Your Quarterly E-Zine
Edition 11 • December 2019

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OK Boomer

Fertility rates have fallen rapidly since the mid-twentieth century, when five children were typical for the average child-bearing woman. In most developed economies, including New Zealand, the fertility rate has fallen below the World Health Organisation (WHO) determined neutral replacement rate of 2.1 births per child-bearing female.

Despite declining fertility, life expectancy has continued to rise. For those who reach the age of 65 in Australia or New Zealand, life expectancy has increased to around 85, an increase of 5-6 years over the last three decades.

Declining fertility rates and increasing life expectancy means that New Zealand’s population continues to age. Since 1975, when the median age in New Zealand was a low 25.6 years, it has steadily increased to 37.3 in 2019. By 2050, the median age is forecast to be 43.7. Despite the aging population, many people are living longer and healthier lives due to modern medicine and lifestyle choices.

As people age, they have traditionally dropped out of the workforce. With declining or stagnant fertility rates, the working age population would be expected to shrink (working age defined as those aged between 15-64 years).

Economic or GDP growth is a function of growth in the labour force (working age population) plus productivity. Slowing growth in labour markets, all other things being equal, should result in lower trend rates of growth. The one offset, of course, is higher levels of inward migration. New Zealand has benefited from strong net immigration over the last two decades, with many immigrants of working age. But high levels of immigration have caused problems, with frustration around inadequate infrastructure – housing, schools, healthcare, roads and social welfare. However, if you listen to the aggrieved and outraged, it’s the ‘Boomers’ who are to blame for the varied problems many societies currently face.

‘Boomers’ are those born between 1946 and 1964. The youngest is now 55, while the oldest 73. As this cohort age, life is slowing down for many of them. But personal and economic circumstances may determine their use to society is far from over. And contrary to popular belief, life is not that easy for many of them.

As the Boomers matured to adulthood, their parents retired. As the term suggests, Boomers’ parents tended to have lots of kids. This meant a pent-up demand for housing when they wanted to retire and downsize to the beach or retirement home. Boomers’ parents were also more likely to enjoy financial security, due to the proliferation of generous company and government pension schemes, capital gains from the Boomer-driven demand for housing, and high interest rates, into which their savings were invested.

Throughout this relatively benign period, through the 1970s and early 1980s, the number of seniors not in the work force peaked, because they didn’t have to work. However, since the mid 1980s, the number of seniors not in the workforce has been steadily declining. In other words, people are continuing to work a lot longer, well into their sixties, seventies and even eighties.

While much of the decline of retirees not in the workforce has been due to increasing life expectancy and better health, the last two decades have also witnessed a number of financial hits, the most recent being the 2008 financial crisis. A burst equity market, wholesale jobs losses and a broken housing market in many economies wiped out equity in many investment portfolios. What was left generated a miserable return due to interest rates (by the major central banks) being close to zero. This forced many, who were considering retiring, to remain in the workforce, or some who had already retired to head back to work.

In the years ahead, the labour force participation of older workers (55+) is expected to remain elevated or increase further due to:

  • Healthcare expenses continuing to increase, with insurance unaffordable for many
  • The gradual rise in official retirement ages around the world
  • The lack of savings or supplemented pensions for most retirees; working longer will be a necessity to pay for life choices and medical expenses
  • Income - this remains one of the biggest drivers of longevity; staying in the workforce and earning can literally add years to your life.

While the accepted wisdom is that an aging population will slow trend growth rates (due to their higher propensity to save, reduce risk and investment, and the increased drag on fiscal balances), most economies should welcome an increasing participation in the workforce from older workers. In fact, central banks, governments, and businesses should encourage higher labour force participation of the 55+ age group.

It also provides a slightly more optimistic outlook for future rates of economic growth (and government tax revenues). Rather than assuming a mass exodus of workers as they hit their sixties, many will continue working. Instead of being dismissive and intolerant of one particular age group, it may be more important to the next generation’s lifestyle that their parents remain healthy and fully engaged in the economy for as long as possible.


Kevin Stirrat
Director/Strategy, Wealth Management Research

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