How much money is enough to live a quality life in retirement?
Explore Manulife’s thought leadership analysis on how longer lifespans can affect shortfall risk, including key findings on optimal contribution rates
As people live longer, ensuring financial stability throughout retirement is crucial. Partner with us to explore the opportunities ahead.
The global population over the age of 60 is expected to double by 2050¹
Why does it matter? A longer life means a longer retirement—and with that, there are new financial risks that can have a major impact on retirement planning. You may need to rethink strategies that recognize the new and challenging reality of longevity and consider the possibility of a shortfall in people’s retirement income.
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A generational approach
Each generation faces a unique challenge when preparing for their retirement journey, yet their perspectives on longevity are very similar.
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More than half of people in each generation
- Believe their retirement savings aren’t on track
- Expect to retire later to pay off debt
- Are concerned about their emergency savings
- Wish they’d saved or could save more before retirement
Source: 2024 Financial resilience and longevity study
It’s not just about living longer—it’s about living better
As life expectancy increases, particularly in countries such as Canada where it now exceeds 80 years, individuals face new challenges in managing their health, lifestyle, and financial sustainability in retirement. These new and unprecedented challenges can affect retirement planning and the approach you choose to take to address these issues. The following findings on retirement readiness and shortfall risk can help you understand the current retirement landscape and better navigate the complexities of planning accordingly.
Key findings
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Contribution rate on shortfall risk
Reducing contribution rates from 10% to 5% increases shortfall risk by 83%.
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Accumulation period in long-term planning
A 10-year delay can cost an individual 47% in cumulative growth, even if the same amount is saved.
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Investment choice for retirement readiness
Conservative cash-type investments can increase shortfall risk by as much as 90%.
Source: Multi-Asset Solutions Team, Manulife Investment Management, December 2023.
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Building retirement plans that outlive people
There are a few things to keep in mind when considering mitigating longevity and shortfall risk in retirement plans.
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Contribution rate
Setting an optimal contribution rate is crucial for a successful retirement; achieving a contribution rate of 15% can be challenging. Learn how our analysis can help you illustrate to your members the different scenarios they may face in the future.
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Accumulation period
Many people delay saving because they prioritize immediate concerns over future needs, believing they can catch up later in their careers. However, this catch-up opportunity quickly diminishes, and the required contributions can become unmanageable. See how you can help your members avoid escalating challenges and achieve retirement readiness as each generation ages.
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Investment choice
Many people adopt a moderate to conservative investment approach, but minimizing growth assets can significantly increase shortfall risk. Being too conservative can have as much—if not more—of an impact on shortfall risk as delaying savings or contributing too little. Our analysis highlights the importance of the investment selection available to individuals.
Source: Multi-Asset Solutions Team, Manulife Investment Management, December 2023.
How can retirement planning tools show the impact of longevity and shortfall risk on retirement readiness?
Retirement calculators, financial planning tools, and webinars can be useful in modeling scenarios and showing members how longevity and the risk of shortfall affect their retirement plans.
Scenarios and different profiles can be used to demonstrate how:
- Increased contributions and longer accumulation periods can increase retirement readiness
- Different investment choices and risk profiles can improve long-term retirement growth
- Living longer can have financial implications on their current projected income against life expectancy trends
It’s never been more important to consider the impact of longer lifespans on retirement planning. Consider helping your members build financial resilience and achieve lasting retirement success.
Reach out to your Manulife representative to explore the tools and strategies you can use to help build better retirement plans.
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1 World - Place Explorer - Data Commons, August 2024.