The implications for the global economy—and for investors—of such rapidly aging populations aren’t as clear-cut as might be expected, according to a new Vanguard research paper, The Economics of a Graying World. The paper is part of the Megatrends series, which considers the effects of fundamental shifts in global economies.

Our research suggests that, contrary to popular assumptions:

  • Older individuals will work longer as eligibility ages for public retirement programs rise globally.
  • Productivity may increase as rising costs, amid tighter labor markets, spur investment.
  • A growing aging population doesn’t necessarily lead to lower investment returns.
  • The elderly don’t consume less than younger populations, they just consume differently.

The conventional wisdom on older individuals and spending

The last point in particular shows how assumptions about demographics can be flawed. It seems reasonable to assume that people are likely to curb their spending later in life, especially when they no longer earn a paycheck. This fits with what many of us have noticed with older relatives: They don’t buy new clothes because they already have a “perfectly good” wardrobe, or they drive an older car because it “still has lots of miles left in it.”

What the data say

Our research, though, suggests a counterpoint. Past consumption patterns of the elderly in both the developed and developing world challenge the common narrative of a steep drop in demand for goods and services. United Nations survey data from 40 countries showed stable levels of consumption as a percentage of income starting in young adulthood. The most detailed data available for the United States, showed that older individuals spend differently, not necessarily less. People entering retirement began to cut back on clothing, travel, entertainment, cars. They also spent a little less on eating out and education.

But they began spending more on other things. As the illustration below shows, health care became a larger expense as people aged. Housing spending also increased, especially for the very elderly, who are more often living in retirement homes or extended-care facilities.

Older U.S. generations exhibit a shift, rather than a decline, in consumption

Illustration shows that average annual consumption stays relatively flat from age 54 onward, with increasing amounts spent on housing and health care, and decreasing amounts on apparel, leisure, and transportation items.

Note: Data are as of June 2016.
Sources: Vanguard analysis, based on data from the U.S. Bureau of Labor Statistics.


A word of caution: The data provide a snapshot of individuals who’ve retired only in the past 2 decades; projections that future generations will behave similarly come with a high degree of uncertainty. For example, individuals may choose to work longer for many reasons, effectively delaying any economic effect of a graying population. So spending by the elderly in the future could look quite different than what we’ve seen in the past. 

Investment implications of an aging population

It may be tempting to aim for outsize gains by investing in sectors such as real estate or health care, for example, that might seem to stand to benefit from an aging population. But short-term trends may already be priced into markets, while longer-term trends may take time to play out. Maintaining a balanced, diversified portfolio and a long-term perspective is a strategy for capturing broad-market gains, including those of growing sectors, without taking sector-specific risks.  



All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.