Post-retirement planning crucial on increasing longevity

Forthe first time in recorded human history, the number of people on Earth aged 60-and-over surpassed the number of children younger than five. Some projections put that the global population proportion of aged 60 and over would climb to 22 per cent from the current 12 per cent. The double whammy of falling fertility rates and increasing longevity has multiple repercussions for individuals, societies, companies, countries and humanity.

This upsets the conventional wisdom of pyramidal structure with larger younger population at the base with smaller older population at the top. The number of individuals with age 80-and-over would reach about 460mn by the year 2050. The common misconception is that this phenomenon is restricted to advanced economies like Japan, Korea, Western Europe etc. but the center is increasingly shifting towards the low- and middle-income countries, as two-thirds of world’s elderly will live in these places by 2050. The global average life expectancy has soared from 29 from 1880 to 72 today. Also, this is higher than the wealthy nations of North America and Western Europe during 1970, with virtually every nation has seen a significant rise in life expectancy. Even with a relatively conservative estimate on longevity, global population of centennials could crop up to 6mn by 2050, growing 20 times as fast as the overall population.

Vanguard reports that over 90 per cent of the organisations opted for Target Date Funds (TDF) with over 75 per cent of the plan participants use them. This is up from just 2 per cent initially when it began offering TDFs in 2005. This is because they’re easy to understand and psychologically offers a less-surprise on maturity for the investors. Per a MorningStar report, the growth of exposure to these funds was about 30 per cent annualised in the last 15 years reaching to about $4tn, in this category.

Then there’s an inflation angle to be considered. If the demographic projections become a reality, then there’s a steady demand at the higher age (consumers) and constrained supply (of labor) at lower age turns into a perfect recipe for inflation.

However, we’ve been banking on the technology to achieve higher productivity thus marginally overcoming the supply constraints. Suppose if this were the case going forward where AI (Artificial Intelligence) and Robotics advance into our daily lives then it could create a conflict for the younger people (in skilling and finding employment). Would that increasingly become a burden to the govt. to provide sustenance and thus compounding the already rapidly falling fertility rates.

(The author is a partner with “Wealocity Analytics”, a SEBI registered Research Analyst and could be reached at info@wealcoityanalytics.com)