The aging population in the US is prompting a shift in retirement portfolio allocation strategies, resulting in challenges for bond investors and opportunities for equity investors, according to New York Life Investments.

Strategists noted that the US is facing an aging population, with Census Bureau estimates showing that 24.4% of Americans will be reach retirement age by 2060. By 2070, people over 65 will even outnumber children, highlighting the growing need for effective retirement planning.

Historically, as investors approached retirement, they have tended to allocate more of their portfolios to conservative bonds, such as government bonds, as they traditionally offer lower risk and steadier income potential compared to equities.

However, with decades of declining bond yields and rising life expectancy, New York Life Investments suggests that more investors will need to reconsider their retirement portfolio allocation strategies. Despite recent rate increases, bond yields remain near historic lows, which may constrain future returns for bond investors.

On the other hand, the aging population could also create opportunities in the stock market. New York Life Investments noted that equity investors could invest in an aging population by adding exposure to several sub-sectors in the S&P 500 that cater to older populations.

These could include healthcare equipment and services, pharmaceuticals and biotechnology and healthcare real estate investment trusts (REITs). For example, the S&P 500 Health Care Equipment & Supplies Industry Index, the S&P 500 Pharmaceuticals Biotechnology & Life Sciences Industry Group Index and the S&P 500 Health Care REITs Sub-Industry Index.

However, strategists cautioned that despite the strong year-to-date performance of these S&P 500 subsectors, diversification across different sectors is essential for reducing overall equity risk.

As the population continues to age, a structural shift could impact markets for years to come. Therefore, investors should routinely review and adjust their investments to adapt to changing market dynamics and trends and remain proactive.