How long will you live and what does it mean for your investments?

Schroders
Simon Stevenson
Simon Stevenson
Schroders Deputy Head of Multi-Asset
Latest life expectancy data shows that your money will need to last a lot longer than you might be thinking.

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. Your parents may have bid farewell before clocking 80 but you have a pretty good chance of getting close to 100.

Younger people have even stronger odds. My 2-year old daughter, for example, 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

The observant reader will notice that, 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, like we have in our OpenInvest models. 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.



This article was originally written by Duncan Lamont, CFA, Head of Research and Analytics, Schroders.

Important Information
Opinions, estimates and projections in this article constitute the current judgement of the author as of the date of this article.  They do not necessarily reflect the opinions of Schroder Investment Management Australia Limited, ABN 22 000 443 274, AFS License 226473 ("Schroders") or any member of the Schroders Group and are subject to change without notice. In preparing this document, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was otherwise reviewed by us.
Schroders does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this article. Except insofar as liability under any statute cannot be excluded, Schroders and its directors, employees, consultants or any company in the Schroders Group do not accept any liability (whether arising in contract, in tort or negligence or otherwise) for any error or omission in this article or for any resulting loss or damage (whether direct, indirect, consequential or otherwise) suffered by the recipient of this article or any other person.
This article does not contain, and should not be relied on, as containing any investment, accounting, legal or tax advice. Past performance is not a reliable indicator of future performance.


Learn more
Established in 1961, Schroders in Australia is a wholly owned subsidiary of UK-listed Schroders plc. Based in Sydney, the business manages assets for institutional and wholesale clients across Australian equities, fixed income and multi-asset and global equities.

Schroders believes in the potential to gain a competitive advantage from in-house global research; that rigorous research will translate into superior investment performance. We believe that internal analysis of investment securities and markets is paramount when identifying attractive investment opportunities. Proprietary research provides a key foundation of our investment process and our world-wide network of analysts is one of the most comprehensive research resources dedicated to funds management.

Areas of expertise:
Australia equities
Fixed income
Multi-asset
Global equities

Why Schroders?

With a global network of researchers, we focus on serving our clients and targeting one result - superior investment performance.

Inherent in our approach to investment management is:
A structured, disciplined and repeatable investment process
A clearly defined investment style
A team approach to investment management

A global asset manager

We have responsibility for A$803.1 billion of assets* on behalf of institutional and retail investors, from around the world. Their assets are invested across equities, fixed income and alternatives.

We employ over 4700 people worldwide who operate from 41 offices in 30 different countries across Europe, the Americas, Asia and the Middle East.

We are close to the markets in which we invest and our clients.

Schroders has developed under stable ownership for over 200 years. Long-term thinking governs our approach to investing, building client relationships and growing our business.

*Source: All data as at 30 June 2018