The last 40 years have seen consistent improvements in life expectancy, driven largely by better standards of living and advances in healthcare. A male born today in New Zealand has a life expectancy of 80, increasing to 83.5 for females. In 1982 these ages were 70 for males and 76.4 for females. While there remain worrying differences dependent on ethnicity and other factors, life expectancy overall is increasing. 40 years ago, people were planning for 5 – 10 years in retirement, this is now 15 – 20 years.

With increasing life expectancy, New Zealand now has a larger portion of the workforce continuing to work past the traditional retirement age of 65. According to Age Concern, in 2013, 22% of New Zealanders over the age of 65 years were in paid employment – an increase from 16.8% in 2006 and 11.4% in 2001. Some of those over the age of 65 and still in employment are working reduced hours or part-time roles.

So what are the implications for retirement planning?

Statistics show life expectancy increases with age and once you reach the age of 65, you can be expected to live to around 86 – 88 years old. Even if you continue working past age 65, more of us are likely to be spending much longer in retirement than previous generations, leading to increased capital and income requirements for longer periods.

We need to start planning for an extended period in retirement and additional capital requirements along the way.

How does this affect investment decisions?

If we start with an assumption of increased life expectancy and an extended period in retirement, your investment timeframe is likely to be much longer than we have traditionally planned for. A 50-year-old male is expected to live to around 85 years so rather than focusing on a 15 year timeframe until age 65, consideration should include a 35 year timeframe to age 85.

Your investment risk profile directly affects the type of investment funds or options you should be considering and is a combination of both your risk capacity (how much risk you can afford to take) and your risk tolerance (how much risk you are prepared to take to achieve your goals). Your investment timeframe is a big factor in both these considerations, generally the longer the timeframe the higher your capacity and tolerance. The implication is that with increased life expectancy and a longer retirement, investments need to be generating higher returns for an extended period of time. Investors can probably afford to take on more risk now than in previous generations.

So what next?

The key message is to start planning for a longer period in retirement and get advice from a trusted professional to help you set up for a comfortable retirement.

Sources:

Age Concern - Employment over 65
Stats NZ - Life Expectancy
Stats NZ – How long will I live?

Is 75 the new 65?