COVID-19: A game changer for retirement planning?
For financial professionals only
The trouble with statistics
The first wave of the pandemic has seen considerable loss of life. The official statistics place the death toll at 45,000 (as at 13th July 2020).
However, the official statistics are limited to people who tested positive for COVID-19. Death registration statistics show the total is considerably higher, at around 70,000. These extra deaths include cases where COVID has been cited as a contributory factor on death certificates and a wave of deaths in April which were very likely to be COVID-related.
The risk of contracting COVID-19 is higher for those unable to avoid close contact with carriers of the virus. Consequently, workers in the care and transportation sectors have been worst hit.
For those who contract the virus, the chances of dying are higher among the elderly, but outcomes are also heavily influenced by a range of other factors. These include pre-existing co-morbidities (e.g. hypertension, obesity and diabetes) and the socio-economic background of the patient. It’s important to realise, though, that the vast majority of those who have died from COVID were far from “death’s door” before the pandemic set in.
Why longevity planning needs to adapt
COVID-19 has materially shifted the longevity outlook. Shorter term, there’s been some examples of localised outbreaks across the country, raising concerns that we may see second spikes, or even second and third waves before we’re able to stop COVID circulating. The race is on to develop a vaccine, but there’s no guarantee we’ll find one.
Over the medium term, a deep recession, diagnosis and treatment delays, as well as reduced funding to critical research into cancer and dementia could all dilute increases to the life expectancy of older clients (those over 70) and reduce their chances of living to 100.
But there are reasons to be positive over the longer term. If facemasks and hand washing/sanitising become the “norm”, we could see a significant reduction in the spread of infectious diseases, including seasonal flu. Greater appreciation of our health and care services, and the vulnerabilities exposed, may also drive longer term investment.
For financial advisors, COVID-19 has prompted 3 key considerations:
- Are you over-reliant on national statistics? We already expect 2020 to see a one year drop in the life expectancy of a 65-year-old. Assuming COVID-19 is brought under control, this will “bounce back” in 2021 – something which specialist organisations like Club Vita will be allowing for when we provide updated statistics for the Income Manager Tool (IMT).
- Has your client had severe COVID? If so, they may have impaired respiratory health. You could use a “less healthy” option for the client within IMT to see what this means for your planning.
- Has the pandemic changed their future preferences? For example, do they want greater funds to support their care needs in later life?
COVID-19 brings many new challenges. But one thing that remains constant is this: one size doesn’t fit all when it comes to considering the longevity element of retirement planning.
By Stephen Baxter, Head of Innovation & Development at Club Vita
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“The above article is intended to be a topical commentary and should not be construed as financial advice from either the author or Parmenion Capital Partners LLP. If a client wishes to obtain financial advice as to whether an investment is suitable for their needs, they should consult an authorised Financial Adviser. Past performance is not an indicator of future returns.”
Any news and/or views expressed within this document are intended as general information only and should not be viewed as a form of personal recommendation. All investment carries risk and it is important you understand this. If you are in any doubt about whether an investment is suitable for you, please contact your financial adviser.