With the life expectancy of Australians increasing over the years, most of us can assume we’re going to live longer than previous generations. But are our expectations on the money, or way off the mark? Challenger shares five important facts everyone needs to know about life expectancy.
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Back when compulsory super started in 1992, living to age 80 was considered a long life. Fast forward 31 years, and improvements in medical care and living standards have seen our lifespan extend by more than a decade. A 65-year-old today can expect to live well into his or her 90s and could spend more than three decades in retirement.
Understanding your life expectancy is a crucial part of any good retirement plan. Living just a couple of years longer than you expect could leave you without enough income for later in life. But it’s not an exact science and no-one really knows how long they’re going to live. However, you can make a more informed estimate with the right information. Here are five important facts you need to know about life expectancy.
Popular plans right now
1. Many of us underestimate how long we’ll live
While a 65-year-old can expect to live well into their 90s, most retirees aren’t expecting to live that long. In fact, a survey of more than 4000 YourLifeChoices members revealed that our expectations fall short by quite a few years.
On average, our survey respondents expect a 65-year-old male to have a life expectancy of just 82 years. Women aged 65, on the other hand, are expected to live longer and reach an average of 85 years. While these are our expectations about others, both men and women on average believe that they themselves will live to 85.
This result isn’t surprising – a life expectancy of 85 years is a number widely published in many financial models. But for reasons we cover here, this number has some major flaws.
2. Life expectancy numbers are based on a 50 per cent success rate
Does a 50/50 chance of success feel like good or bad odds to you? Until very recently, the age of 85 was a convenient estimate of a typical lifespan. Not only is this estimate factually wrong, but it was based on only a 50 per cent probability of being reached.
The life expectancy of a 66-year-old female today, for example, is currently another 24 years to age 90. But in practice, around two-thirds of females of that age will live to anywhere between 81 and 99.
A retirement plan that gives you a 50 per cent chance of success is probably not the financial security many people look for. Which is why relying on ‘average’ life expectancy may do more harm than good.
3. Your life expectancy increases as you age
The Australian Bureau of Statistics (ABS) estimates that the life expectancy of an Australian male is 81 years and 85 years for a female. While these figures are correct, they include the deaths of people who die young from accidents or illness and can therefore be misleading when calculating life expectancies for retirees.
What many people don’t realise is that life expectancy isn’t a static number – it changes as you age. Once you’ve reached age 65, you are already a ‘survivor’ and will therefore have a higher life expectancy.
This trend continues as you enter your 70s, 80s and 90s. If we look at improvements in the mortality trend over the past 25 years, published by the Australian Government Actuary, half of today’s 66-year-old men will live to at least 88, for women that age is 90. A male alive at age 90 can, on average, expect to live to 94, while a female can expect to live to 95.
If you’re banking on living only until age 85, you could have another decade of living to fund.
4. Most of us want to live longer than our life expectancy
While our survey revealed the average age we expect to live to is 85, most of us would actually like to live longer. On average, both women and men would like to live until 88.
The prospect of living longer than previous generations makes the majority (63 per cent) of our respondents happy or very happy. While living longer might be great for our happiness, it might not be so great for our finances if we’re not prepared.
5. Many retirees aren’t confident their income and savings will last as long as they live
Most people assume that they’ll spend less money in retirement. In fact, almost half (44 per cent) of respondents said their level of spending today is about the same or higher than it was just before retirement.
It’s no wonder that almost a third of respondents (31 per cent) don’t feel confident that their savings and income will enable them to maintain their current lifestyle. And 28 per cent are highly concerned with the possibility of outliving their retirement savings.
Why uncertainty needs a safety net
Managing the very real risk of outliving your savings is probably the biggest challenge of any retirement plan. Income from super, such as account-based pensions, is generally not guaranteed – the payments stop as soon as your balance runs out. Income from investing in the share market is unpredictable. And for most of us, the Age Pension alone is not enough to live comfortably. So, what’s the answer?
One way to plan for the unknown is to have a regular lifetime income stream, such as a lifetime annuity, as part of your retirement income plan. Adding a lifetime annuity to your retirement portfolio can boost your safety net income with regular income for life, helping to give you confidence that you can pay for your essential expenses to 100 years and beyond.
Feel confident in your retirement income
There’s no need to second guess your life expectancy or income in retirement. A Challenger lifetime annuity gives you a regular monthly income, no matter how long you live. Find out more about how a Challenger lifetime annuity could work for you.
Do you believe you have calculated your longevity as accurately as possible? Were you aware that life expectancy changes as you age? Why not share your views in the comments section below?
Also read: Retirement, ‘discretionary hours’ and purpose
Disclaimer: The information in this article is general only and has been prepared without taking into account any person’s objectives, financial situation or needs. Because of that, each person should, before acting on any such information, consider its appropriateness, having regard to their objectives, financial situation and needs. To the maximum extent permissible under law, neither Challenger nor its related entities, nor any of their directors, employees or agents, accept any liability for any loss or damage in connection with the use of or reliance on all or part of, or any omission inadequacy or inaccuracy in, the information in this article. Challenger relied on publicly available information and sources believed to be reliable, however, no representation or warranty, either express or implied, is given as to its accuracy, completeness or reliability. The information presented in this article is not intended to be a complete statement or summary of the matters to which reference is made in this article. Each person should obtain and consider the Challenger Guaranteed Annuity (Liquid Lifetime) Target Market Determination (TMD) and Product Disclosure Statement (PDS) before making a decision about whether to acquire or continue to hold the Challenger Guaranteed Annuity (Liquid Lifetime) also known as Challenger Lifetime Annuity (Liquid Lifetime). A copy of the Challenger Guaranteed Annuity (Liquid Lifetime) TMD and PDS can be obtained from your financial adviser, our Investor Services team on 13 35 66, or at www.challenger.com.au. Consult your financial adviser about potential impacts on your personal circumstances and whether a lifetime income is right for you. Challenger Life is not an authorised deposit-taking institution for the purpose of the Banking Act 1959 (Cth), and its obligations do not represent deposits or liabilities of an authorised deposit-taking institution in the Challenger Group (Challenger ADI) and no Challenger ADI provides a guarantee or otherwise provides assurance in respect of the obligations of Challenger Life. Accordingly, unless specified otherwise, the performance, the repayment of capital and any particular rate of return on your investments are not guaranteed by any Challenger ADI.
All governments have made rules concerning the withdrawal from account based pensions. As I was lucky enough to stop working gradually after I was 65, I didn’t realty need to take out much from my super. I’m not sure of the current rules, but it is stupid to have to take money out when you don’t need it. As I am now over 90 and my wife passed away a few years ago, I have deliberately tried to live a reasonable life without draining my super. The whole regulation around super should be reviewed to make them in favour of of the contributor not the government- after all it is your money.
Also I believe there is a much larger difference between the living ages of men and women, from my own friendship circle. I am the only widower I know and most of my men friends have gone., some a long while ago. I can count 16 widows in my close circle and no widowers.
What this article doesn’t take into account is environmental factors which will have a big effect on our health going forward. Since Covid so many people have died suddenly so that a new term is being used now “sudden death syndrome”. The average death rate is up by over 16% in Australia and it’s a worldwide phenomena. I have been to quite a few funerals in the last two years, yet before that not one! People have deteriorated suddenly and died. It’s as if our immune system has been compromised. Not sure what the cause is, but most likely it’s man made. The same is also happening in nature. Many insects, it’s said around 75%, have disappeared, and a long term study on tree health has just come out from our university, showing that trees are now dying much faster than 30 years ago.