The Double Jeopardy of Retirement planning
Successfully financing the longest holiday of your life means hitting two moving bullseyes …
The first target is an economic one -- how your money is going to perform.
The second is demographic: how long you’ll need it to perform.
These are co-conspirators in the same danger. You only get one shot at this and – while you can’t afford to miss opportunities – you can’t afford to make a mistake you’ll feel for decades, either.
This article is about the second of those two threats: your unknowable lifespan. We’ll unpack why standard life expectancy figures can sabotage your strategy, and how to model a retirement that survives both economic downturns and extra decades of living.
What you end up with is an approach that equips you to run a race with a moving finish line.
1. Rely on ‘life expectancy’ at your peril
The average life expectancy for a 65-year-old male is 83. So said the Australian Bureau of Statistics in 2022. That year my father turned 84 and he toasted his proud achievement (with a fist-pump and glass of bubbly), because he’d “beaten the numbers”. This is a pretty normal reaction when you assume ‘average life expectancy of 83’ is a bit of a standard forecast.
But here’s the truth: if the average life expectancy for a 65yo male is 83, what we’re really saying is that fully half the people who died in that dataset were older than 83.
Not to realise this is like taking the country’s average household income as a reasonable predictor of your retirement budget. One has nothing to do with the other.
2. The trend is changing shape
That’s not to say that trends are irrelevant, though.
If you wade through the Australian Bureau of Statistics’ figures on ‘total deaths over 60’, the trend is clear as a bell: life expectancy is getting higher. Probably no surprises there – we all know about the advances in medicine and technology over the years, plus the general rising tide of global prosperity, and our lifespans are increasing accordingly.
What is surprising, though, is the changing shape of the trend. It’s no longer a predictable, smooth, straight-line increase in life expectancy. That familiar linear trend has changed shape; it’s now exponential.
This presents a major problem, particularly if you’re a couple, because you need to plan for your nest egg to outlive the longest living survivor of the two of you. How do you do that when you can’t even see where the shifting goalposts are headed?
What if your 90s aren’t the endgame?
If you’re currently in your 50s or 60s, you have probably thought of your 80s or 90s as ‘the doddering years’ – at best. But what if the truth turns out to be you’re more likely to die from a skiing accident in your late 90s than you will be from heart attack, stroke, or cancer?
This is the type of question currently being asked in research by biotechnologists, demographic gerontologists, and economists … who believe the future of ageing is very different from its past.
Here are some sobering conclusions out of the research departments at Stanford, MIT and Oxford:
At least half of the babies being born now may surpass 100 years of age.
Within the two decades lifespans will routinely extend beyond 115.
There are strong grounds to believe that the first person to live to 130 is already alive.
These are the brightest minds with the sharpest tools and they’re coming to the view that your finish line is further away than you think. Perhaps you should challenge old thinking too?
This type of open-minded thinking about just what’s possible (nay, very likely) shouldn’t be such a stretch for you, though. After all, you’re already well acquainted with counter-intuitive proclamations in the field of computer science and technology.
For instance, half a century or so ago, the co-founder of Intel predicted that the power of the microchip would double every two years. Many scoffed at the thought but as it turns out the forecast was too conservative – whereas at that time the circuitry of a typical computer contained hundreds of transistors per microchip, today it contains billions. In fact, at time of writing IBM is reputed to have a microchip prototype in production that uses transistor gates about the width of a strand of DNA; for context, this is measured in billionths of a metre (a ‘nanometer’).
The microchip meets medicine
The natural bedpartner for this exponential advancement in technology has been medical science, and we’re the beneficiaries. Here’s some good news …
You can get a bionic arm now that operates twice as well as it did just five years ago. Oh, and by the way, you can learn how to operate them with your thoughts. Don’t believe me? Google it.
Your dying heart valve now can be replaced by tissue-engineered versions developed from your own cells, largely mitigating rejection of the valve. They aren’t plastic, they grow with you.
What used to take multiple years of laboratory trial and error can now be simulated in a matter of hours by Ai. This has led to regenerative cell therapies and gene editing technologies that are improving quality of life in age-related diseases – dementia’s days appear to be numbered.
Swapping out joints, organs and diseased tissue with bio-printed replacements manufactured from your own cells isn’t a dream, it’s reality. We’re already seeing this play out in a lifespan shape-shift but it is also increasing our Healthspan (the term gerontologists use for ‘quality of life’).
Longer, healthier lives are no longer science fiction. Wonderland is coming and the only barrier is the price of a ticket. For people who are out of touch with this thinking, that’s where the dream will fall apart.
The entry fee to Wonderland
That this will happen is a given – the dice are already cast. The only real question is whether your plan can afford the life you’re actually going to have, not the one you assumed.
Standard practice has been to anticipate a retirement lasting twenty to thirty years. Today, that’s a dangerous bet. In all likelihood, you’ll outlive that estimate — and if your plan isn’t built for extra decades, the final chapter of your life could look nothing like the one you’ve imagined.
A full-spectrum forecast is how you find out now – before it’s too late to course-correct – whether your money can go the distance.
The Case for Full Spectrum Forecasting
This is a stress-test of your plan against both market shocks and longer-than-expected lifespans, so you can see your odds of success and the levers you can pull to improve them.
This is not a generic forecast — it’s a full-spectrum stress test of your superannuation against both market shocks and a longer lifespan. It’s the best, quickest way to find out if you can afford Wonderland.