The Big Question in Retirement Planning:
How Long Should My Retirement Income Last?
How much do I need to retire comfortably? is the common retireree catchcry.
Of course, this is a very difficult question to answer, loaded with so many variables that giving a precise answer is almost impossible. The big question in retirement planning is rather, How long should my retirement income last?
It’s true, nobody knows exactly how long they will live, or how long their savings need to last. But what we do know is that one of the greatest retirement fears is outliving your savings!
With Australians living longer it is more important than ever to understand how long retirement income needs to last. A 2014 National Seniors Australia survey [1] found that senior Australians underestimated their life expectancy by up to seven years.
It is not just seniors who aren’t good at predicting their lifespans. Research by the Actuaries Institute found that many of the tools used by Financial Planners may not always reflect best practice when it comes to Australia’s increasing life expectancy and the wide range of lifespans that different groups of retirees face.
Life expectancy is based on averages
It doesn’t weigh up the many other factors that influence how long a particular individual could live.
| “Life expectancy is pretty much useless for financial planning. All it tells you is the point at which 50 per cent of people are dead.”
Steve Groves, Retirement Bridge Group |
Because it is based on averages, there is a 50% chance an individual will outlive their life expectancy.
If you are a financial advisor helping clients prepare a retirement using this as your planning horizon -if you get it perfectly right – half of your clients will run out of money before they die!
Introducing the Optimum Pensions Lifespan Calculator
Basic life expectancy numbers are handy for analysing trends and differences between groups of people. They are definitely not suitable for retirement planning. It is important to consider mortality improvements along with gender, socio-economic and health differences. It’s also important to take into account your spouse!
Optimum Pensions has done just that to build our Lifespan Calculator to help users personalise their life expectation(s) and give an indication of the number of years their savings may need to last in retirement.
The user can choose from three confidence levels to determine their planning age—the age they should use when working on their retirement plan horizon.
Better estimate of retirement lifespan means better retirement planning
| “In terms of financial planning, getting an accurate assessment of their life expectancy is crucial for those [who are] nearing retirement.”
Alan Chan, director and chartered financial planner at London-based IFS Wealth & Pensions |
Financially successful retirement depends in large part on managing longevity risk. If you’re going to plan to make your assets last a lifetime, you need to estimate how long that lifetime may be.
That’s where our calculator can help. Estimate personal life expectancy and possible planning horizon online, instantly.
Based on the latest Life Tables from the Australian Government Actuary and backed by health data from one the world’s largest reinsurers of longevity risk, the Lifespan Calculator is an online tool like no other. It takes into account personal preferences and attitude to risk for more accurate results.
Individuals can visit the Optimum Pensions website to use the calculator. (Try it now!)
Organisations can easily embed the Lifespan Calculator on their own website with customised links, navigation paths and tailored communications to their customers or members so they can understand their planning horizon maximise their outcomes.
The award-winning Optimum Pensions LifeSpan Calculator builds confidence around personal life expectancy and retirees’ possible retirement planning horizon.
For more information about the Calculator, please contact Jim Hennington.
Enquire about hosting the Lifespan Calculator on your website
[1] https://nationalseniors.com.au/uploads/140708_NationalSeniorsResearch_Challenger_RetirementPlans.pdf