The traditional asset based pension is not usually sufficient to provide a total income that keeps pace with inflation, even with the help of the age pension. A real lifetime pension is one way to preserve old age dignity.
Tag Archives | longevity risk
While financial solutions to longevity are worth pursuing, it is more important to educate people on what the late-stages of life are likely to deliver, and the time to prepare is now.
With the availability of large pools of retirees, the law of large numbers will start to see a predictable distribution of lifespans around the mean, allowing for longevity risk products. An important development.
Low interest rates have created problems for retirees, leading to the threat of a reduced lifestyle quality, running out of cash or accepting the age pension. Taking high risks at this point may make things worse.
Over the next few decades, average life expectancies as well as healthy outlier human lifespans could rise substantially due to medical engineering and gene modification. Aging is now better understood than ever before.
Of the major risks in retirement, inflation has the potential to be the greatest. Its incremental yet compounding impact is almost certain to reduce retiree purchasing power significantly over a 20-30-year retirement.
The superannuation industry has grappled with how to offer attractive retirement solutions, but lessons from overseas suggest some form of risk sharing to cover variable life expectancy will be needed.
According to CFSGAM’s research, Australian Gen-X women remain most at risk of not meeting their retirement objectives, in part due to an aversion to growth assets since the GFC, despite the market’s recovery.
The FSI’s Interim Report observed that the retirement phase of super-annuation is underdeveloped and does not meet the risk management needs of many retirees. The most difficult of these risks to manage is longevity.
After the age of 65, most people will spend over half of the rest of their lives with some disability or high level dependency. If ever you needed an incentive to save more and stay fit for your retirement, that has to be it.
The super industry has struggled to develop suitable post-retirement products to cater for increases in life expectancy. How would your own investing change if you knew you would live another 30 years after retiring?
Longer life expectancy means more of us will be living for several decades after we ‘retire’ or stop paid employment. Earning 3-4% in term deposits from age 60 will not be enough if you’re still alive at 90, 100, or 120!
Lifetime annuities have some attractive features but remain neglected by most retirees. There are rational reasons for this, which the annuity industry has to overcome if the product is to address more longevity worries.
Life annuities should be beneficial to rational decision-making individuals in retirement, yet in Australia the number of life annuities purchased remains small, albeit with some nascent signs of growth.
It is unfortunate that super funds and financial planners spend far more time considering investment risk than mortality risk. In future, retirement savings must last much longer, and a study of mortality risk shows how long.