If 80 is the new 60, we need to plan for longevity risk

I came across recent media reports that Harvey Norman founder Gerry Harvey (aged 81) is inspired Rupert Murdoch, who remains at the helm of News Corp at age 89. You have to give credit to both men, they are still active business leaders well into their ninth decade.

Okay, not everyone wants to captain a business empire as an octogenarian. But the reality is that we are living longer – and heading into our 60s, 70s, and 80s in better shape than ever before.

According to the latest Intergenerational Report, in another 30 years average life expectancies could reach 95, up from our 80s today. By mid-2050, around 40,000 Australians will have celebrated their 100th birthday – up from the 900-strong ranks of centenarians today.

The idea of a long life is fantastic! But it also calls for adequate funds to live life to the full – for the whole of your life. And that’s drawn increasing attention to longevity risk – the likelihood of outliving your money.  

Longevity risk wasn’t something previous generations, with shorter life spans, tended to worry about. It’s a real possibility these days though, and the good news is that there are ways to manage it.

The first step is to embrace your super. Add to your employer’s contributions where possible – over the course of a working life your super can reap the rewards of lightly taxed, compounding returns. So, even small extra contributions can make a tremendous difference over time.

Take a closer look at how your super is invested – even in retirement. Today’s retirees can have two or more decades or living ahead. Keeping your nest egg in the super system provides tax savings, and exposure to growth assets like shares that can help your super keep pace with your lifestyle for longer.

It’s also worth building investments outside of super. Together with your home and super, this can give you flexible funds to enjoy a long and fulfilling retirement.  In my books, exchange traded funds (ETFs) are a simple way to spread your money across a variety of underlying investments at very little cost.

For much of our life we are busy with careers, raising a family and managing a mortgage. Your investments need to fit in with your lifestyle, and ETFs can be a sensible choice that lets you get on with living today while helping you build wealth for the future.