Reading Andrew Scott and Lynda Gratton’s study of the implications of rising longevity – The 100-Year Life – I was struck by how their vision of the future creates opportunities for advisers.
They argue that actuaries are underestimating longevity significantly. By using cohort estimates, which allow for rapid dynamic changes, rather than the period estimates favoured by actuarial best practice, the authors factor in the further improvements in longevity that history suggests probable (longevity has risen in a straight line since 1800).
Actuarial estimates of average life expectancy are currently around 80 to 85 years in rich nations, while Gratton and Scott put that of a child born today in a developed nation at 100. A big difference.
There will inevitably be debates, with actuaries claiming the past is no guide to the future. But by assuming this steady rise in longevity the authors are able to ask questions about how society will have to adapt. Education, work and retirement will no longer be three successive life stages but elements in a more fluid multi-stage lifecycle.
The shift required in the organisation of life is as fundamental as the changes that accompanied the UK’s transition from an agrarian to an industrial society in the 19th century. Just as the industrial revolution ushered in the three-stage life we follow today, so the life expectancy revolution will end it: “Living for longer requires a fundamental redesign of life and a restructuring of time”.
So who will guide people in this shift to a multi-stage life? Gratton and Scott emphasise the role of institutions – Government and businesses – in smoothing a long period of difficult change. But they emphasise even more the role of individuals. Individuals demanding greater flexibility in the way they live will drive the fundamental lifestyle changes necessary.
I agree. But individuals will need help. Dare I say it: advice. Financial security will be a prerequisite. Funding the 100-year life will be daunting, so advice will be the starting point. But people will need more coaching as the world changes.
Gratton and Scott ask: “Might these extra years, distributed throughout a life, bring the time and opportunity to explore who you are and arrive at a way of living that is nearer to your own personal values and hopes than to the traditions of the society into which you were born? If so, then this is perhaps the greatest gift that longevity can bestow”.
If they are right, people will need not just financial planning but lifestyle financial planning. Former IFA Jason Butler has explained it well: “This entails identifying and articulating certain aspects of the kind of life you want, taking into account attitude to money, psychological biases and personal circumstances. It also involves the quantitative aspect of how to make money last your lifetime under various ‘what if’ scenarios, using financial planning software and sensible underlying assumptions.”
This need exists now. But it is set to get a lot greater. One thing’s for sure: a 100-year life will need significant planning.
Gregg McClymont is head of retirement savings at Aberdeen Asset Management