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Doctors are always telling their patients they need to eat less and exercise more; dentists drone on about brushing and flossing. For financial advisors, the mantra they are increasingly keen to deliver – even though few of their clients typically want to hear it, any more than they want to be reminded about their weight or their dental plaque – is this: “Save, save, and SAVE still more for your retirement!”
“That’s because people are under-estimating, on a massive scale, how long they are going to live,” says John Fleming, founder and chief executive of Global Index International, the Rio de Janeiro-based wealth management company.
“It’s not an easy subject to discuss with clients, but it’s key if they are to know how they should be approaching their investments,” he adds.
One of the problems is that few people consciously go around thinking that there’s a very good chance that they and/or their partner are likely to spend time – even years – in a residential care home, even though this is increasingly likely to be the case, Fleming points out.
The other problem is that people typically start saving for their retirement far too late. Says Fleming: “Now that people are living longer, it’s more important than ever before that people get in the habit of saving earlier – ideally, before the age of 30. It’s pure mathematics.”
Life expectancy data for expatriates specifically isn’t readily available; however, back in the UK, the Association of British Insurers estimates that three out of four Britons will need care at some point in their lives after they reach the age of 65.
Last year, a UK government committee on demographic change estimated that the number of people over the age of 65 would increase 51% over the next two decades, and that there would be a doubling of the number of those over the age of 85.
Even now, for the first time in history, “more than two-thirds of the UK population are aged over 50, and two-thirds of this number (more than 14 million people) are over 60”, the Financial Times reported in September.
Half a million people are over 90, and one in three babies born now is expected to live beyond the age of 100.
In September, the BBC reported that the number of Brits reaching their 100th birthday has more than quadrupled over the past 30 years, with a record 13,780 centenarians found to be living in Britain last year, compared with just 3,040 in 1983.
Looking at the past decade alone, the number of people reaching the age of 100 “has increased by 71%”, the BBC went on, quoting new data from the UK’s Office for National Statistics, while the number of people over the age of 90 “has nearly trebled over the past 30 years”, to the point where they now make up 0.8% of the country’s total population, and number more than half a million.
“The ONS also said that between 2011 and 2013, the most common age at death in the UK was 86 for men and 89 for women.”
But it’s not just that people aren’t thinking enough about how long they’re likely to live, Fleming says. Most are also failing to anticipate “how long their children are going to be dependent on them, and how much that’s going to cost”, he says.
University education means children often don’t leave the nest until graduation, and sometimes not even then, Fleming points out.
Making it harder, for both young adults and their parents, is that housing costs have been rising steadily in many markets, and good jobs are hard to find. There’s also a temptation to postpone moving out until after debts incurred while in education, such as tuition fees and student loans, have been paid off.
“Twenty years ago, young people didn’t take on so much non-mortgage debt so young,” Fleming points out.
Again, data for expatriates isn’t available, but in the UK, between 15% and 35% of a representative sampling of more than 5,000 people across the UK whose children are all over the age of 18 told researchers that at least one of these children was currently living at home with them, according to Relate, a UK relationship counselling organisation, which commissioned the survey earlier this year.
The highest numbers of stay-at-home and “boomerang” children were found to be in London, where housing costs are the highest in Britain. (Indeed, when the question was asked of London parents whose youngest child was aged 25 or older, some 27% still had one or more son or daughter under their roof.)
The more affluent the parents, the more likely their children were to hang around longer, the survey also found: only 17% of parents with household incomes of less than £20,000 reported that they had one or more child of 18 years of age or older still living with them.
One company that has made longevity a focus of its research is Prudential, the British life insurance giant.
Vince Smith-Hughes, a retirement income expert for the company, noted that major changes to British pensions and the rules having to do with taking a retirement income, announced earlier this year by UK Chancellor George Osborne, had thrown a spotlight on the need for those covered by British pension legislation to focus on the longevity issue.
“If retirees choose to draw income directly from their pension fund” – which they may do under the new regulations in a way that they couldn’t before – “they need to consider if it’s sustainable…over an extended number of years,” Smith-Hughes says.
Prudential’s research, he notes, has shown that people retiring in 2014 expect to receive an annual retirement income of £15,800 (US$25,816, 62,025 Brazilian reals). To secure an income of that amount for 20 years, they would need a pension pot of approximately £121,000.
However, a significant number of retirees are likely to live for longer than that, so Smith-Hughes says it would be more realistic to plan for a 30-year retirement period, for which the pension pot would need to be “around £154,000”.
This article is intended to give readers a general understanding of the subject of longevity and how people should plan for their retirement. It is in no way to be taken as advice, which should be obtained from a reputable, regulated professional. Global Index International does not accept responsibility or liability for actions taken on the basis of what is written here.
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