Column: Demographics and stagflation


The world is aging, and our economy is shrinking. This is not a good combination.

Let’s start with demographics. The five largest economies, U.S., China, Japan, Germany, and the U.K., have an average of 24.4% of their population that are age 65 or older.¹ This age group is typically referred to as non-productive, or of retirement age. A strong economy needs a strong labor force and currently we are heading toward one-fourth of the population potentially creating a drag on resources.

Now let’s look at the economic backdrop to this aging population. Growth has eluded the United States the last two quarters, reporting negative GDP (Gross Domestic Product). Typically, that could meet the definition of a recession, however we continue to have low unemployment. When you add back in persistent inflation, we experience stagflation, or high inflation with low growth.

The formula of an aging population plus a stagnant economy equals a cloudy outlook under historical standards. But these are unusual times.

The largest five countries with growing populations over age 65 also have economic challenges. There is always the question of how to support retirees through a social program such as Social Security, and the cost associated with that. Bill Greiner, Mariner Wealth Advisors’ chief economist, recently stated: “Going forward, this load will do nothing but get heavier. The size of this less-productive, more financially needy group is going to continue growing more rapidly than the population in general in all five countries noted.”

The labor force is shrinking by those downsizing their careers or retiring fully. The remaining three-fourths of the population is paying into Social Security, but with low unemployment, many jobs remained unfilled, and this creates lost revenue.

The best medicine could be economic growth and lower inflation. Growth can be fueled by technology and low unemployment. Trade with underdeveloped countries with younger demographics and higher growth can also help keep prices low.

The Federal Reserve Board is very vocal now on their efforts to fight inflation. A recent press release from Fed Chair Jerome Powell states they want to remain “vigilant” on fighting inflation, which now call for Fed funds rates to rise to 3.5 percent early next year and possibly peak around 3.7 percent by December 2023.

This transparency may eventually calm the markets as we see if a soft landing (rising rates without triggering a recession) is achievable.

Meanwhile investors also need to remain vigilant and stay the course in their financial plan designed to help them meet their goals. You don’t want to be one of those retirees who did not plan well for your less-productive years. Having the resources to support yourself despite economic turmoil is the key. The other factor, however, is we are living longer, and your money needs to last more years.

The life expectancy in the U.S. has almost doubled since 1875 when age 39 was considered an average lifetime. The current expectancy is 79.05 and has been increasing. It is expected to reach age 80 by 2029 and age 85 by 2064.2 Therefore longevity should be a major consideration in your retirement planning during all economic cycles.

1. Capitalism-The Best Game in Town by William Greiner, CFA

2. United Nation Macrotrends

Patricia Kummer has been in the financial services industry for over 35 years. She is a Certified Financial Planner professional and a Managing Director with Mariner Wealth Advisors.


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