How long will you live and what does it mean for your investments?
Thirty-five years ago, an average 60-year old man could have expected to live an extra 18 years, to age 78. Today, the average 60-year old man should expect to live to 85. That’s according to an easy-to-use life expectancy calculator recently released by the UK’s Office for National Statistics. A 60-year old woman should expect to live longer, to 88.
Most people are aware that we are all living longer. However, you have to remember that the figures often quoted, such as those above, are averages. Some people will live longer, others less. What is less well appreciated is that we all have a pretty good chance of living longer than these averages – a lot longer if you are healthier or wealthier than average.
For example, a 60-year old man now has a 1-in-4 chance of living to 93 and a 1-in-10 chance of reaching 98.
Younger people have even stronger odds. For example, a 2-year old girl has an almost 30% chance of living to 100.
The chart below shows how life expectancy varies by age for males – it’s a similar picture for females but all lines are shifted up slightly.
How (male) life expectancy changes over time
Source: ONS, 2019
Once you get into your 90s, your chances of living longer increase pretty sharply – if you live that long you’ve outlived lots of your peers and must be made of strong stuff, so your chances of keeping going a bit longer pick up.
So what does this mean? It means your money has to last a lot longer than you might be thinking.
For a long time, retirement savers have been encouraged to reduce exposure to riskier assets once they enter retirement and move into safer defensive assets, like government bonds. However, such an overly cautious approach will increase the chances that your money runs out while you are still alive.
For many investors, the only way they will have a chance that their money lasts long enough will be by maintaining some exposure to riskier investments, like the stock market, for longer. This will introduce additional variability in the value of a retirement savings account, which may make savers feel uncomfortable at times.
However, risk can be mitigated by spreading investments across a number of asset classes. The alternative, an increased likelihood of outliving one’s savings, is even less palatable.
Perhaps counterintuitively, while excessive risk is dangerous, excessive caution is no better.
Any security(s) mentioned above is for illustrative purpose only, not a recommendation to invest or divest.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The views and opinions contained herein are those of the author(s), and do not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. The material is not intended to provide, and should not be relied on for investment advice or recommendation. Opinions stated are matters of judgment, which may change. Information herein is believed to be reliable, but Schroder Investment Management (Hong Kong) Limited does not warrant its completeness or accuracy.
Investment involves risks. Past performance and any forecasts are not necessarily a guide to future or likely performance. You should remember that the value of investments can go down as well as up and is not guaranteed. Exchange rate changes may cause the value of the overseas investments to rise or fall. For risks associated with investment in securities in emerging and less developed markets, please refer to the relevant offering document.
The information contained in this document is provided for information purpose only and does not constitute any solicitation and offering of investment products. Potential investors should be aware that such investments involve market risk and should be regarded as long-term investments.
Derivatives carry a high degree of risk and should only be considered by sophisticated investors.
This material, including the website, has not been reviewed by the SFC. Issued by Schroder Investment Management (Hong Kong) Limited.
- How to hold companies to account on their climate change plans
- Can the UK economy rebound after Brexit?
- How to keep the virus away from your investment portfolio?
- How should you invest in credit in a low-yield environment?
- The $19k cost of trying to time the market
- The converging worlds and diverging interests of equity and bond investors