Explore Manulife’s thought leadership analysis on how longer lifespans can affect shortfall risk, including key findings on optimal contribution rates
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.
Each generation faces a unique challenge when preparing for their retirement journey, yet their perspectives on longevity are very similar.
Source: 2024 Financial resilience and longevity study
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.
Reducing contribution rates from 10% to 5% increases shortfall risk by 83%.
A 10-year delay can cost an individual 47% in cumulative growth, even if the same amount is saved.
Conservative cash-type investments can increase shortfall risk by as much as 90%.
Source: Multi-Asset Solutions Team, Manulife Investment Management, December 2023.
There are a few things to keep in mind when considering mitigating longevity and shortfall risk in retirement plans.
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.
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.
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.
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:
Help workers prepare for a secure retirement with Manulife’s thought leadership analysis. Understand the importance of early and consistent savings, optimal contribution rates, and smart investment choices to ensure financial stability.
Financial resilience can help build a bridge to retirement amid growing longevity.
Learn how Gen Z workers feel about retirement and how three ways employers and advisors can support this generation as their numbers grow in the workforce.
1 World - Place Explorer - Data Commons, August 2024.