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

Why Australia is crying out for a National Longevity Strategy

Many people misunderstand what life expectancy means

7-point checklist for managing the uncertain timing of death

banner

Most viewed in recent weeks

Lessons when a fund manager of the year is down 25%

Every successful fund manager suffers periods of underperformance, and investors who jump from fund to fund chasing results are likely to do badly. Selecting a manager is a long-term decision but what else?

2022 election survey results: disillusion and disappointment

In almost 1,000 responses, our readers differ in voting intentions versus polling of the general population, but they have little doubt who will win and there is widespread disappointment with our politics.

Now you can earn 5% on bonds but stay with quality

Conservative investors who want the greater capital security of bonds can now lock in 5% but they should stay at the higher end of credit quality. Rises in rates and defaults mean it's not as easy as it looks.

30 ETFs in one ecosystem but is there a favourite?

In the last decade, ETFs have become a mainstay of many portfolios, with broad market access to most asset types, as well as a wide array of sectors and themes. Is there a favourite of a CEO who oversees 30 funds?

Betting markets as election predictors

Believe it or not, betting agencies are in the business of making money, not predicting outcomes. Is there anything we can learn from the current odds on the election results?

Meg on SMSFs – More on future-proofing your fund

Single-member SMSFs face challenges where the eventual beneficiaries (or support team in the event of incapacity) will be the member’s adult children. Even worse, what happens if one or more of the children live overseas?

Latest Updates

Superannuation

'It’s your money' schemes transfer super from young to old

Policy proposals allow young people to access their super for a home bought from older people who put the money back into super. It helps some first buyers into a home earlier but it may push up prices.

Investment strategies

Rising recession risk and what it means for your portfolio

In this environment, safe-haven assets like Government bonds act as a diversifier given the uncorrelated nature to equities during periods of risk-off, while offering a yield above term deposit rates.

Investment strategies

‘Multidiscipline’: the secret of Bezos' and Buffett’s wild success

A key attribute of great investors is the ability to abstract away the specifics of a particular domain, leaving only the important underlying principles upon which great investments can be made.

Superannuation

Keep mandatory super pension drawdowns halved

The Transfer Balance Cap limits the tax concessions available in super pension funds, removing the need for large, compulsory drawdowns. Plus there are no requirements to draw money out of an accumulation fund.

Shares

Confession season is upon us: What’s next for equity markets

Companies tend to pre-position weak results ahead of 30 June, leading to earnings downgrades. The next two months will be critical for investors as a shift from ‘great expectations’ to ‘clear explanations’ gets underway.

Economy

Australia, the Lucky Country again?

We may have been extremely unlucky with the unforgiving weather plaguing the East Coast of Australia this year. However, on the economic front we are by many measures in a strong position relative to the rest of the world.

Exchange traded products

LIC discounts widening with the market sell-off

Discounts on LICs and LITs vary with market conditions, and many prominent managers have seen the value of their assets fall as well as discount widen. There may be opportunities for gains if discounts narrow.

Sponsors

Alliances

© 2022 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 ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). 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.

Website Development by Master Publisher.