The Human Development Index, Longevity And You

Key takeaways

  • The Human Development Index evaluates individual human development in each country
  • Every country is ranked on the HDI due to how they rank in average annual income, education and life expectancy
  • The United Nations-introduced index emphasizes that individual lives and capabilities should be the primary criteria for assessing national development
  • As an investor, keeping abreast of life expectancy changes – broadly and your own – can inform your financial strategy

The Human Development Index (HDI) is trending in early 2023 as countries around the world reflect on their 2022 outcomes.

According to the United Nations Development Programme, “In the wake of the pandemic, and for the first time ever, the global Human Development Index (HDI) value declined – for two years straight.”

But the UNDP sees a promise in the data. More specifically, an “opportunity to reimagine our futures, to renew and adapt our institutions and to craft new stories about who we are and what we value.”

In the US, what those futures look like appears to be in flux in a tumultuous economic landscape. Which is why it’s more important than ever for investors to reflect on their own values ​​and forge ahead to build stronger financial futures.

If you’re looking for a way to get started,’s AI-backed Investment Kits can help.

What is the Human Development Index (HDI)?

The Human Development Index was developed by Pakistani economist Mahbub ul Haq. It was introduced by the United Nations in 1990 to emphasize that people, not economic growth, is the ultimate criteria for assessing national development.

The HDI is often framed in terms of what people can “be” and “do” in their own lives. Particular weight is given to the average person’s ability to choose a desirable life with plenty of food, shelter and democratic freedoms.

The Index considers how the average citizen in a country fares based on educational, financial and lifespan attainment. Then, it compares each nation’s outcomes against other countries to show each where it lies on a people-first development scale.

The countries that perform best tend to have longer average lifespans, better education and higher per-capita incomes.

The United Nations Development Programme’s Human Development Report Office calculates and releases the HDI on an annual basis. In 2020, the Inequality-Adjusted Human Development Index (IHDI) was introduced as “the actual level of human development (accounting for inequality).”

Against this new backdrop, the HDI is often “viewed as an index of ‘potential’ human development…that could be achieved if there were no inequality.”

That said, the HDI does not consider factors that play into other wealth and welfare indices, such as GDP or net wealth per capita. As such, many developed countries – including among G7 members – see lower rankings than they otherwise would.

Factors in the Human Development Index

The Human Development Index serves as a quantifiable summary of the average human’s development across four basic factors of personhood:

  • Health and longevity, as measured by life expectancy at birth
  • Knowledge and education, as measured by expected years of schooling for children of school age
  • Knowledge and education, as measured by average years of schooling for adults 25 and older
  • An “acceptable” standard of living, as measured by gross national income (GNI) per capita (in $US)

The Index sets minimums and maximums, or goalposts, for each facet of human development. Then, each country is rated on a scale of 0 to 1 and plotted between these goalposts.

The final score is calculated as a geometric mean of a country’s scores in each category. Higher HDI scores show that a country has achieved a higher level of human development.

How is the Human Development Index used?

The Human Development Index is designed to emphasize how readily humans can enjoy satisfying work and home experiences. While countries are often valued based on their economic size and contribution, the HDI allows nations to evaluate their potential for individuals to develop and realize enjoyable lives.

Nations can use the HDI to examine human outcomes and policy choices domestically or internationally. Contrasts between countries can, in theory, stimulate debate on government priorities and regulatory policies that greatly impact individuals. The HDI is also useful for examining disparities across socioeconomic and ethnic groupings.

Countries with the highest HDI scores

Generally, an HDI score in the top 66 marks a country as having “very high human development. Most of the top HDI scores are clustered in Northern European countries, with the top five in 2021 going to (in order):

  • Switzerland (0.962)
  • Norway (0.961)
  • Iceland (0.959)
  • Hong Kong (0.952)
  • Australia (0.951)

In the most recent HDI report (2021-2022), the United States scored #21, with a value of 0.921.

