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Explore John Hancock’s analysis on how longer lifespans affect shortfall risk, including key findings on optimal contribution rates, early savings, and investment choices in the age of longevity.
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'll need to rethink strategies that recognize the new and challenging reality of longevity and consider the possibility of a shortfall in participants' retirement income.
Each generation faces a unique challenge when preparing for their retirement journey, yet their perspectives on longevity are very similar.
Source: John Hancock study of stress, finances, and well-being, 2023.
As life expectancy increases, particularly in countries such as America where it now exceeds 79 years, individuals face new challenges in managing their health, lifestyle, and financial sustainability in retirement.2
Reducing contribution rates from 10% to 5% increases shortfall risk by 74.0% for men and 78.8% for women.
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 74%.
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.
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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 participants 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 participants avoid escalating challenges and achieve retirement readiness as each generation ages.
Many people adopt a moderate to conservative investment strategy 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.
Learn more about the opportunities and challenges of retirement planning in the age of longevity.
February 5, 2025
November 12, 2024
1 World - Place Explorer - Data Commons, August 2024. 2 John Hancock Financial resilience and longevity survey, 2023.
Methodology: Multi-Asset Solutions Team, Manulife Investment Management, December 23, 2023. Our analysis uses a base-case scenario that includes an accumulation phase of 40 years (starting at age 25); a total contribution rate of 10% (consisting of employee contribution plus employer match); retirement age of 65; target income replacement goal of 70% comprising a combination of 35% government pension (e.g., Social Security) and 35% savings; mortality data for three markets—Canada, the United States, and Hong Kong; a moderate allocation to a target-date portfolio and our capital market assumptions to forecast asset class growth potential. Asset class assumptions data is based on Manulife Investment Management's Multi-Asset Solutions Team (MAST) asset class forecasts, which comprise MAST's expectations of how different asset classes will perform in the future over a 20-year-plus time horizon. Forecasts are derived using quantitative modeling techniques, which are mathematical and statistical based methods—some of which are widely used in financial markets and some of which are developed specifically by MAST—for analyzing complex financial data. In addition, forecasts include estimates of anticipated economic conditions, including, but not limited to, inflation and interest rates, GDP and currency exchange rates, and the anticipated effects these may have on financial markets and asset prices. There is no assurance that such events will occur, and actual asset class returns may be significantly different from those shown here. This material should not be viewed as a recommendation or a solicitation of an offer to buy or sell any investment products or to adopt any investment strategy and are not meant as predictions for any particular index, mutual fund, or investment vehicle. It is not possible to invest directly in an index. Past performance does not guarantee future results.Data for the United States and Canada: Target-date portfolio at age 25 consists of equities (97%), cash (2%), U.S. Treasuries (1%); at age 65 consists of equities (55%), fixed income (38%), real assets (5%), cash (2%). 60/40 portfolio consists of equities (60%) and fixed income (40%), cash portfolio consists of cash (100%).
It is your responsibility to select and monitor your investment options to meet your retirement objectives. You may also want to consult your own independent investment or tax advisor or legal counsel.
The information in this material, including statements concerning financial market trends, are based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons.
This material should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any investment products or to adopt any investment strategy.
Investing involves risks, including the potential loss of principal. Financial markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. The information provided does not take into account the suitability, investment objectives, financial situation, or particular needs of any specific person.
All overviews and commentary are intended to be general in nature and for current interest. While helpful, these overviews are no substitute for professional tax, investment, or legal advice. Clients and prospects should seek professional advice for their particular situation. Neither Manulife Investment Management, nor any of our affiliates or representatives (collectively Manulife Investment Management) is providing tax, investment, or legal advice.
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