Americans are getting older — what that means for wealth management

As birth rates decline and life expectancy increases, the age of a typical American is steadily rising. The question for financial advisors is, how can they serve this aging population?

New census data shows how rapidly America is graying. The median age in the United States crept up to 38.9 last year, up 0.2 years from 2021. And this is part of a decades-long trend — in 2000, for example, the median age was 35.3. In 1980, it was 30. 

In fact, the Census pointed out, America's oldest age group grew faster in the 2010s than at any point in more than a century. From 2010 to 2020, the American population aged 65 and older grew by 38.6% — the group's fastest expansion since the 1880s.

Meanwhile, the U.S. birth rate has decreased by about 20% since 2007, according to the Centers for Disease Control and Prevention — so the country has not only more old people, but fewer young people.

"As the nation's median age creeps closer to 40, you can really see how the aging of baby boomers, and now their children … is impacting the median age," Kristie Wilder, a demographer for the Census, said in a statement. "Without a rapidly growing young population, the U.S. median age will likely continue its slow but steady rise." 

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What does all this mean for financial advisors? 

First and foremost, some say, it means retirement advising will become more important than ever.

"I do think that there are more Americans that will need retirement advice, and they'll need their savings to last longer than those of previous generations," said Noah Damsky, a chartered financial analyst at Marina Wealth Advisors in Los Angeles.

Apart from a steep drop following the COVID-19 pandemic, the American life expectancy has generally been increasing in recent decades, from 69.7 years in 1960 to 76.4 in 2022. This creates both benefits and challenges for retirees, who will have to stretch their savings over a longer period of time.

"With longer life expectancies, more advanced healthcare and higher inflation, retirees can't rely on old financial formulas to achieve a successful retirement," Damsky said. "We encourage healthy clients to plan for through age 95, but I wouldn't be surprised if age 100 or higher becomes the new norm in the coming years."

Meanwhile, as Damsky pointed out, prices are rising. Though much lower than last spring, year-on-year inflation in the U.S. is still at 4%, according to the Bureau of Labor Statistics — about twice as high as the Federal Reserve's 2% target. As Americans enjoy longer retirements, they'll need help from their financial advisors to keep up with those costs.

"In a possible 30-year retirement, living expenses can nearly triple because of inflation," said Edward Snyder, co-founder of Oaktree Financial Advisors in Carmel, Indiana. "People need to have a plan in place to deal with that."

For Snyder, that means steering clients toward equities.

"This is why stocks are so important in an investment portfolio," he said. "They have historically outpaced inflation, which would allow retirees to maintain their lifestyle amid rising inflation."

But as the American populace ages, it's not just clients who are living longer. It's also their parents and other elderly family members. This adds yet another layer of problem-solving — including paying for the elders' healthcare.

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"I've noticed that as our population is aging, I have more people reaching out trying to figure out how to plan for … their parents' financial future," said Elliott Appel, the founder of Kindness Financial Planning in Madison, Wisconsin. "Many people are trying to figure out what long-term care could cost, whether their parents have enough money for it, and how they can potentially use their own income to potentially help their parents."

These are just a few of the many challenges, both known and unknown, that await investors and their advisors as Americans live longer lives. The one thing that's clear is that as this trend continues, wealth managers will have more work to do.

"Even if retirees have saved enough, they can't afford to bury their heads in the sand," said Damsky. "If you're not talking about these things with your advisor, you're probably leaving a lot of money on the table!"