25 Sep How to Avoid Outliving Your Savings
‘Retirees will outlive their savings by a decade’ declared the World Economic Forum in a recent report entitled ‘Investing in (and for) Our Future.’
The research upon which this claim was founded looked at life expectancy and retirement savings across six major world economies. The good news is that we’re all living longer. The bad news is that, at the current rate, our savings won’t stretch long enough to last our lifetime. In this regard, the conclusions of the report are heart-breaking: most people will live longer than the pot of money they have saved for retirement, by between eight and almost 20 years on average, with the highest burden on women.
Men in the UK will, on average, outlive their savings by about 10 years, while women will outlive their savings by over 12 years!
One important takeaway from the report is that we need to rethink what risk really means in the context of retirement.
“The real risk people need to manage when investing in their future is the risk of outliving their retirement savings. As people are living longer, they must ensure they have enough retirement funds to last them through their longer lives. This requires investing with a long-term mindset earlier in life to increase total savings later on,” states Han Yik, Head of the Institutional Investors Industry at the World Economic Forum.
The traditional definition of ‘risk’ in investment world tends to focus on volatility – the degree to which one’s portfolio fluctuates in value on a daily basis. However, this report recommends that, given the long-term horizon that we need to plan for, we need to shift our focus away from daily fluctuations of investments. Instead, we need to be prepared to take a longer-term approach by investing a greater proportion of our money in so-called ‘risk assets’ such as equities, which are more likely to deliver greater returns in the long term.