Update 10 October 2016
Over the past week Australian shares were 0.6% higher. Shares in developed countries lost 0.8% with the US market down 0.7%. Shares in emerging markets gained 1.3%. The Australian dollar was 1.1% lower at 75.82 US cents. The 10 year bond yield in Australia was 0.26% higher at 2.17% while in the US, the 10 year bond yield closed the week 0.12% higher at 1.72%. The oil price gained 3.3% to 49.81 US dollars per barrel.
Population lifespans, or how long we live, have been increasing at a rapid rate for reasons such as medical and technological advancement. This has become especially evident over the past few decades. This is a global phenomenon, not just in Australia. One novel way to explain this is by thinking about the number of centenarians, people aged 100 or over, who will be living among us. This is shown in the chart below.
The chart above plots the projected number of Australian centenarians through to the end of next century. This projection is produced by the Australian Bureau of Statistics based on trends in births, deaths, migrations, etc. What an amazing chart! Over the past two decades the number of centenarians increased by more than 260% to about 5,800. And this is forecast to increase another 100 times to 580,000 centenarians by 2100. While some of this is due to population growth, the bulk of it is due to what we call mortality improvement or that people are living longer.
While it’s fascinating to reflect on charts like this, there is also an important underlying message: you might live far longer than you expect. This creates the risk of outliving your savings, which we call longevity risk. In our view longevity risk is just as significant as investment risk yet we don’t feel that the industry pays enough attention to it.
We have a specialist team dedicated to modelling the risks to the retirement outcomes of our members. This team also works on the design of solutions to better manage these risks. We consider ourselves a leader in this area.
Be assured that if you are lucky enough to receive that 100 years birthday letter from the Queen we’re doing our best to make sure that you’re still living to a good standard.
David Bell with Estelle Liu and Adam Shao