Investing for the Grey Zone

Investing for the Grey Zone

The seismic shifts occurring in UK and global populations should be a wake-up call to all investors.

Traditional methods of funding later life are less and less relevant as we all live longer. Financial products need to meet the needs of more flexible financial planning, and a stage of the lifecycle that is neither peak working, nor full retirement.


Rise of the Centenarians

Work, save, retire. It used to be as straightforward as that. But the world has changed, and continues to change at a rapid pace. Ageing populations are forcing us to drastically reconfigure not only how we plan for later life, but how we live today. Put simply, it’s now completely unrealistic to think of personal lifespans defined by a clear separation of work and retirement.

The UK population is living longer than it ever has done and this will impact every level of society. By 2039, the number of people aged 75 and over is projected to rise by almost 90%. Meanwhile, those aged 85 and over will more than double, and the number of centenarians is predicted to rise nearly six fold. Remarkably, it is now estimated that a person who was born in 2011 has a one in four chance of living  for 100 years if they are male, and an even greater chance if they are female – one in three. [1]


The ‘Grey Zone’

This means we need to think differently about how we invest. Quite simply, very few of us will experience the traditional binary switch from working life to leisure time. Instead, before they reach their golden years, more people are entering what I refer to as the ‘Grey Zone’: a period of their life after the conventional retirement age of 65, when they are still working (either part- or full-time), have access to some of their savings, but are not fully drawing down on their assets, and in fact, could still be adding to their pension pot.

Statistics currently point to this period lasting for around ten years, until the age of 75, with ever-greater numbers joining the older workforce. From 2010 to 2015, for example, the number of people in the 65-69 age bracket who continued to work rose by an astounding 330%; meanwhile, those in the 70-74 age cohort who were employed soared by 200%. And with changes in the state pension age likely to continue, the Grey Zone looks set to be pushed out even further in the future. [2]


Into the Sunset?

So what implications does the Grey Zone have for investing? The financial challenges of increasing longevity are complex and, in my opinion, financial innovation has not kept pace with changes in life expectancy. Just as we can no longer expect to finish working life clutching a carriage clock and heading off into the sunset, it’s equally impractical to think merely in terms of the traditional accumulation and decumulation phases for our financial planning.

Being in the Grey Zone is just that – a period in time that defies strict actuarial definition. It is, depending on your point of view, either phased-retirement or simply working less into later life. Likewise, the amount that individuals either want to continue to contribute to their savings or drawdown on their capital will very much depend on personal circumstances. Again, in the Grey Zone people may neither be living entirely off their saved wealth, nor completely finished with adding to their pot.


Sustainable income

Grey Zoners in particular (but also those in the pre-retirement and retirement phases) will therefore benefit from two specific attributes from their investments. First and foremost, a level of sustainable income, but also some element of capital appreciation/preservation. Having a sustainable income stream from their investments not only helps in the accumulation phase of pension-pot building, but also gives people in the Grey Zone the flexibility to help fund their particular work-leisure lifestyle – depending on how much they need, or want, to supplement incomes from their employment.

The benefits of having an income stream to fund this period in life are clear. When faced with the prospect of funding a potentially 30+ year non-working life from around 40 years of work, the more investors can forestall substantially eroding their capital the better. Sustainable income that can help prolong the time before accessing traditional guaranteed-income products, such as annuities, is vital.


Cutting one’s coat

Sustainable income also allows investors time to further compound the value of their pension pot, which obviously works best at this time, when the pot is at its largest. Finally, sustainable income provides Grey Zoners greater choice: use all of the returns, or perhaps just some. Depending on their circumstances, they can ‘cut their coat to suit their dividend cloth’, reinvesting a proportion of the income if they choose  to bolster their savings and benefit from the effects of further compounding.


[1] Office for National Statistics.

[2] Department for Work and Pensions.


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