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Financial planning for the 100 year life

One of the most talked about issues among financial advisers is their proper role in making client investment decisions. The trend towards outsourcing to a DFM (Discretionary fund manager) or CIP (Centralised investment propositions) is a powerful one – as regulatory requirements encourage advisers to use external expertise. But there are other factors encouraging advisers to move in this direction – not least time constraints, finite resources and, importantly, the view advanced by an increasing number of advisers that comprehensive (‘holistic’ in the jargon) financial planning demands an engagement with clients across a whole range of issues. Investment strategy on this argument becomes a secondary rather than a primary function of the financial adviser, who is life coach, planner, cashflow modeller, tax expert, and (perhaps) investment stock picker.

The jury is out on whether this is the wave of the future in financial advice. But reading Andrew Scott’s and Lynda Gratton’s justly celebrated study of the implications of continuing-to-rise longevity, The 100 Year Life, I was struck by how their vision of the future creates opportunities for advisers.

They argue that actuaries around the world are underestimating longevity significantly (some advisers might say what’s new). By using cohort estimates – which allow for rapid dynamic changes - rather than the period estimates favoured by actuarial best practice, Gratton and Scott factor in further rapid improvements in longevity which history suggests probable – since 1800 longevity has risen in a straight line. The difference in inputs produces very different outputs. Thus actuarial estimates of average life expectancy are, in rich nations, currently around 80 to 85 years; whereas Gratton and Scott put the life expectancy of a child born today in a developed nation at 100. A big difference.

Actuaries will naturally claim that the past in itself is no guide to the future.

There will inevitably be debates about their modelling – actuaries will naturally claim that the past in itself is no guide to the future. But assuming this continuing steady rise in longevity enables Gratton and Scott to ask searching questions about the way in which society will have to adapt to even longer lived lives. Education, work and retirement will no longer be 3 successive life stages but elements in a much more fluid multi-stage lifecycle. This might sound piecemeal change but Gratton and Scott think otherwise. The shift required in the organisation of life is as fundamental as the changes which accompanied the UK’s transition from an agrarian to an industrial society in the nineteenth century. Just as the industrial revolution ushered in the 3 stage life that well know so well and follow today, so the life expectancy revolution will end it: “living for longer requires a fundamental redesign of life and a restructuring of time”.

This begs the question: who will be people’s guides or sherpas in this shift to a multi-stage life? Gratton and Scott emphasise the role of institutions – Government and businesses – in smoothing what will doubtless be a long period of difficult change as the old world gives way to the new. But even more so they emphasise the role of individuals as change agents. It will be individuals demanding greater flexibility in the way they live their 100 year lives which will drive the fundamental lifestyle changes necessary.

I agree with this. But individuals will need guidance and help. Dare I say it, advice. Financial security will be a pre-requisite. Funding the 100 year life will be daunting. So financial advice will be the starting point. But individuals will need so much more coaching as the world changes before our very eyes. 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 advice but lifestyle financial planning. Jason Butler has put it very well: “It entails identifying and articulating certain aspects of the kind of life you want, taking into account your attitude to money, psychological biases and personal circumstances. It also involves the quantitative aspect of how to make your money last your lifetime under various “what if” scenarios, using financial planning software and sensible underlying assumptions”.

This need exists now. But how much greater will be the need if, as Gratton and Scott predict, the life expectancy in 30, 40, 50 years times of a middle aged man or woman is 100. Truly, at that point people’s need for help in plotting these altered lives will surge. One thing’s for sure. A 100 year life will need serious planning.

This article originally appeared in Money Marketing on 27 January 2017.

Image credit: Laurent Davoust / Alamy Stock Photo

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