We’ve seen how fuelled by rapidly declining fertility rates, many countries in the developed world are about to face significant shortages in their workforces. But there’s another factor that will make a huge impact on the economies of the developed world, as well as China and other countries: the incredible growth of the older population.

Human life expectancy has been growing steadily for the past 300 years. In itself, this is not a new phenomenon. But the combination of a large older population with a small younger one is new. Put simply, there aren’t enough young people to support the old people.

“Japan, Europe, and North America are places where people traditionally got rich before they got old,” notes political economist Nicholas Eberstadt. “In the decades ahead, many national populations are going to get old before they get rich.”

Most social welfare programs are financed through payroll taxes. This “pay as you go” system is based on a mechanism where young workers are paying for the welfare benefits of older retirees.
As long as there are a lot of young workers to support a few older retirees, the system is balanced. When I say balanced I mean that the amount that gets taken off of your pay-check each month is more or less equal to the amount of benefits that retirees can claim each month.

But that balance is gone. In 1945, the US had 50 workers supporting every retiree. By 1960, that ratio had dropped to 16:1. Today that ratio is about 3:1. If today’s demographic trends continue, things will get worse. In 2050, Europe's ratio of workers to retirees is projected drop to 1:1.3. Italy, France and Germany will have a ratio of 1:1.

When such an abrupt change in the support ratio happens, there can be only three ways to keep the social security system going:

1. Increase the amount of money that current workers have to pay to support current retirees
2. Decrease the amount of benefits given to the retirees
3. Delay the retirement age

The pension systems of most countries in the developed world are either bankrupt or on their way to become so. This is despite the fact that many countries have been increasing payroll taxes for the past two decades; to a point where many people are asking whether it makes sense to work so hard, given that a third of their income is spent on supporting someone else.

Benefits to retirees have also been tinkered with. In 1979, the basic state pension in Britain was 23% of average male earnings; by 2000 it had fallen to 15%. By 2040, it’s expected to drop to just 8%.

The one factor that hasn’t changed much and the one factor that will have to change in the next decade is the retirement age. With average life expectancies in most of the developed world creeping towards the 80 year mark, a retirement age of 65 is simply unsustainable. In fact, some people are questioning whether retirement should be abolished altogether.

But what does a graying population have to do with your business? Why should you care if the over 50s are the fastest growing segment of the population? The answer is simple: Growth.

While the 16-34 year olds is the segment of the population that companies have focused on the most, it’s actually the over 50s who represent the most interesting economic opportunity, simply due to the fact that they are growing in size and have more time (and more money) to spend than their younger counterparts.

But if people over the age of 50 account for half of all the discretionary spending in the United States, why do companies direct only 10% of their advertising to this age group?

“The average corporate ad rep is thirty-one, and the average ad-agency account executive is twenty-eight,” says James Surowiecki in the New Yorker. “If the experts who tell companies how to advertise are tykes, it's not surprising that companies are convinced that they should be targeting tykes, too.”

One company that understood the connection between demographics and the bottom line was sports shoe manufacturer New Balance. In 1989 the company decided to focus the whole company on one segment of the population: Baby Boomers. At the time, the company was the 12th largest sports shoe company in the world. Today it ranks 3rd. Between 1997 and 2002 there was no growth in US sales of sports shoes. New Balances growth during the same period: An average of 25% per year.

Once again, the writing is on the well. The challenges of massive demographical shifts are clear, and so are the opportunities.