Female longevity: Whose risk? Whose attitude to risk?

For financial professionals only

On average, we’re told, women live longer than men. They are generally less well off than men in terms of pension assets. And they are typically less interested in investment and more sensitive to risk.

But average thinking is dangerous. It masks a lot of important detail by oversimplifying. Average views about women’s attitude to investing fly in the face of academic research from the University of Warwick showing that once they get started, they do a better job than men.

Parmenion help advisers overcome average thinking by sharing the best available data on UK life expectancy, created by Club Vita, through our Income Manager Tool. It is designed to quickly evaluate the likely success of a straightforward retirement plan to support your client’s goals.

Variations in longevity: by place

Let’s look at how postcode affects male longevity. If you are retiring at 65 and live in Putney, your median life expectancy is 87. Your twin brother in Jaywick on the Essex coast has a 50% chance of living to 85. What about their wives, also twin sisters, of the same age? Here are the figures from Club Vita.

Life expectancy at 65MaleFemale
Putney, SW15 1JS8791
Jaywick, CO15 2HN8589
ONS England8486

Source: Club Vita, IMT

Variations in longevity: by age

You begin to think about life expectancy when you start to plan – which in most cases is nowhere near early enough. Let’s say you started your thinking about retirement at 40, how do your life chances change?

Life expectancy at 40MaleFemale
Putney, SW15 1JS8993
Jaywick, CO15 2HN8691
ONS England8184

Source: Club Vita, IMT

There are a couple of observations here. First, life expectancy does not always go up. Ten years of austerity has had an effect and the average 40 year old, in the UK, will probably live a shorter life than someone who is 65 today. Strange but that is the official view. More relevant to financial planning, the life expectancy of wealthier people aged 40, whose life chances are reflected in the Club Vita data, are seeing a progression.  This group can rationally expect to outlive their average peer by a good measure, especially for women.

Life alone

Our example shows male and female life expectancies for people of the same age. Which is rarely the case in couples. As husbands are generally older in opposite sex couples, you can expect to add a couple of years to the difference in life expectancy when considering the length of widowhood.

Retirement planning tactics

The most extreme life expectancies are faced by women, presenting a further challenge. Do they need to insure against that possibility by holding some annuity income?

What Parmenion’s IMT can do is estimate the cost of this insurance well into the future because it understands life expectancy, investments, the yield curve and the profit margins of annuity providers.

Say you want to see how spending some capital to buy an annuity and taking on more equity risk with the remaining capital might impact a couple’s future income. IMT will give you a viability score for your strategy.

A long and happy marriage

If it proves viable, this strategy could give the client with the longer life expectancy the security of knowing she will have the right level of income, guaranteed as long as she lives, while your more investment orientated client might see a little more growth in his portfolio, having swapped some of his bonds for insurance, maybe even a little more legacy.

With a reasonable outcome from the market, this can keep everyone happy. Even the kids.

This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.  

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