The link between life expectancy and investing

We’ve looked at the different facets that make up the human development index. And while many of them have interesting ties to an individual’s finances, we’re going to focus on one: the relationship between longevity and investing.

Although many countries took a hit to their life expectancy (and their HDI) during Covid, in the years prior, many saw their average life expectancies rise.

That’s important because, the longer that people live, the further their retirement dollars have to stretch. And modern budgets don’t just have to account for normal costs of living in retirement. The impacts of higher inflation and potential for expensive health problems with older age also matter greatly.

And with over half of Americans out of the loop on the average lifespan in retirement, it’s likely that many investors are failing to save enough to ensure their budgets last as long as they do.

Currently, most Americans retire somewhere in their mid-60s. But according to the Social Security Administration’s Period Life Tables, the average 65-year-old man can expect to live another 18 years. For women, reaching 65 comes with a high probability of living nearly 21 more years.

Meanwhile, the CDC estimates that the average boy born in 2021 can expect to live at least 73 years. Life expectancy among newborn girls is even higher, around 79 years.

That means that current retirees should expect to fund around 1/3 of their lived life over again from their retirement savings. For future retirees, life expectancy drops slightly – but you should still expect to find at least a decade in retirement.

Planning around your “longevity risk”

Rising lifespans in the last century have placed larger numbers of individuals at “longevity risk,” or the risk of outliving your retirement savings. When that happens, your only fallbacks may be Social Security and returning to work.

Fortunately, it’s possible to circumvent your longevity risk by staying proactive in your retirement planning. Here’s where to start.

Invest early and often

One of the “tricks” to investing for retirement is just to do it. Make investing regularly part of your financial schedule, whether you contribute weekly, biweekly or monthly. At the end of the day, you can’t build your portfolio if you don’t save.

Diversify your assets

Investing in a portfolio of diversified assets – and even diversified accounts – can spread your risk and help you capture upsides in multiple markets.

A mixture of stocks and bonds (including stock and bond ETFs) across various industries, sizes and risk levels is common. You might also consider alternative assets like real estate to generate some regular income.

You can also invest in a mix of retirement accounts, such as traditional or Roth 401(k)s and traditional or Roth IRAs. Each type of account comes with various limitations and benefits that could impact your long-term strategy.

Look at target-date funds

Another investment option for future retirees to consider is a target date fund.

These funds hold and rebalance assets to – hopefully – achieve a set goal by a specific date in the future. Once you invest, whether you choose a 10-year or 30-year timeline, the fund’s glide path will determine its asset allocation over time. (Generally growing more conservative the closer the target date moves.)

That said, target date funds can be more expensive than more passive funds, so it’s wise to look before you leap.

Consider your Social Security timeline

Retirees can start taking their Social Security benefits as young as 62. However, the younger you take your check, the less you’ll receive each month.

For instance, if you were born after 1960, your “full” retirement age is 67. But if you enter retirement at 62, a $1,000 benefit check would decrease to $700.

In the case of a $1,000 benefit, retiring five years earlier lowers your benefit amount by $300 per month, or $3,600 per year. If you live twenty years in retirement, that’s tens of thousands in retirement benefits you’re passing up.

In other words: if you don’t Garden to take your Social Security check early – even if you otherwise retire – it may be better to wait.

Invest for the long haul

Investing is one of those rare times where it’s actually possible to make a fortune in a few weeks, days or hours. But aiming for such high rewards brings on massive risks – the kind it’s often unwise to take with your retirement funds.

Instead, focus on building wealth long-term. Try buy-and-hold and dollar-cost averaging strategies to spread your buying costs and seek the highest risk-adjusted gains. Consider at what age you should start reshuffling your holdings to focus on income over exceptional growth.

And even when the market gets rough, take a moment to breathe, adjust your strategy when it’s appropriate and keep on swimming. Often, the worst thing you can do in a down market is cash your investments at a total loss.

The bottom line

Investing for retirement is one of the most important – and longest-running – decisions you can make. As human lifespans continue to expand, preparing for the possibility of decades in retirement is more important than ever.

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