cost someone something. If not, then perhaps the U.S. Treasury should mint that $1 Trillion platinum coin and spend it!

    I'm glad to see that the consequence of boomers retiring through 2030 or so is considered. I think too many "analysts" ignore this.

    Next, perhaps the home cheerleaders over at the NAR will realize that with fewer young people we won't need homes built at the pace of 2006. But I doubt it.

  • Report this Comment On January 24, 2013, at 11:27 PM, ibuildthings wrote:

    The WW2 generation lived through the depression and a battle for their own survival. Tough people. They had a strong work ethic, valued education and did everything they could to ensure their many children had it better. The boomers still have the work ethic, but less from hard times and more from the culture they were raised in. So both generations valued education, work and SELF-SUFFICIENCY.

    The older generations did not make bunch of kids they can't afford, and expect the government to pay for them. Nor did they party away their educational years, if they had a chance to learn a better way to earn.

    Today, there are a lot of drive-by parents who make babies and dump them on others, then move onto the next conquest. That's a near guarantee of poverty for the kids. More responsible parents are having fewer kids than their elders did, because they fear their resources aren't enough. If you can't trust the neighborhood school, private school is expensive. College costs rise 10% per year, four times the inflation rate. And housing in a safe area hasn't been cheap in a generation.

    Politicians pin their hopes on immigration. But they make it difficult for PhD's from other countries to work in the US, while maintaining open borders to keep competition for the jobs that can't be exported.

  • Report this Comment On January 25, 2013, at 12:49 PM, FoolTheRest wrote:

    Hi, Morgan. Good article. I think the line below the fifth graphic was intended to state "countries" with an "r."

    Thanks

  • Report this Comment On January 25, 2013, at 1:11 PM, TMFMorgan wrote:

    ^ Good catch. I think 80% of the time I've meant to write "countries" I write "counties" since I've been a kid. Should be fixed soon.

  • Report this Comment On January 25, 2013, at 3:55 PM, Irishbetter wrote:

    For the naysayers, population statitistics are far more reliable than economic ones. If you don't believe it, go watch a Hans Rosling TEDx video.

    While this is interesting for America, population statistics and the effect on growth are far more interesting for the planet. There will be another 3B people added to the planet, mostly in Asia and Africa, which has significant investment implications.

  • Report this Comment On January 25, 2013, at 4:01 PM, PinkFloydRoadie wrote:

    How will America age over the next 40 years? um let's see... I guess it will age by 40 years :-)

    Nice stats... I'm just not sure how to leverage them.

  • Report this Comment On January 25, 2013, at 4:17 PM, TMFTwoCoins wrote:

    Morgan,

    Great read. One angle I'm curious about, regarding the aging baby boomers who spend less, is inheritance being passed down to younger family members and its effect on the economy.

    Is the amount large enough to boost consumer activity going forward? Was too much wealth depleted in the recession? Or perhaps the age of those receiving inheritance have already made their major purchases and simply save it.

  • Report this Comment On January 25, 2013, at 7:22 PM, vo311com wrote:

    "The other is that the number of prime-age workers will begin to increase this year for the first time in 15 years, which will actually boost growth in the coming decade relative to what we've been through in the last decade."

    So true..As a 27 yr old building my own career, I can't recall how many of my peers either got engaged or married just last year!!

    Perhaps another baby-boom and a long-term bull market ahead??

  • Report this Comment On January 25, 2013, at 8:10 PM, Thaeger wrote:

    "This will be a drag on economic growth over the coming decades, as a larger share of the population will be drawing down savings and cashing in entitlements. "

    Quibble about 'entitlements' vs. 'earned benefits' aside...Wouldn't these be a boost, rather than a drag, on the economy? Even with their presumably reduced spending habits, they'll still be circulating a lot of money into the economy that's been sitting on the sidelines for decades.

  • Report this Comment On January 26, 2013, at 12:46 AM, TerryHogan wrote:

    While these numbers are indeed fascinating, I'm not sure if all the economic implications will turn out as predicted.

    I mean, Mick Jagger is 69, Paul McCartney is 70, Warren Buffett is 82, and Rupert Murdoch is 81. Granted these are hand-picked anecdotal examples, but changing life-expectancies, and changing ideas surrounding retirement mean that many of our plus 60s will remain wealth creators and spenders well into their 80s.

    There's also huge uncertainty surrounding immigration (cue Neil Diamond's "America" [incidentally, Neil is 72 and still performing]) If there was sensible immigration reform, the US could easily attract a flood of highly-educated young foreigners.

    Having said that, Japan and China look downright scary from a demographic standpoint, and culturally I'd argue they're less likely to be able to fix their problems through immigration. (Japan in particular - Who wants a bunch of Gaijin running around?)

    It's all still fascinating though, no matter how you slice it.

  • Report this Comment On January 26, 2013, at 6:27 PM, Geben wrote:

    How can I make money based on this article?

  • Report this Comment On January 27, 2013, at 7:00 PM, truthspeeker wrote:

    If one examines this trend with objective, intellectual honesty, we also see the societal cost of the Roe v. Wade decision and the crippling loss of 55 million aborted American citizens ages 1-40.

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