Longevity unlocked: Retirement in the age of aging 

Demographic shifts are fundamentally reshaping retirement needs worldwide. With populations living and working longer, we see retirement as having evolved from a singular event into a complex, multi-stage journey which is likely to require sophisticated, personalised solutions.

Some governments, superannuation funds, asset managers, healthcare providers, insurers, financial advisers, and technology firms are grappling with how best to serve this changing landscape.

This article highlights our views on the potential challenges, and opportunities, in delivering retirement solutions for the 21st century. It considers how to try to build more future-ready retirement ecosystems that seek to address longevity, behavioural traits, investment considerations, regulatory environments, and the transformative potential of technology, especially AI.

The global population aged 65 and over is projected to increase by 35% over the next decade, reaching approximately 1.2 billion people^[i]. At the same time, fertility rates are declining, intensifying the economic and social pressures on governments and retirement systems.

Australia, with its compulsory superannuation system and means-tested Age Pension, currently spends about 2.5% of GDP on age pensions and is expected to drop to 2.1% by 2060 - significantly lower than the OECD average which is projected to increase to over 10%^[ii]. However, with over 100,000 people entering retirement annually, and trillions of dollars in assets transitioning^[iii], the system faces unprecedented demands.

Super funds should anticipate the growing complexity of retirement needs driven by longevity and demographic shifts. This is likely to require integrating demographic data into long-term portfolio and product strategy planning seeking sustainability and relevance.

Retirement today is no longer necessarily a “big bang” event but may be regarded as a phased transition involving multiple life stages and decisions. Individuals can face complex choices around health, family, housing, work, and wealth management over potentially 30+ years of retirement.

This complexity appears to be compounded by intergenerational concerns, such as adult children struggling with housing affordability, and the need to support aging parents. In our view, retirement solutions should consider supporting individuals across multiple life stages, which could offer flexibility and personalisation.

Wealth remains a critical enabler of retirement quality, but health concerns appear to dominate retirees’ and their families’ priorities. Surveys reveal a shift where adult children worry about their parents’ health more than finances^[iv], and retirees themselves prioritise health, dignity and independence.

Independence is a core value, especially if cognitive decline and health challenges emerge.

In our view, retirement products and services should look to address health-related uncertainties and support autonomy. This would see the integration of healthcare and aged care considerations into retirement planning and investment strategies.

Retirees are generally more risk-averse, with shorter investment horizons and heightened sensitivity to portfolio drawdowns. In this scenario, income generation and capital preservation may become paramount.

In Australia, tax advantages (such as no tax on investment earnings in account-based pensions and franking credit refunds from Australian equities) may create unique portfolio construction opportunities emphasising stability and income.

Structured products and derivatives can be used to moderate downside risk, though often at the cost of slightly lower expected returns.

In our view, retirement portfolios should be tailored in a way to try to balance income, stability, and liquidity; leveraging tax-efficient strategies and risk-mitigating instruments. Emphasising Australian equities for franking credits and exploring structured products can enhance outcomes.

Despite the complexity of retirement needs, product innovation has often been product-led and fragmented, with limited differentiation. The strong equity market performance over the past decade^[v] may have fostered complacency, reducing the perceived urgency for diversification and innovation.

In our view, challenging complacency by advocating for more diversified, innovative retirement solutions that seek to address real-world complexities and risks beyond just equity market returns is likely to become more critical as market volatility looks set to continue.

In our view, a significant barrier to more optimal retirement outcomes appears to be the low engagement of the mass market with financial advice, often due to perceptions of inaccessibility, complexity, cost, or mistrust.

We see technology as offering the potential to democratise advice by providing more scalable, affordable and trustworthy guidance platforms tailored to different segments.

We believe super funds should support and invest in technology-enabled advisory platforms that seek to increase financial literacy and engagement, which can foster earlier and more informed retirement planning.

Retirement decisions can span lifestyle, healthcare, family and wealth, yet the market appears fragmented and product-driven, which can complicate navigation for individuals.

Emerging technology and partnerships can enable integrated solutions that dynamically update and respond to life-stage changes.

We believe ecosystem approaches that seek to integrate diverse services and products into more seamless, user-friendly retirement solutions, seeking to leverage partnerships and technology, can help retirees in the future.

Retirees can face “sequencing risks” related to health triggers and changing care needs, which can lead to costly mistakes if not managed proactively.

Funds and advisers can support wealth preservation and flexible income products that accommodate different spending patterns.

While reforms like the Delivering Better Financial Outcomes^[vi] reform signal recognition of the need for broader guidance, regulation and structural limitations can constrain super funds’ ability to expand their roles.

Legacy legislation such as the Superannuation Industry (Supervision) Act and sole purpose tests can restrict innovation and partnership funding.

We believe super funds should engage with policymakers to advocate for regulatory modernisation so super funds and industry participants can better deliver comprehensive, needs-led retirement solutions.

AI is poised to be a transformative enabler in retirement planning, that could provide accessible, cost-effective, and scalable guidance.

We believe success in AI deployment should be measured by usability and effectiveness rather than technical complexity.

As such, further investment in AI-driven platforms may simplify retirement decision-making, focus on user experience and scale to serve diverse member segments.

The retirement landscape is undergoing transformation driven by demographic, behavioural, technological and regulatory forces. We believe industry participants should embrace holistic, technology-enabled, and partnership-driven approaches to try to meet the complex, evolving needs of retirees.

An opportunity to lead the way in creating integrated retirement ecosystems appears open. Success will likely require innovation, collaboration, regulatory engagement, and a focus on serving individuals’ diverse and dynamic retirement journeys.

^{[i] The global number of people aged 65 years and older is set to double within the next thirty years - Our World in Data}

^{[ii] 211103_ASFA_Research_Note.indd}

^{[iii] 211103_ASFA_Research_Note.indd}

^{[iv] The worries adult children and their parents experience for one another - PubMed}

^{[v] Bloomberg. Past performance should not be relied upon as an indicator of future performance}

^{[vi] Delivering Better Financial Outcomes (DBFO) package | ASIC}