Gen Z may have 50-year retirements, so start investing now, says UBS

• Higher life expectancy rates mean that some Gen Zers might be retired for 50 years, says UBS.
• A portfolio needs to beat inflation by 2 percentage points to retire well, the bank said.
• Rising longevity has become of increasing interest to economists in recent years.

Gen Zers could spend up to 50 years in retirement — so they should start investing as soon as possible, according to UBS.

The Swiss bank said that young people will be retired for up to half a century, based on recent Swedish research that argues artificial intelligence could prolong the average lifespan to about 120 years this century.

Typical investing wisdom posits that a retired person's portfolio should aim to keep pace with inflation.

However, in a scenario where someone is not working for decades, their holdings need to beat the rate at which prices are rising by about 2 percentage points to retire comfortably, according to a team of UBS strategists led by Lee Wen Ching.

"The traditional school of thought supports the thesis that investment returns must at least match inflation," she wrote in a research note. "But when taking spending into account, we conclude that a portfolio actually needs to earn at least 2 percentage points in excess of one's cost of living in order to last 50 years in retirement or more."

The cost-of-living crisis has also tended to disproportionately affect the rich — so those who want to retire and then live a life of luxury will need their portfolios to beat inflation by an even larger amount, according to Wen Ching.

"Lifestyle, preferences, education choices —these are all factors that determine our spending patterns," she wrote. "Dining at a Michelin-star restaurant would have cost 11% more every year, whereas having home-cooked meals could have been more cost-effective."

Rising global life expectancy, declining birth rates, and the rise of trends such as the FIRE movement have made longevity and retirement increasingly pressing issues for economists in recent years.

Last month, top economist Andrew J. Scott told BI that a rethink on aging could help to solve a potential retirement crisis.

"Clearly, climate change is a huge issue, AI is now an obsession about how we can adapt and change our future, but we never talk about adapting to aging," he said. "We've never invested enough in old age, because we thought we'd never get there — and now we will."