A recent cover feature in The Economist magazine asks readers to imagine a future world where you celebrated your 94th birthday by running a marathon with your school friends.
The article was using the illustration of extremely fit old-timers – well past their present life expectancies – as a means to emphasise just how much longevity has increased over the past century and is continuing to rise.
It may be a hard for us to imagine in 2016 that the point will ever be reached where 94 year-olds are running marathons with their school mates.
Nevertheless, considerable advances in medical science mean that many of us will live much longer than once expected.
The most marked demographic trend taking place is the ageing of the global population – a result of such factors as sharply rising longevity, changing birth rates and the huge waves of baby boomers in retirement or nearing retirement.
In recent weeks, the Australian Bureau of Statistics (ABS) released data showing that Australia’s aged population – defined as those aged 65 and over – has increased by almost 20 per cent over the five years to 2015. Almost 3.6 million Australians were 65 or over last year.
Among the numerous impacts of greater longevity and a rapidly ageing population is that your investment portfolio should be prepared for a marathon run. For most investors, this may mean having a portfolio that is intended to remain in place – with appropriate changes along the way as circumstances alter – from their first pay through to the rest of their presumably long lives.
A portfolio may be designed to last for 70 years or so on the basis that someone may begin working and saving at, say, 18 (perhaps on a part-time basis) and live until 90 years old or so.
Consider speaking to your adviser about how to create a marathon investment portfolio – no matter if you are a long way from retirement, approaching retirement or already in retirement.
A marathon portfolio is likely to have enough exposure to growth assets (before and after retirement) to eventually be in the position to generate sufficient cash flow to meet needs no matter how long you live. An aim is to provide inflation and longevity protection over the really long haul.
One of the challenges is to have a portfolio with an appropriate asset allocation is designed to deal with short to medium-term volatility yet retaining its long-term sustainability and growth.
Its design will depend on investor’s personal circumstances including any professional advice received.
The bottom-line benefit of a marathon portfolio is to minimise the risk of outliving your money.
Written by Robin Bowerman, Head of Market Strategy and Communications at Vanguard.
Reproduced with permission of Vanguard Investments Australia Ltd
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