Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 284

Beyond financial solutions for longevity

I appreciated Jeremy Cooper’s recent excellent article on meeting the challenges of longevity risk. Erudite actuaries and investment gurus have long sought investment products which guarantee income for the life of each investor.

While I support efforts to craft better financial products and solutions, we must also make more effort to educate our rapidly-growing older population. There is much they can do to reduce longevity risk themselves. The focus on financial literacy seems to have been most effective at younger ages but not as much beyond midlife. Reallocation of resources into greater longevity awareness is required.

What could be the key elements?

1. Realising that at age 65 (‘retirement age’), over 75% of people are not within three years of the number of years nominated in Life Table expectancies. As shown in the diagram below, there is an enormous range of mortality outcomes, making estimates of how long money will last much less realistic than most people appreciate.

2. Recognising that the rest of their life is likely to play out in three stages: 1) able, 2) less able but still independent, and 3) dependent. Life will be materially different in each stage. For a majority of people at age 65, for example, the able stage is over 10 years, prompting serious consideration of alternatives to stopping paid work too early. This may not be viable as dependency rises.

3. Understanding that the longer they live, the longer they are likely to live, but much of this extra life is likely to be independent. If their prospective lifespan increases, so their dependent phase is likely to reduce.

4. Appreciating that successful ageing is likely to reflect their personal focus on four main issues: 1) exercise, 2) effective social engagement, 3) diet and weight control and 4) appropriate mental challenges.

5. Knowing that indefinite extension of lifespans seems unlikely, but the cost of staying alive will rise to reflect increasingly expensive medical solutions.

6. Accepting that home-based aged care is inevitable for most, and that preparing family and dwellings for this eventuality should be a priority in the able stages of longevity, not when the need becomes evident.

7. Contributing to the debate on assisted dying, recognising the ethical, emotional and financial considerations and expressing a personal view in a way people close to you understand.

8. Factoring in that cognitive issues such as Alzheimer’s disease (now a major factor in the death of older people) appear to reflect earlier life behaviours which many people can address with the hope of deferring the onset.

Averages disguise significant variability

Only 200 years ago, the average baby would not live beyond 40 years old. Babies born today are on average expected to live beyond age 80. Society has made use of this - through better education, communications, infrastructure, laws and governance and greater wealth to invest in living standards. While most people realise this remarkable change is ongoing, few realise what it can mean for them personally.

If we look at a very large group of 65-year-olds in Australia, we know on average how long they will survive. This diagram below shows the percentage of deaths expected in groups of five years. The average survival is 21 years for a 65-year-old. It sits inside the blue column, which represents less than a quarter of the total age group, so the average is not very helpful. At this age, men live about three years less than women.

Success in dealing with longevity risk is more likely to reflect management of the elements outlined above rather than hanging out for financial products which may be a partial solution but will not address the broader opportunities and risks in our longevity for the rest of our lives. People should be empowered to take more control of their personal circumstances, and better education is the key.

David Williams is Founder and CEO of My Longevity. Try the SHAPE Analyser to focus on your own longevity.

RELATED ARTICLES

The future of retirement is already here

Balancing longevity and sequencing risk

Why we will live for at least 1,000 years

banner

Most viewed in recent weeks

A hard dose reality check on vaccines

With 160 programmes underway and billions of dollars spent on COVID-19 vaccines, investors are drawn to optimistic news. However, the company that has developed most new vaccines has a sober view.

After 30 years of investing, I prefer to skip this party

Eventually, prices become so extreme they bear no relationship to reality, and a bubble forms. I believe we are there today, not for all stocks but for many in the technology space.

Australian house prices: Part 2, the bigger picture

There is good reason to believe the negatives will continue to outweigh the positives over the next 12 to 18 months. There is more concern about house prices than the short-term indicators suggest.

How we have invested during COVID-19

With signs that the economic recession will not be as deep as first feared, many companies will emerge strongly with robust business models. Here are the sectors with the best opportunities.

How to handle the riskiest company results in history

It is better to miss a results bounce and buy after the company has delivered than it is to step on a landmine. With such uncertainty, avoid FOMO by following these result season investing tips.

Australian house prices: Part 1, how worried should we be?

Three key indicators are useful for predicting the short-term outlook for house prices, although tighter lockdowns make the outlook gloomier. There is enough doubt to create cause for concern.

Latest Updates

Shares

How to handle the riskiest company results in history

It is better to miss a results bounce and buy after the company has delivered than it is to step on a landmine. With such uncertainty, avoid FOMO by following these result season investing tips.

Shares

The rise of Afterpay and emergence of a new business model

Sometimes the simplest ideas are the best. The founders of Afterpay stumbled on the attraction for consumers of paying by instalments, and now retailers must offer the facility or lose business.

Property

WFH and its impact on Australian offices and tenants

Although most office workers are currently WFH, an energy and a buzz comes from working in the same physical space. Other benefits include team building, relationships, talent mentoring and creative collaboration.

Fixed interest

Why 2020 has been the year of the bond market

Going back to June 2019, investors would have questioned the logic of diversifying away from outperforming growth assets. But when markets feel at their best, it is paramount to keep a perspective on long-term goals.

Investment strategies

Is 5G all hype or real investable opportunity?

While its impact will take time to unfold, 5G will meaningfully change the world. Once adoption takes hold, there is huge potential for its application across a wide range of industries.

Property

Australian house prices: Part 1, how worried should we be?

Three key indicators are useful for predicting the short-term outlook for house prices, although tighter lockdowns make the outlook gloomier. There is enough doubt to create cause for concern.

Property

Australian house prices: Part 2, the bigger picture

There is good reason to believe the negatives will continue to outweigh the positives over the next 12 to 18 months. There is more concern about house prices than the short-term indicators suggest.

Sponsors

Alliances

© 2020 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use.
Any general advice or class service prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, has been prepared by without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.