Why You Need Shares In Retirement.
Clients often don’t really believe us when we talk about a 30-year retirement. Why would they when the average life expectancy is 83 years old? If you retire at 65 and live until the average life expectancy you only live another 18 years, so where does this number of 30 come from?
The average life expectancy in Australia is 83 years old, but this expectation is for children born today. Life expectancy increases as a person survives the periods of birth, childhood and adolescence and adulthood. This life expectancy of 83 takes into account things such as early childhood illnesses, accidents and other events that may cause a person to pass away earlier in life.
If you make it to 65 the average life expectancy for males is actually 87 and for females it is 89, so we are already looking at 22 and 24 years respectively. Remember however that these numbers are averages, so you can expect that roughly 50% of people will exceed this average. In fact a couple entering retirement today can expect that one person will live until their mid 90s.
These averages are for all 65 year old’s across Australia. Healthier and wealthier retiree’s are more likely to live longer than average.
What does this mean?
From a retirement planning perspective, we need to be prepared for people to live at least 30 years in retirement. If you are a younger retiree at 60 for example, we are looking at a retirement of 35 years plus. It is no longer feasible to live off a pile of cash for your retirement (unless that pile is exceptionally large). Retirees today need to hold assets that pay a rising income over time to fund their long retirements and allow them to live their fullest lives for the next 30 years. This is why we invest in income producing assets like shares the entire way through your retirement.
By owning shares in the great companies of the world and in Australia, we are looking for profits from companies to be distributed as dividends to shareholders. These income payments form an important component of investor returns and have been dependable over decades of investing. The pay-off for this growing dividend income stream is that every single workday, you can see the price of these shares rise and fall with market gyrations, uncertain news and turmoil. The pay-off for living through this and ignoring it in most parts is that your capital rises sufficiently that you can meet the rising cost of living whereby costs will triple over a retirement of 30 years.
While you may think that owning shares is risky, our view and many of our clients understand that not owning shares is riskier than owning them.
If you want to discuss this article or if you have any questions, please email Mitch directly here.
