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The double-edged sword of longevity

People are routinely underestimate how long they might live, creating a very real risk that they could outlive their retirement funds altogether, notes Rathbones’ head of sales support James Goward

If you’re looking for somewhere to enjoy a long retirement, you could do worse than upping sticks to one of the world’s “Blue Zones”. First identified in 2004 by National Geographic Fellow and New York Times author Dan Buettner, the Blue Zones are geographic regions where people live quantifiably longer, healthier lives than elsewhere in the world. Mr Buettner and his team pinpointed five such areas: Ikaria in Greece, Loma Linda in California, Sardinia in Italy, Nicoya in Costa Rica and Okinawa in Japan.

Take Okinawa, an archipelago of 161 islands nestling in the East China Sea. Here there are around 35 centenarians for every 100,000 inhabitants – five times more than the rest of Japan – a phenomenon widely attributed both to genetic and lifestyle factors. And for Japan as a whole, life expectancy topped the World Health Organization rankings of 2017 at an average of 83.7 years. Far away from these exotic climes, the UK came in 20th place with an average life expectancy of 81.2 years.

Good news with strings attached

Recent figures from the Office of National Statistics show that since 2011, the UK has actually seen one of the biggest slowdowns in life expectancy growth among 20 of the world’s leading economies. While the reasons for this stalling are not yet clear, the fact remains that we are still living considerably longer than previous generations, thanks to medical advances and lifestyle improvements. On the face of it, longevity sounds like good news. But it’s good news with strings attached.

People may be living longer than before, but many of them still routinely underestimate how long they might live. And that means there’s a very real risk that they could outlive their retirement funds altogether. This gap between perception and reality can have a huge impact on retirement planning. A client who budgets for a 20-year retirement, but actually lives 25 years, will face an uncomfortable final few years of life. Even missing the mark by just a couple of years can leave people with no savings to fall back on to fund the retirement they’d planned, possible residential care or even everyday living expenses.

Combining the power of genetics & technology

So what does all this mean for financial planning? Advisers have long looked for ways to make smart decisions with clients’ money, but better planning for longevity needs in terms of health has historically been an elusive commodity. This stark gap between perception and reality is a valuable opportunity to help clients understand the impact of longevity on their retirement plans – and to continue supporting them as they cross the retirement finishing line, and through the rest of their lives.

After all, life expectancy estimates are just that – estimates – and life expectancy calculators are a notoriously blunt tool, given that they ignore a whole range of factors such as genetic predispositions to illnesses like diabetes or heart disease, and lifestyle factors that can drastically affect clients’ projected lifespan.

Information is power

The answer to the longevity conundrum may lie in advances in both genetics and technology, which have spawned innovative tools designed to give clients and advisory firms a clearer picture of future health and financial needs. By fostering a deeper understanding of clients’ genetic and health history, advisers have the power to create a more accurate idea of their potential lifespan, and a more comprehensive financial plan to match.

These tools can help on another front too. While we can’t realistically hope to emulate the longstanding genetic track record of the Okinawans, we do have the power to understand and change some of the lifestyle factors that can curtail our life expectancy, and boost the number of active, healthy years we can expect in retirement along the way.

So when it comes to retirement planning, information really is power. And today’s technology can be a powerful tool for advisers in considering things like genetics, lifestyle choices and other factors when helping people plan for their future.

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