If Demographics Are Destiny…

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Bill McBride at Calculated Risk put out a fascinating table on his blog recently that shows the coming changes in the demographics in the United States:

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These numbers are amazing. In 2020, the most common ages will all be between 25 to 35 years old.

I get questions all the time from investors asking me about the impact that retiring baby boomers are going to have on the markets and the economy in the coming years. I think people underestimate the impact that the millennials — who recently overtook the boomers in numbers — will have to counteract their parent’s generation.

People seem to think that millennials are all going to live in huge cities their whole lives and never buy cars or houses and settle down. My guess is that my generation is simply putting traditional next steps into adulthood off for a few more years than previous generations. In the past people used to get married right out of high school or college. Now young people go to college (many for an extra year or two), then go to live in a big city for a few years to have some fun, maybe go to grad school and by the time they decide to settle down they’re in their 30s.

Based on personal experience and what I’ve seen from my peers, here’s what happens when most people┬ástart hitting their 30s these days:

  • You move out of the mega-city to the suburbs or a more affordable city so you can actually afford a house and have a normal standard of living.
  • You buy a house and you end up spending a ton of money on things you never would have expected to buy just a few years earlier — more furniture, decorations, tools, lawn care, property taxes, maintenance, stainless steel appliances, remodeling, countertops, cabinets and the list could go on forever. You can basically add $20,000-$30,000 to the estimated amount you think you’ll pay for a house $5,000-$10,000 to every estimate for renovations to your house. And houses these days are bigger and nicer than ever before.
  • Then you have kids and kids are not cheap. That means spending money on diapers, car seats, strollers, clothes, toys, daycare (basically a second monthly mortgage payment), classes, sports, camps, parties, etc. The latest estimates peg the amount to raise a child to age 18 at anywhere from $176,000 to $407,000. Maybe you end up spending a little less on yourself, but you have to expect to spend more money when you have children.
  • With kids come SUVs or minivans because you’re going to need a new car or two to carry all of that stuff that you’ve been buying for your kids everywhere. Good luck taking an Uber when you have to fill your trunk with baby supplies and use car seats for every trip you make out of the house.

Growing up is expensive. It’s like a rite of passage to spend money on these things.

Not every millennial will take this traditional route, but more will do so than most people now assume. As people get older they want different things. You can’t act or live like a 20 year old forever.

Yes there will be baby boomers retiring like crazy in the coming years. Economic growth will likely be muted during the transitional phase that sees higher earning boomers retiring to hand off jobs to the next generation. But that doesn’t mean growth is a thing of the past. In the coming decades millennials are going to hit their peak earning years. They’re also going to be saving for retirement and 529 college plans for their kids.

Some people will claim that millennials won’t have enough money because they all have huge student loan debts. In that case, grandma and grandpa baby boomer will probably have to pick up the tab on a house or car down payment or two (it’s the least they could do for almost taking down the entire financial system in 2008). I think people also forget that boomers will have two to three decades of spending in retirement, as well.

If demographics are destiny in the markets and the economy then it definitely makes sense to pay attention to the baby boomers as they hit retirement age. But don’t forget that the millennials are coming to pick up some of the slack. The 2020s could be an interesting decade in terms of housing demand and spending from the new biggest generation.

U.S. Demographics: Ten Most Common Ages in 2010, 2015, 2020 and 2030 (Calculated Risk)

Further Reading:
Will Retiring Baby Boomers Ruin Future Market Returns?
Don’t Sleep on the Millennials



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  • John Richards

    I remember reading 10-15 years ago about the coming labor shortages… & CBS published this 2 months ago http://www.cbsnews.com/news/desperately-seeking-workers-the-looming-job-crunch/ noting imminent Health Care and Skilled Trade jobs shortages (notice that neither is directly STEM). I think this neatly highlights the impact of globalization – our biggest shortages are expected to be in jobs that are location dependent. The data above suggests perhaps any shortages may not be long lived?

    The other question is whether this suggests a payoff to a more aggressive portfolio he next 15 years or so. Would it make sense for a 50-65 YO to tilt an extra 5 or 10% towards risk assets vs a standard lower risk portfolio as one approaches retirement? I think I’d need to gather some very strong evidence first.

    • Ben

      Also there are going to be plenty of jobs needed to take care of all those retiring baby boomers and provide goods and services to them in the coming decades.

