Extend life expectancy above accumulated savings

The age structure of the Spanish population has changed significantly, they have fewer children and life expectancy is longer. As a result, the average age of the population increases. This has important implications for society as a whole. Growing up and living in a new society is fundamentally different from growing up in a society where most people are older.

This is where the call appears longevity paradox. And it is that the greater life expectancy presents with it the problem of having savings large enough to meet the needs of this entire stage together with the income received from public pensions.

In the United States, which is always ahead of us in the culture of saving, financial advisers are trying to address this issue. In the InvestmentNews survey, 55% of advisers cited “not saving enough” as the top threat to their clients’ retirement security, surpassing “retirement savings that survive” (35%) and “spending too much in retirement” (30%).

In recent years, 51% of advisors made retirement plans assuming that their clients would live between 85 and 94 yearswhile in the next few years 27% of advisors will plan with clients who live between those ages, as they will move to higher age ranges.

And here the first step to take is none other than Work more to capitalize for longer. An option that makes perfect sense for customers who may not have saved enough for retirement. In other words, staying in the asset accumulation phase and moving down the distribution phase.

That does not mean continuing to work at full capacity. If conditions permit, one can go to the active retirement either full-time or part-time. At this last point, you can reduce the number of days or hours or find a part-time job and go for a partial retirement formula, whether early or ordinary.

The other big step is how to channel savings obtained up to the date of leaving working life and it is here that different formulas are incorporated so that the investments made through our savings offer us future income.

The property in property will be key to face the imbalances of longevity

If Spain is characterized by something, it is by a high rate of home ownership, being its main source to channel savings. According to data in Eurostat, 75.1% of the population in 2020 owned their home. For reference, 70% of the EU population lived in a home they owned, while the remaining 30% lived in rented accommodation.

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Due to this situation, home ownership is the center of attention to try to address the imbalances generated through this longevity. exist several alternatives to obtain additional income with housingwhich can be summarized in four operations, distinguishing whether or not ownership of the property is transferred.

If we look at the options with transfer of ownership of the home, we have the real estate life annuity and the transformation of the home into a guaranteed life annuity.

The first option offers an operation in which ownership of the home is transferred to an insurance company, but conserving its lifetime usufruct, which allows you to inhabit it or rent it. The second option is an incentive tax measure, introduced by Law 26/2014, of November 27, modifying personal income tax. It can only be used by taxpayers over 65 years of age and not only can any home be used for it, but also any other asset (shares, investment funds, etc.).

Among the options in which there is no transfer of ownership of the home, we find the simple reverse mortgage or reverse mortgage combined with annuity insurance.

Reverse mortgages want to take off: in these cases it is worth it for a retiree

The differential element between the two is that the simple mortgage does not cover the risk of longevity. If the interested party survives the estimated age of the operation, he will stop receiving the complementary income, which must be noted and highlighted to avoid situations of need in the future. On the other hand, through life annuity insurance, the risk of longevity is eliminated and the interested party can be sure that they will have a fixed level of income throughout their lives.


Source: El Blog Salmón by www.elblogsalmon.com.

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