SHIFTING DEMOGRAPHICS Raf Choudhury Senior Investment Strategist, Investment Solutions Group, State Street Global Advisors
The Demographic Time Bomb Elder population is growing and living longer Lower expected returns Increased responsibility to save for retirement
Old Age Dependency Ratio A measure of the pressure on productive population Population aged 65+ per 100 aged 15-64 32 1985 2000 2015 24 16 8 0 World More Developed Regions Less Developed Regions Least Developed Countries Source: UN.
The World s older population is growing dramatically Percentage of workforce 65+ Elder Population is Growing 17% Percentage of Population Aged 65 and Over: 2015 and 2050 Aged 65+ 2015 (%) 2050 (%) Australia 14.0 20.9 21.0 27.9 8.5% Japan 21.0 27.9 28.0 or > U.S. 14.0 20.9 21.0 27.9 UK 14.0 20.9 21.0 27.9 Source: An Aging World: 2015, International Population Reports by Wan He, Daniel Goodkind, and Paul Kowal. Issued March 2016
Increased Responsibility To Save For Retirement Members left to bridge retirement gap and are unequipped to do so Percentage of members in DB and DC Plans Global Financial Literacy Report Card Rank Country Weighted Average % Score Grade 1 Singapore 9.08 70 C 2 Australia 8.7 67 D 3 UK 8.56 66 D 4 Canada 8.5 65 D 5 Hong Kong 8.27 64 D 6 China 8.05 62 D 7 Switzerland 7.95 61 D 8 Italy 7.89 61 D 9 Brazil 7.8 60 D 10 US 7.8 60 D Source: Center for Applied Research Preliminary Research Findings, May 2014.
Members will have to work harder to bridge the returns gap Diminishing Expected Returns 1 Lower Expected Returns 7.9% 4.0% 6.5% 7.9% 4.5% 6.0% 5.0% 5.9% 0% 2.0% 0% 2.0% 1 McKinsey Global Institute (May 2016) Diminishing Returns: Why Investors may need to lower their expectations. Historical returns for Western European fixed-income are based on treasury bonds using data from the Dimson-Marsh-Staunton Global Returns database, which targets a bond duration of 20 years. Future returns show ranges across a set of countries, and are based on ten-year bonds; numbers reflect the range between the low-end of the slow-growth scenario and the high end of the growth-recovery scenario. Past performance is not a guarantee of future results. estimated returns reflect subjective judgments and assumptions. There can be no assurance that developments will transpire as forecasted and that the estimates are accurate.
What Can We Do To Prepare For These Challenges? Elder population is growing Shifting focus towards solutions for older members Lower expected returns Increase savings Work longer and living longer Require guaranteed income Increased responsibility to save for retirement Expand educations and wellness programs Tailor communications to different demographics Robo Advice
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SHIFTING DEMOGRAPHICS Raf Choudhury Senior Investment Strategist, Investment Solutions Group, State Street Global Advisors