  • Jim Clark

    20 years ago there were all kinds of stories about the greatest generation dying off and the largest transfer of wealth ever to the baby boomers. I wonder how that played out. 2000-10 was essentially flat with some wild swings (so if you dollar cost averaged you probably did okay).
    I always preach being cautiously optimistic about the future…there will be some bad years but the Visigoths will not be sacking the cities and sending us into another Dark Age…I hope.

    • Jaybird

      My addition would be that the immigrants need to assimilate, not stay by themselves as it seems to be happening in the southwest. Don’t get me wrong, not saying there is NO assimilation, just seems like not enough, especially when mobs march in the the street and say southern Cal is already Mexico. S. Cal wouldn’t be what it is today if it were Mexican for the last 200 yrs, it would be Tijuana & Nueva Laredo. Does anyone want that?

      • Jaybird

        And Cali has to face the music on their debt, utterly ridiculous

    • Jaybird

      My addition would be that the immigrants need to assimilate, not stay by themselves as it seems to be happening in the southwest. Don’t get me wrong, not saying there is NO assimilation, just seems like not enough, especially when mobs march in the the street and say southern Cal is already Mexico. S. Cal wouldn’t be what it is today if it were Mexican for the last 200 yrs, it would be Tijuana & Nueva Laredo. Does anyone want that?

  • I kind of hope we are the generation that turns things on its head. SUV’s, large houses, exurban communities, all are not great for the environment and cause folks to get stuck in a revolving cycle of debt. That said, I think your analysis is spot on that most twenty and thirty somethings won’t be sipping craft beer with long beards forever

    • Ben

      Yeah betting against US consumers usually isn’t a great bet. I do agree with you that these are the things that get people into trouble financially, but I just don’t see those trends ending. I guess you never know…

      • slotowner

        I agree with you that people can’t act like their in their 20’s & that we can’t forecast that the Millennials will remain in stasis. However, delaying things will affect behavior dramatically, a 29 year old with a toddler & a 41 year old with a toddler will act & view the world very differently. How likely do you think the 41 year old will decide to have several more children?
        More schooling means less job experience in a career. Older marriages/partnerships will lead to fewer children & more childless households because it become harder on the body have & raise a child & people have a longer & more established childless life.
        In reflection, there is a serious concern in Japan that young men & women are deciding to not have sex because relationship are too difficult & other activities are more desirable. That is a major shift in behavior & similar changes are happening in the US.

        One other factor is that sub-cultures will have a major divergence in behavior. Urban blacks, suburban hispanics, rural whites, wealth urban tech hipsters, etc. might all be 25 but their path will diverge dramatically. Using one age block will only show a very broad development.

        • Ben

          All valid points. On the other hand, young people have spent the majority of their lives interacting with technology. I don’t think you can discount the potential for productivity gains from this.

          • slotowner

            Oh I think the increase of young bright people will help. I was mostly saying that the trade up & settle of the demographic affects will be less.
            We are shining to a period where population growth can not be assumed. Population growth is a big part of GDP growth both by more people producing & the needs, constraints, & scarcity of have to make more for them.

            I look at my friends & see how few of them have kid’s & will never have them. They are saving, producing, & living for themselves. They don’t need to worry about building for children & grandchildren which does have a big impact on my life. The Millennials are already way behind the planned demographic boomlet that was forecast in the aughts & the increases are mostly in stressed single parent families struggling to raise & educates the next generation.

  • Stephen Bell

    So few folks know these demographic facts. Things are all gloom, doom, and social security on the rocks. The countries that face demographic problems are Russia, China and Japan, and most European nations—too few young people and too few productive immigrants. US has an advantage in both areas. As Buffet said recently, “Bet on the US.”

    • Furion

      100% S&P FTW

  • Furion

    Also spouses are never the first sex partner

  • I know we keep talking a lot about Baby Boomers, because this group represents a large number of people. But if you look at the number of births in the US, between 1946 – 1964, the number of annual births ranged from 3.4 to 4.3 million/year.

    The number of millenials born between 1980 – 2000 is 3.6 – 4.2 million/year. I know birth rates are decreasing in the US. But the number of births is growing. And we also have immigration.

    So I think we should be fine from demographics standpoint in the US ( which other countries in the EU cannot say)

  • Thomas R Troland

    The difference between Boomers and Millennials is that as Boomers entered each lifestage they replaced a cohort that was far smaller creating huge need to accommodate the large increase in customers for everything the life stage required. The gap between Millennials and Xers is consequential but not quantum. And the market’s adjustment will more likely be incremental rather than exponential as it was in the 1960s through 1980s.

    • Ben

      That’s true. I just think people have to realize there’s not the drop-off many expect.