How longer life expectancy affects your retirement planning

Never before in recorded human history has the world had so many people over the age of 60. According to the World Health Organisation, people over the age of 64 now outnumber those younger than five, with estimates that by 2050, the 60+ population will comprise 22% of the globe.

These distribution shifts are seismic, but they’re also recent. In 1900, the average life expectancy was just 32 years, and even as late as 1950, one in four children globally never made it to adulthood. Today, as life expectancy increases, aging is also being reimagined as we rebase what “old” means.

We see this in the economic activity of the 50+ community, who contribute more to total global GDP than ever before. By 2050, it’s estimated that this age group will account for 60% of global consumption, driven by wealth accumulated over time. This may explain why 50% of billionaires in 2022 were between the ages of 50 and 70.

But what if you’re not a billionaire?

If you're not blessed with billions, then taking appropriate steps to secure your financial future becomes even more important. This means adjusting your time horizons in at least three areas:

• how long you can work for
• how much you should save, and
• how far you can extend the period of your life lived in good health.

Reimagining work and the future of retirement

A recent retirement report estimates that only 6% of South Africans are on track to retire comfortably. This was made worse during the pandemic, where many households had to dip into long-term savings and increase debt levels to survive salary cuts and the economic downturn.

For most South Africans, there is still a big gap between expectation and reality when it comes to how far their savings will stretch in retirement, something that South Africa’s new two-pot retirement system is actively trying to solve by limiting early drawdowns.

Working after retirement age

But retirement is also not the panacea we think it is. Although there is no direct causal link between retirement and mortality, some have suggested it can hasten physical and cognitive decline. If age distributions are changing, retiring at 65 can feel unnecessary and wasteful, since many people are at the peak of their knowledge and performance.

In South Africa, a recent report has found that although the official retirement age is 65, South Africans will need to work until they are 80 to retire comfortably. 

Until legislation catches up, if you’re facing the mandatory retirement age and still need (or want) to work, you may need to find new ways of adapting your skill sets to different jobs or join the growing class of consultants who lend their wealth of experience to training younger employees.

READ MORE: How demographic trends are shaping wealth planning

Rethinking your retirement savings strategy

From a savings perspective, the longer you delay retirement, the more capital you can preserve. This means rethinking capital allocation, risk appetite, and how you structure investment periods.

Since most South Africans have not adequately saved towards retirement, it’s important to factor in the people who may depend on you to supplement their income shortfalls.

Lifespan vs. healthspan

Finally, while lifespans are being extended, we’re not always extending the years we live in good health. Although certain illnesses like bronchitis and emphysema have declined through lifestyle education like discouraging smoking, certain cancers have increased, along with heart disease, diabetes and strokes, according to the National Library of Medicine.

Much of this is simply because we’re living longer. We aren’t necessarily doing anything wrong here, we’re merely living longer than we used to. As Professor Carol Benn has pointed out, cancer rates universally rise with age because DNA becomes more damaged over time.

The goal is to help “compress morbidity” – delaying a person’s lifetime illness burden as long as possible. However, once a significant illness presents itself, the most urgent need is to get through it.

This is where practical life insurance policies become so vital. Without appropriate cover in place, recovery can needlessly wipe out years of savings and delay retirement even further, especially for primary household earners whose lines of support extend to parents and siblings. If those we are responsible for are also living longer, the need for proper provision becomes even more important.

Historically, people looked to their parents for cues about how they would age and when they would die, but this is no longer an accurate measure. And while living longer can feel like both a blessing and a burden, it is also filled with opportunities for purposeful reinvention at any stage of life. One piece of timeless advice still remains true: the earlier you plan, the better.

READ MORE: Live long and (hopefully) prosper