- According to UBS, high life expectancy rates mean some Gen Z members could retire for 50 years.
- The bank said that to retire well, a portfolio needs to beat inflation by 2 percentage points.
- In recent years, economists have become increasingly interested in longevity.
Gen Z may spend up to 50 years in retirement, so they need to start investing as soon as possible, according to UBS.
Young people will retire for up to half a century, the Swiss bank said, based on a recent Swedish study that claims artificial intelligence could extend life expectancy by around 120 years this century.
Conventional investment wisdom holds that retirees’ portfolios should aim to keep pace with inflation.
But for people who haven’t worked in decades to retire comfortably, their assets need to outpace price appreciation by about 2 percentage points, according to a team of UBS strategists led by Li Wen-qing. .
“The traditional school of thought supports the theory that investment returns must at least match inflation,” she wrote in a research note. “But when you factor in your expenses, you conclude that to actually live beyond 50 years in retirement, your portfolio needs to exceed your living expenses by at least 2 percentage points.”
Wen Qing said cost-of-living crises tend to disproportionately affect the wealthy, so those who want to retire and live a life of luxury will need more in their portfolios to beat inflation.
“Lifestyle, preferences, and educational choices are all factors that determine our spending patterns,” she writes. “Eating at a Michelin-starred restaurant costs 11% more each year, but a home-cooked meal could have been more cost-effective.”
Longevity and retirement have become increasingly pressing issues for economists in recent years, due to rising global life expectancies, declining birth rates, and the rise of trends such as the FIRE movement.
Last month, top economist Andrew J. Scott told BI that rethinking aging could help solve a potential retirement crisis.
“Obviously, climate change is a big issue and AI is currently preoccupied with how we can adapt and change the future, but we’re also obsessed with adapting to aging. “We never talk about it,” he said. “We haven’t invested enough for retirement because we thought we’d never get there. And now we do.”
