Just as no investment recommendation should be made without considering risk and volatility, no retirement plan should ignore the uncertainty around how long different clients will live. In today’s evolving landscape, helping clients think about ‘lifespan’ is becoming an increasingly important part of any financial adviser’s work. 

The Longevity Literacy Challenge 

Recent research reveals a concerning trend in longevity literacy among Australians. According to a YourLifeChoices survey, many Australians significantly underestimate their life expectancy, believing that a 65-year-old male will live to just 82 and a female to 85. These estimates fall well short of current projections based on the Australian Life Tables, which indicate substantially longer lifespans. 

This knowledge gap presents both a challenge and an opportunity for financial planners. As Surya Kolluri, head of the TIAA Institute, aptly notes, “If you don’t have a realistic understanding of how long you are likely going to live, you are missing one of the most foundational components of any plan: a time horizon.” 

The Misleading Nature of ‘Life Expectancy’ 

One of the most misleading signposts in retirement planning is the metric ‘life expectancy’ itself. Taken at face value, clients might interpret this phrase as an expert’s prediction of how long they’re ‘expected’ to live. But in reality, it’s nothing of the sort. 

Life expectancy figures are calculated through an average lifespan for a large group of people. There’s a standard deviation of around 8 years when it comes to new retirees—about half of the people included in the calculation will live longer than the average and half shorter. 

Telling everyone they are expected to live to the same age doesn’t make intuitive sense either. We all know people who have died in their 60s and we regularly hear of people who are going strong in their mid-90s and beyond, whilst the number of 100-year-olds in Australia continues to climb. 

Understanding the Spread of Outcomes 

If we consider all of the clients in an advice firm, some may well pass away soon into retirement while others can live right up until near the end of the Australian Life Tables (age 109). We might know what the average is likely to be, but nobody can name which individuals will live until what age. 

For each retirement plan an adviser works on, the key consideration is how confident the client needs to feel that they won’t outlive their plan and product recommendations. The following chart demonstrates this point clearly, showing the probability ranges for 65-year-old individuals and couples based on Australian Life Tables and improvement trends:  

Chart 1: Life Expectancy at age 65 

The chart illustrates that for a couple to be 75% confident that their retirement plan will cover them, they need it to last until age 89. For 50% confidence, planning to age 93 is required, and for 90% confidence (25% chance of outliving), they should plan to age 97. 

This analysis is significant for those building retirement plans and recommending retirement product mixes. Some of it may come as a surprise to clients who thought their life expectancy was in the low 80s. 

Transforming Client Conversations with Lifespan Assessment Tools 

Demand for retirement advice has never been greater and continues to grow. Advisers can now benefit from sophisticated lifespan assessment tools to help bridge the longevity literacy gap. To date, over 20,000 people have obtained a personal life expectancy assessment using the Optimum Pension’s lifespan calculator, which is free to use and considers various personal factors, including: 

• The client’s health and lifestyle choices 

• Marital status and age differences for couples 

• Individual risk attitudes and desired confidence levels 

One of the most valuable aspects of this type of calculator is its ability to help clients understand the spread of possible outcomes, not just averages. This is crucial because very few individuals will pass away exactly at their expected lifespan. 

Planning for couples presents unique complexities in retirement planning, particularly when considering longevity. The calculator’s ability to account for marital status opens up important conversations about joint retirement planning that many couples might otherwise avoid, introducing the concept of the ‘degree of confidence’ regarding how long both partners will live. 

The Three Pillars of Enhanced Retirement Planning 

Including lifespan advice as part of an adviser’s service empowers clients through three key areas: 

1. Better Preparation: If clients know they might well live to age 90 or beyond, will they make different decisions today? This knowledge can fundamentally shift their approach to saving, spending, and lifestyle choices. 

1. Proper Equipment: Understanding retirement timeframes helps to select the right financial products and strategies that can go the distance. It enables more informed decisions about retirement income products and drawdown strategies. 

1. Smarter Spending: When you have a clearer idea of your client’s likely journey in retirement, and the right products to meet their needs, clients can spend more confidently, knowing their tomorrow is taken care of. 

Looking Ahead 

As Australians continue to live longer, the importance of longevity literacy will only grow. Financial planners who can effectively communicate about lifespan assessments and help clients plan for extended retirements will be well-positioned to serve their clients’ needs. 

A lifespan calculator serves as more than just an educational tool—it’s a gateway to more meaningful retirement planning conversations and a great first step for advisers toward ensuring the retirement plans they create are designed to go the distance. 

Remember: The goal for clients isn’t just to reach retirement—it’s to make every step of the subsequent journey count. Knowing how long that journey might last is just as important as knowing when it begins. 

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