A topic that is currently being debated is the claim that the first person to live to 150 years of age has already been born.
This “alternative fact” is, by its very nature, unprovable.
Scientific studies can estimate the life expectancy of babies born today, but can’t confirm a lifespan with certainty.
While it is worth taking this particular fact with a rather large grain of salt, the implication is the same, people are living longer lives. Advances in medical technology, changing lifestyles and improved sanitation are all aiding in increasing longevity globally.
Over the past several decades, the life expectancy of the average Australian has risen. According to a recent study published in the Lancet, the life expectancy for an Australian male born in 2010 is 80.1 years and 84.5 years for females. Looking at the Australian Bureau of Statistic’s mortality table, our analysis shows that Australians who are currently 65 years of age are more likely than not to reach 80. And for couples, the probability of at least one of the pair reaching 80 is almost a certainty, at 93 per cent. Meanwhile, a 65-year-old couple might be surprised to learn that there is a 50 per cent chance that at least one of them will live another 25 years, reaching the ripe old age of 90.
If the timelines, checkpoints and milestones in life shifted to match the lengthening lifespans, this wouldn’t be so much of an issue. But it matters hugely for retirement and financial planning for the later years, in which we don’t expect steady incomes. An HSBC study, The Future of Retirement, explains that people’s expected retirement age shows little sign of changing, despite longer lifespans. On average, the next generation of retirees expects to retire at the same age as their parents. The implication is pretty clear, if we are living longer but retiring at the same age, having a financial plan for those “extra” retired years is absolutely critical.
The startling fact is that people expect their savings to run out during their retirement.
The global average of the number of years that savings are expected to last is 10 years, which leaves roughly eight years of retired life unfunded. The numbers for Australia are not that different: 11 years of savings expected with 10 years of retirement unfunded. This pension shortfall, as it’s known, is getting larger.
Being aware of the gap is the first step. Investing is more than just a hobby or a way to make a little extra spending money. It’s absolutely vital in the current environment. Starting early, being active, disciplined and diversified are the guiding principles.
Contemplating one’s own mortality is not a pleasant thought and a longer life expectancy may be greeted as good news. But it’s good news tempered with some important investment considerations. Investors are often concerned and focused on the day-to-day movements in the markets, the latest trade, or the range of potential risks which may never materialise. However, longevity risk, not market risk, is the biggest threat that many investors face. The possibility of outgrowing or outliving your pension savings is what investors should really be concerned with and just how they might need to continue to grow assets through retirement as well as leading up to it.
Speak with your OBT financial planner to discuss your retirement strategy options on 5462 2277.
Rodney Turner and OBT Financial Group are Authorised Representatives of Lonsdale Financial Group Ltd ABN 76 006 637 225 | AFSL 246934.
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial planner and seek tax advice from a registered tax agent. Information is current at the date of issue and may change. This information and certain references, where indicated, are taken from sources believed to be accurate and correct. To the extent permitted by the Law, Lonsdale, its representatives, officers and employees accept no liability for any person that relies upon the information contained herein. Information is current at the date of issue and may change.
Source: J.P. Morgan Asset Management