Investing for the long haul

It had been hoped that immigration could stem the flow of rising average ages, but, as can be see from the chart, not only is the proportion of men and women over 85 set to exceed 20% of the population within 25 years, but the under 18s will by then also only represent about 20%.

Does this matter? Well, yes; because the state pension, care for the elderly and overall tax revenue that the government has to spend depends on the number of economically active people. So if there are fewer people of working age, there is less money coming in to cover state pensions and to provide personal care for the elderly.

Put starkly, by 2047, it is estimated that there will be just 2.4 people over age 18 available to support every pensioner. In 1967, the figure was 5.13 people and even today, it is 4.08 people. The situation is getting dramatically more extreme. Even over the next decade or two, when many of us may be thinking about retirement, the ratio will fall to just over three people of working age to every pensioner.

The message is very clear, if you wish to have a comfortable retirement, you need to plan; and to do so soon. If you do not, you face a reducing state pension, because it will simply be unaffordable for those in work to pay for; you may also find that health services and care for the elderly become overstretched and become increasingly the preserve of those able to pay for it.

But enough of the doom and gloom. Except for those already very close to retirement, there is still time for investments to be set up that can help to provide a buffer against the inevitability of deteriorating public services for the elderly. After all, most people will have their homes paid for well before they need to rely on a pension, so that they will have resources available to them.

However, the importance of formal planning, rather than relying on increasing house values, to provide for retirement income cannot be overstressed. While it is possible to release equity from the home while still enjoying its use, this is not necessarily the most effective way of accessing income or capital later in life. More importantly, relying too much on any one asset class, such as residential property, can mean that a downturn in the market leaves you exposed.

A diverse asset allocation strategy may mean that you miss out on the best growth in any one sector, but it also means that part of your capital is protected against adverse moves. Better by far to avoid putting all your eggs in one basket, and to invest in equities, property, deposits and other assets that will not necessarily move in the same direction at the same time.

Even within an equity portfolio, there is good sense in introducing a degree of diversity; perhaps by looking at different business sectors, such as energy companies and IT infrastructure operators, rather than just large or mid-cap companies. Similarly, there can be some merit in investing in different parts of the world, although this introduces a currency risk on top of the normal investment issues.

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