Another reason to look beyond today's market

As even the last day of the financial year ends negatively for shares, here's just one of the many reasons why you shouldn't let yourself become distracted by short-term markets movements: life expectancy.

The Australian Government Actuary reports that the life expectancy of a 50-year-old Australian female is 34.5 years and that a 50-year male has a life expectancy of 30.4 years.

Looking at this from an investment perspective, it means that a person in their mid-fifties has an investment horizon into their eighties.

And you could live much longer. The Government actuary points out that women age 55 have a 54% chance of living until 90 while a man of the same age has a 40% chance.

This long life expectancy helps put a year of negative returns in perspective and underlines why investment should be treated as a truly long-term exercise.

Certainly, cash has produced far superior returns to shares over the past year but as most people should be investing for an expected long lifespan, it really matters that shares have historically delivered much better returns over the long haul - providing solid growth, and countering inflation.

A recent article in US finance magazine Fortune on age and retirement planning addresses the unavoidable fact that life expectancy figures from a government actuary deal with the so-called "average person".

The author of the article, editor-at-large Geoff Colvin, observes: "No matter who you are, you're probably not perfectly average. You're richer or poorer than average, fatter or skinnier, generically more cancer-prone or less."

But despite such uncertainties when dealing with the "average person", our retirement planning should be based on the probability that most of us will live to a certain age, as given in the expectancy tables - or beyond. I doubt if there is any other prudent way of looking at this. (Of course, some people have sound reasons why their life expectancy should differ from the averages.)

FIDO, the consumer website of the Australian Securities & Investments Commission (ASIC), gives details of the Government Actuary's number-crunching on life expectancies and then emphasises that you could, of course, live longer than expected.
See: http://www.fido.gov.au/fido/fido.nsf/byid/E6F34C9634BFA25BCA2571CB0009E90B?opendocument