How you can profit from the power of the grey pound

Higher life expectancy and surging asset prices have proved a boon for the baby-boomer generation, which has accumulated vast wealth. Younger generations can benefit too, says Matthew Partridge.

Chinese pensioners doing tai chi
As people live longer and become wealthier they will have more time and money to enjoy their retirement
(Image credit: © Tim Graham/Getty Images)

“Will you still need me, will you still feed me, when I’m 64?” asked The Beatles in their 1967 song. Today vast numbers of over-65s are being needed and fed. They comprise the biggest and one of the wealthiest demographic groups in the developed world.

This creates a challenge for governments, especially when it comes to grappling with their increasing demands on health and social care. However, it also represents an opportunity for industries that can find a way to take advantage of the increasing economic power of the “silver” pound, dollar or yen. Here’s how to profit.

People are getting older and richer...

David Morrison, senior market analyst at trading platform Trade Nation, notes that the mounting clout of the over-65s is down to two factors: demographics and wealth. In terms of demographics, increased life expectancy, the postwar baby boom and birth rates that have fallen below replacement level (the fertility rate that will result in a stable population) are all key.

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As a result of these trends, both the absolute number of over-65s and their share of the population have risen significantly over the past few decades. Despite Covid-19 disproportionately hitting the elderly, this demographic backdrop will endure over the long term.

For example, according to the Office for National Statistics, between 1967 and 2021 the proportion of the UK population over 65 has jumped from 12.5% to 18.9%, with the over-65s expected to account for a quarter of the population by 2050. The proportion of over-75s has increased even faster, nearly doubling from 4.52% in 1967 to 8.86% today.

While there are many poor pensioners, booming stockmarkets and soaring house prices have ensured that the average household headed by someone over 65 is worth nearly £700,000, more than double the average wealth of households headed by those between 35 and 44.

The UK is far from alone in seeing the proportion of older people increase at a rapid rate. “All through the developed world large numbers of people are hitting their mid-60s and retiring with large amounts of assets”, says Morrison.

In the G7, the group comprising the world’s seven biggest industrialised economies, the proportion of people over 65 ranges from 16.5% in the US to 21% in France, 22% in Germany and more than 28% in Japan. While the proportion of over 65s in work has increased, the vast majority of them are still retired.

... especially in Asia

Japan’s ageing population may be an extreme case, but everyone agrees that “there will be a much larger elderly population in Asia in the near future”, says Mike Shiao, chief investment officer, Asia ex-Japan, at fund management group Invesco.

He says data from the World Health Organisation suggests that “almost half a billion people in Asia will be aged 65 or over by 2025”. Indeed, declining birth rates and longer life expectancy means that experts are predicting that by 2049 “there will be more elderly than children” in the People’s Republic of China.

At the same time, the economic clout of what Shiao calls the “silver generation” in China and other parts of developing Asia far outstrips that of previous generations. This is partly due to decades of strong economic growth, which has seen living standards soar – 54% of the global middle class now live in Asia. This figure is expected to rise to 65% by 2030, with those over 65 “expected to play a large role in the rise of the Asian middle class”.

However, the emergence of wealthy pensioners in emerging Asia isn’t simply a consequence of these countries becoming richer. As financial markets have become more sophisticated, so the opportunities for building and accumulating wealth have also expanded.

The last four decades of Chinese economic reforms in particular have given Chinese pensioners “much better opportunities” to accumulate wealth than previous generations because the range of assets that they can own has greatly expanded. According to Credit Suisse, the Chinese stockmarket is now the fourth largest stockmarket in the world.

Plenty of time to travel

One sector certain to benefit from a greying population is the travel and leisure industry. Those between 65 and 80 are generally well and energetic enough to focus on enjoying their retirement instead of worrying about their health, notes Trade Nation’s David Morrison.

This does not necessarily have to involve sedate activities – “if you have been skiing all your life, you will want to carry on with that” – which is good news for winter resorts such as those in the Swiss Alps or Vail in Colorado. Meanwhile, cruising remains extremely popular.

Simon Matthews, senior portfolio manager of NB Global Monthly Income Fund, is optimistic about the cruising industry. The last 18 months of restrictions have created “pent- up demand for sea travel after being cooped up at home”.

What’s more, most countries require people to take tests or even quarantine, but cruise ships allow their customers to “avoid the hassle of having to go though multiple airports to get to your destination and back”. He also notes that even during lockdowns “50% of customers elected to postpone and rebook rather than cancel their booking completely”.

In a sign that demand is bouncing back, Matthews notes that Carnival Cruise Line, one of the biggest operators in the cruise ship industry, estimates that two-thirds of its ships are now back in operation, and it hopes that this will rise to 75% by the end of the year.

Even better, average spend per visit “is definitely up compared with 2019”, which suggests that “when people are going out they are willing to put their hands in their pockets”. Finally, the industry should also benefit from a boom in the number of middle-class retired Asians going on cruise ships.

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Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri