Income Investing For A Longer Retirement

For the first time in history, a national life expectancy is set to surpass the 90-year barrier. Recent news that South Korea’s female population will soon reach this demographic landmark is further evidence of the world’s ageing population.

Following on from our recent feature article Old is gold: Investing to take advantage of an ageing population, we believe that this heightens the need for investors to access sustainable and rising incomes, but also opens up many opportunities.

THREE WAYS ‘GREYING’ POPULATIONS CREATE A DRIVE FOR INCOME

• Longer life expectancy (alongside slowing birth rates) is drastically reshaping the population pyramid, leading to a significant rise in the need for investment income.
• Increased longevity will put tremendous strain on pension funds as they attempt to match liabilities far into the future.
• The increased demand for income is likely to come from a wider base – not exclusive to ‘developed’ economies. The US is expected to see a slower rise, while Korea (based on improvements in its economy, education and fewer instances of chronic diseases) is forecast to have the longest life expectancy of all, a 57% probability that women will live past 90 years after 2030.*

*Source: ‘Future life expectancy in 35 Industrialised countries’, by M.Ezzati et al, The Lancet, February 2017

 

OPPORTUNITIES FOR LONG-TERM INVESTORS

• The rising older global population is likely to be accompanied by a growing middle class, with predictions it could nearly double by 2030, with notably high growth in the Asia Pacific region.
• This will create opportunities in consumer-focused industries, particularly those related to leisure pursuits and air travel. Real estate companies are also likely to benefit. An ageing population is likely to change the shape of the sector and both residential and commercial real estate are likely to become more specialised to adapt to the new environment.
• There could be greater demand for healthcare and retirement homes, but also strong demand for holiday homes or condominiums as companies target the wealthier bracket of this ageing population.
• The drive for income will also be an opportunity for investors, particularly with a rise in wealthier Asian populations; financials with a large presence in this region will be a particular area to focus on.
• Although the largest increases in life expectancy are naturally in countries with fewer long-term health conditions, we expect the size and opportunity in the healthcare market to be considerable. The expanding healthcare market will increasingly focus on nutrition and wellness, rather than existing areas such as pharmaceuticals and hospitals. However, we also expect research in markets such as the US to continue to see a focus on areas such as oncology.