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Silver is the New Black

The number of seniors around the world is skyrocketing. The economic impact will be enormous – and felt across many sectors

THERE'S A REASON PEOPLE AGED 50 and older are called the "Silver Dollar" generation – their economic clout is expansive and high-impact. In the U.S., they now account for about 80% of personal net worth according to the Survey of Consumer Finance, with an estimated spending power of over $7 trillion1. Aging consumers are also a global force, with their consumption worldwide expected to hit $15 trillion by the end of the decade, according to Euromonitor.2

The representation of seniors among the global population is also expected to grow over the coming decades — a result of increased average life expectancy (projected to reach 75 years by 2050)3 and lower birth rates. As a result, consensus estimates project that the number of seniors will reach 2 billion by 2050, representing over a third of the global population (see Exhibit 1).

The growth in the Silver Dollar cohort is expected to be driven not only by developed nations, but also by the emerging world. By 2050, the majority of global seniors will be in emerging market countries. The Asia-Pacific region is among the fastest-aging areas and is projected to account for over 60% of the global senior demographic4.

This aging trend has numerous implications. Established companies and startups alike are vying for the Silver Dollar generation's business by offering a variety of products and services to capitalize on this spending wave. This could spell opportunities for investors in a variety of sectors.

As would be expected from an aging population, consumer expenditures will shift toward increased consumption of health care products and services. There has been a focus on pharmaceutical manufacturers as beneficiaries, since seniors are the largest consumers of prescription drugs. In the U.S., the average senior spends over 200% more on health care than the typical individual, according to the National Health Expenditures report by the Centers for Medicare and Medicaid Services (CMS). We expect these expenditures to also flow through to retail drugstores and pharmacies as they try to transform themselves into one-stop health care shops focused on overall wellness. Japan's population - the oldest and fastest-aging in the world – has acted as a key growth driver for the country's drug store industry (see Exhibit 3). The pharmacy market, currently worth 6.9 trillion yen, could continue to grow with an expanding customer base acting as a tailwind.

Another impact of an aging population concerns seniors' decision on where to spend their golden years. In the U.S., 83% of seniors say they want to stay in their home as they grow older5. As members of the Silver Dollar generation strive to do so, their share of home renovation spending, already 50%, stands to grow larger (see Exhibit 2).

Despite their desire to continue living in their homes, however, U.S. seniors have a 40% chance of entering a nursing home at some stage in their lives6. This suggests significant room for growth across the wide spectrum of long-term care facilities and services for retirees and other seniors. This is not just about building new nursing homes and living facilities. Members of the baby-boom generation are looking for new kinds of communities, ones that provide active and stimulating environments catering to seniors who lead increasingly social and active lives for people their age. As the supply of such housing expands to meet the growing demand, opportunities should arise in health care Real Estate Investment Trusts (REITs), which own up to 20% of U.S. senior housing and healthcare properties7.

Increasingly, employers are putting the onus on individuals to look after their own financial security in retirement. This shift has serious implications as retirees, given longer life expectancies, will need their nest eggs to provide income and growth over longer investment time horizons. Insurance companies in the U.S., especially those focused on Asian markets, are seeing both opportunities and challenges as a consequence. The insurance industry provides a range of products to help individuals manage their retirement and later-stage health care, including group and individual retirement plans, life insurance and life annuities to protect against outliving their savings8. The increasing longevity of seniors poses greater challenges in matching assets with later retirements and longer life expectancies.

3 Questions to Ask Your Advisor

  1. What are the sectors I should be considering, in order to benefit from the rise of the aging consumer?
  2. Is my portfolio taking full advantage of the global rise in longevity?
  3. How might the so-called longevity boom affect my own financial security?

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1,2,3,4,5,6,7 BofA Merill Lynch (BofAML) Global Research. Thematic Investing. The Silver Dollar – longevity revolution primer. June 2014.

8 Guarantees are subject to the claims-paying ability of the issuer.

The material presented in this article is based on information obtained by BofA Merrill Lynch Global Research as of July 2015.

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