Retirement Planning Requires Changes in Mindsets, Tools & Asset Allocation

This report shows that changing macro, finance, investment and policy landscape requires retirement planning changes of mind-sets, tools and asset allocation.

This would entail embracing (i) newer realities of asset class returns, risks and co-movements (ii) better understanding of longevity risk management and (iii) newer instruments, strategies and trading mechanisms.

Amlan Roy
PhD, Head of Global Macro Policy Research
Amy Le
CFA, Macro-Investment Strategist, Global Macro Policy Research

Main Findings:

  • Investment decisions over the lifecycle, and in particular for retirement, need to consider the inter-relationships between income, consumption, savings and investments. They also need to account for the fact that technology, globalisation, digital consumption and savings platforms are changing lifecycle opportunities and risks. This holistic type of thinking has become especially critical in a macro environment of lower growth, returns and inflation, less effective monetary policy, increasing regulation and more changeable volatility. 
  • Human capital, wealth accumulation, savings, consumer and work-life patterns, prospects of future income and the financial institutional framework all influence the retirement income and wealth of individuals. This is very apparent at the macro level. In a previous report, we showed that, in the world’s five oldest countries (Japan, Germany, Italy, Sweden and Greece), retirement replacement rates and the retirement wealth of the old vary considerably. 
  • The institutional framework and the investment opportunities and vehicles for retirees also matter.2 This has implications for pension system design in both advanced and emerging countries; multiple sources of retirement income as per the World Bank’s Five Pillar system are important in aggregate and at the micro level. 
  • Most advanced countries face a shortfall of aggregate retirement savings due to fiscal sustainability issues, lower investment returns, higher volatility over some periods and, most importantly, uncertain longevity. For example, actuarial models have typically underestimated life expectancies but also often failed to account for the costs of living longer, healthier lives. Higher health care costs and increased numbers of 80+ aged people are straining public budgets. The health care and long-term care costs of ageing are much higher than the pension costs facing most advanced European countries, Japan and the US. These ageing-related fiscal pressures will likely increase tax pressures on younger generations, in turn weighing on their future retirement savings and creating the potential for inter-generational conflicts. 
  • In order to be successful, retirement planning must form part of holistic lifecycle planning which considers education, training, human capital, income, wealth, consumption, savings, taxes, employment, health status and family structure. We demonstrate that changes in the macro environment, the nature of investment returns and asset class mix necessitate a change in mindsets and investment tools. For most of this report, we use US data due to its availability and longer histories. Contact SSGA for a full copy of this report.

Contact SSGA for a full copy of this report.


The views expressed in this material are the views of Amlan Roy and Amy Le through the period ended 31 March 2019 and are subject to change based on market and other conditions.

Forward looking statements are not guarantees of future performance and actual results or developments may differ materially from those projected.

Forecasts are based upon estimates and reflect subjective judgements and assumptions. There can be no assurance that developments will transpire as forecasted and that the estimates are accurate.

All information has been obtained from sources believed to be reliable, however, the accuracy of these sources is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on the information provided and it should not be relied on as such.

2491012.1.1.GBL.RTL 0219  Exp. Date: 04/30/2020