People are living longer. For every 20 years of future life you can now add around one year in longevity. That’s great news for all of us – who doesn’t like that 60 is the new 40?
Thanks to advances in medical science and a steady rise in living conditions, The United Nations reports trends indicate that, on average, most people are now expected to live into their 70s and, in some countries, well beyond into their late 80’s[1]. The pace at which the population is ageing is especially remarkable. Projections by the World Health Organisation (WHO) indicate that the world’s population aged 60 years and older will total 2 billion by 2050, which is more than double the count of 2015. The number of those aged 80 years and older worldwide, currently 125 million, will be expected to triple to 434 million by 2050[2].
Such drastic shifts in the age demographics has given rise to a myriad of major health and societal challenges facing not only economically developed countries, but economically developing nations also.
As we live longer, the associated rise in the age dependency ratio creates
fiscal issues for Government Treasuries, and places greater funding pressures on already burdened health systems, pension systems, and aged care systems.
So what is the dependency ratio?
Simply put, the dependency ratio is an age-population ratio that measures the size of the population who are not typically in the labor force (% of people 65 or over), against those who are typically in the labor force (% of people 15 to 65). It is used to measure the pressure on the ‘productive’ population.
A high dependency ratio indicates a greater funding burden on the working population, as it is assumed that this economically active proportion of society will need to provide for the health, pension, and
social security benefits of the non-working population, either through direct family support or indirectly through taxation. According to figures released in an OECD report (2017)[3]:-
- Globally, in 1980 there were 20 people aged 65 or older for every 100 people of working age;
- By 2015 this had increased to 28 people aged 65 or older for every 100 people of working age;
- Project forward another 35 years, the ratio is expected to be 53 to 100 in 2050.
In Australia the dependency ratio was reported as 54.04 % in 2022, according to the World Bank and has been steadily increasing.
With the trend toward a diminishing future tax-payer base showing little signs of slowing, and the average life expectancy continuing to rise, it is crucial Governments plan accordingly for the pressure of slowing GDP growth and labour supply, as well as the major fiscal burdens associated
with the public pension systems. For retirees (whether asset rich and
self-funded, or reliant to some degree on Government support) these projections are extremely unsettling. At a personal level, it indicates an almost inevitable deterioration to the expected quality of life in retirement stage, as a direct consequence.
Living longer does not necessarily mean living better
Increasingly retirees feel the burden to find the means, one way or another, to finance longer retirement plans or quality aged care through their own personal retirement income. For many the solution may be to continue working (full or part-time) past the pension age – an especially difficult task for individuals in labour-intensive jobs. For others, it may mean downsizing and selling off assets like the family home – a significant decision which not only diminishes family wealth and drives intergenerational inequality, but often times may not be the most financially-sound decision in long term retirement planning.
At Futureproof we believe that these, and other existing options, act as merely band-aid solutions to a very deep-rooted problem. Not only are they disadvantageous for retirees and their families, but they fail to address the underlying problems of a rising dependency ratio and serve to deepen the fiscal time-bomb facing Governments and future generations.
In response, our soon-to-be-launched Equity Preservation Mortgage™ has been created to provide a sustainable means for existing retirees, and subsequent generations of retirees, to harness their own private wealth to fund their retirement needs and aged-care expenses, whilst simultaneously minimizing the reliance on a government-funded safety net.
“We recognise that the last remaining untouched asset class that has sufficient depth of capital to make a much-needed and significant impact on this wicked problem – is home capital”, commented John Innes, Director and Co-founder of Futureproof.
By allowing individuals to take out a new fiscally responsible mortgage that monetizes capital tied up in the family home (or investment property), without any depletion of its equity – all tax free – retirees will be able to monetize up to 80% of their equity into home capital to create new financial assets managed by their partner financial institution, leaving home ownership, property appreciation and all home wealth, intact.
This opens up the last asset class, creating an entirely new pool of capital able to then be deployed by retirees as needed, while simultaneously avoiding the looming funding crisis faced by Governments worldwide.
Futureproof’s Equity Preservation Mortgage™ is a game-changing financial innovation providing the means to self-fund their retirement at every life stage. For retirees it means, removing risk and uncertainty to give them the freedom and security to enjoy their well-earned retirement – whether that be for 5, 10 or 20 years longer than expected!
[1] https://www.who.int/data/gho/data/themes/mortality-and-global-health-estimates/ghe-life-expectancy-and-healthy-life-expectancy [2] https://www.who.int/news-room/fact-sheets/detail/ageing-and-health [3] OECD (2017), Preventing Ageing Unequally, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264279087-en