Financial Trends and Opportunities in an Ageing Society

Forget luxury cars and beachfront real estate. The hottest obsession of the 21st century is time itself. Not just any time is good, but more time in life. From tech billionaires funding radical anti-aging research to ordinary people tracking their sleep and steps, the pursuit of a longer, healthier life has gone mainstream. It’s no longer just about adding years to your life, but rethinking what those extra decades could look like. Scientists are pushing the boundaries of human biology, and financial experts are rushing to rewrite the rules of retirement. Even pop culture is getting in on the action, with TV shows and social media influencers touting the latest longevity hacks. This isn’t how our grandparents thought we would age, it’s a full-blown longevity revolution, changing everything from how we work and save to how we eat and play. Welcome to the age of limitless possibilities, where living to 100 may become the new normal.

The new normal: Live longer, plan smarter

Life expectancy has been trending steadily upward for decades. According to the United Nations World Population Prospects report, life expectancy in the United States is projected to reach a staggering 89 years by 2100. While recent events such as the COVID-19 pandemic have caused temporary setbacks, the overall trend remains clear: we are living longer, and this demographic shift creates both challenges and opportunities in the financial world.

The Retirement Gaps: A $750,000 Annual Problem

Imagine a married couple with a $25 million investment portfolio split evenly between stocks and bonds. They want to spend $750,000 each year in retirement. If they plan to live to age 90, they’ll need about $19.5 million of their portfolio to cover this expense. This calculation takes into account an expected investment return of 7.04%, inflation of 2.5%, taxes, and possible market fluctuations.

Now, if that same couple planned to live longer, say to age 100, they would need more than $24 million of the original $25 million to maintain the same annual expenses — an additional $4.5 million just to survive an extra 10 years.

This example from JP Morgan shows how life expectancy can have a big impact on retirement planning: even for the wealthy, living longer means you’ll need to save significantly more to maintain the same lifestyle.

Trends shaping the longevity economy

1. The rise of longevity investing

Investors are seizing the potential of longevity-focused companies: In 2022 alone, approximately $5.2 billion was invested in businesses focused on extending human lifespan. This influx of capital is driving innovation in sectors like biotech, pharmaceuticals and health tech.

2. Anti-aging drug potential

Drugs like Ozempic and Wegovy, originally developed for type 2 diabetes and obesity, have the potential to extend lifespan by reducing common conditions associated with aging, such as heart disease, sleep apnea, and Alzheimer’s. As these drugs evolve, they could revolutionize not only health care, but also retirement planning and long-term care.

3. Change in retirement date

Increased life expectancy is forcing a rethinking of traditional retirement ages. Many people are choosing to delay retirement not only out of financial necessity but also to remain engaged and productive in later years. This trend is reshaping workforce dynamics and creating new opportunities for “encore careers” and phased retirement plans.

4. The growing importance of long-term care planning

As people live longer, the likelihood of needing long-term care increases, driving demand for innovative insurance products and financial planning strategies to help them prepare for medical expenses in retirement.

Financial Strategies in the Age of Longevity 1. Utilizing Longevity Literacy

Financial advisors are increasingly emphasizing the importance of “longevity literacy” to help clients understand and plan for their chances of living well into their 90s and beyond, which involves assessing factors such as family history, lifestyle choices and access to healthcare to create more accurate, individualized financial projections.

2. Review your asset allocation

Traditional retirement portfolios may need to be adjusted to account for longer time horizons. This could mean maintaining a higher allocation to stocks even in later years to combat inflation and generate the returns needed to fund a retirement that could span decades.

3. Utilizing social security strategies

Postponing Social Security benefits until age 70 can significantly increase lifetime benefits for people who live into their late 80s or beyond. For a high-income couple who live to be 100, taking benefits at age 70 instead of full retirement age could increase their total assets by about $450,000 (in current dollars).

4. Consider a Roth IRA conversion

Roth IRA conversions are becoming an increasingly popular strategy for people who plan to live a long life, and although there are upfront costs, the long-term benefits of tax-free growth and no required minimum distributions can be significant, especially for those who live into their 90s or beyond.

5. Building in a guaranteed income stream

As the risk of running out of savings increases, products that offer guaranteed income for life, such as certain types of annuities, are gaining popularity and can provide a financial safety net for people worried about market volatility in retirement.

Opportunities in the Longevity Economy 1. Healthcare and Biotechnology

Companies focused on extending healthspan – the amount of time spent in good health – are poised for strong growth. This includes companies working on everything from gene therapy to personalized medicine to preventive health technologies.

2. Innovation in Financial Services

The need for new financial products aligned with increasing longevity is creating opportunities for innovative financial services companies. This could include new types of long-term care insurance, life-span-linked annuities, or investment products designed to provide a stable income over the long term.

3. Technology to help seniors live in their own homes

As more seniors choose to age in their own homes, there is a growing demand for technology that can help them live more independently – everything from smart home devices to telehealth platforms to robotic assistants.

4. Lifelong learning and skills development

As working lifespans increase, so does the need for continuing education and skills development, which creates opportunities for education technology companies and educational institutions that offer flexible, age-sensitive learning programs.

Future tasks

While the longevity revolution offers many opportunities, it also poses significant challenges.

1. Inflation riskEven moderate inflation can significantly reduce purchasing power over the longer term of retirement, and your financial strategy needs to take this long-term inflationary pressure into account.
2. Medical billsHealth care cost inflation has consistently outpaced general inflation and can put a significant strain on retirement savings later in life.
3. Cognitive declineAs lifespans increase, so does the risk of cognitive decline, highlighting the importance of early financial planning and the need for strong systems to protect vulnerable older adults from financial exploitation.
4. Impact on societyLonger life spans could exacerbate wealth inequality, putting pressure on social security nets and leading to policy changes that affect retirement planning.

The Road Ahead

As we stand on the brink of a longevity revolution, it is clear that traditional approaches to retirement planning and asset management must evolve. Financial advisors, policymakers, and individuals all must adapt to this new paradigm of increasing longevity.

For individuals, this means embracing lifelong learning, staying engaged in work and society, and adopting a more flexible mindset about retirement. For financial professionals, it requires developing new expertise in longevity planning and creating innovative solutions to help clients navigate this uncharted territory.

The Longevity Revolution is not just about extending our lives, it’s about breathing life into them. By understanding the trends, preparing for the challenges and seizing the opportunities, we can work towards a future where longer life spans are matched by greater economic security and happiness.

JP Morgan aptly puts it, “With proper planning, you can fill your potentially longer life with quality days that come in the form of health, comfort and financial abundance.” In this new era of increased longevity, financial planning is not just about preparing for retirement, it’s about creating the framework for a fulfilling, secure and potentially very long life.