THE LONGEVITY CONVERSATION|Video 2 of 9

Most planning tools typically use period life expectancy, which is based on mortality statistics frozen at a point in time, as if a client will spend their whole life under the conditions prevailing when the Government Actuary created the life tables. Cohort life expectancy accounts for the mortality improvements clients are expected to benefit from over the next 20 to 30 years. Australian mortality rates have improved consistently, especially over the last 50 years. The gap between the two measures is typically three to five years of extra life for the retiree to fund.

For couples, this is even more important. There’s a 75% chance one or both partners lives beyond 90, a 50% chance one lives past 94, and a 25% chance one reaches 98, because couples get two chances at extreme longevity. A couple retiring at 65 with $600,000, planning to spend down by 85, can find those assumptions break badly if one partner lives another decade beyond that.

There’s a behavioural cost too: retirees on account-based pensions often under-spend from fear of running out, even with adequate balances. Clients with some guaranteed lifetime income tend to spend more confidently and report higher satisfaction. Financial advisers need to help their clients understand and manage longevity risk as it shapes how they will actually live in retirement.

Related articles and resources:

• [Blog] Period Life Expectancy vs Cohort Life Expectancy: The Difference is Important
• [Blog] Longevity Risk: The Mother of All Retirement Risks
• [White Paper] The Fear of Running Out – Lifetime Income and The Annuity Puzzle
• [Blog] Life Expectancy in Australia Continues to Improve
• [Blog] Life Expectancy On The Rise Down Under
• [Blog] Going the Distance Financially: Retirement for Couples
• [Blog] Helping Retirees Spend with Confidence

NEXT IN THE LONGEVITY CONVERSATION
Video 3: The Longevity Conversation: A Five-Step Framework for Retirement Planning