If you believe everything you read online, planning for retirement is impossible without punching some data into a longevity calculator. By finding out when you might die, you can work out whether you have enough money left to live.
Like any product, the quality of longevity calculators varies – and that means their accuracy may be unreliable.
What is a longevity calculator?
Put simply, a longevity calculator (also known as a life expectancy calculator, or the decidedly less cheery ‘death’ calculator) is an online tool to help you estimate your expected lifespan.
Depending on the calculator (and the business that created it), it factors in a variety of personal details. These may include age, gender and lifestyle habits. With this information, it estimates your projected longevity (and what financial products you might need to fund your retirement life).
Why does estimating how long you may live matter?
The emotional and financial security of having enough money in the bank to last your lifetime – and perhaps beyond, if leaving a legacy for future generations is important to you – matters.
Measuring your potential longevity helps you make decisions about longevity risk (the risk that you might outlive your savings). For many retirees, that is a serious concern.
How accurate are longevity calculators?
Potential longevity can be measured in many ways. None can promise precision.
Depending on the research material used to inform each longevity calculator, they can be a mixed bag.
Putting the same information into a variety of longevity calculators can return different results, with predicted life span varying by several years in each direction.
One positive of a predicted longer life? More time to tick off that bucket list.
The negative? If you’ve budgeted for that big end-of-life party at 85, living to the ripe old age of 95 might mean a smaller drinks budget for your guests.
But seriously, there’s a huge difference between living until 85 and living until 95.
If poor health becomes an issue, the added cost of care needs will make your retirement budget work harder to fund your longer life.
For a clearer understanding of the accuracy of life expectancy calculations, consider some key factors that can affect longevity calculator outcomes.
- Which mortality table is used?
Different software developers draw information from different sources. If the data used comes from life insurance industry mortality tables, it will reflect a different view from data collected from institutions with a broader view about population life expectancy and healthy ageing. Without knowing the drivers behind the results your chosen longevity calculator delivers, it’s hard to know its agenda or accuracy.
- What contributing factors are measured?
Any quality life expectancy calculator should ask current age, or date of birth. Gender at birth also plays a significant part. So does an honest history of smoking status.
Depending on the longevity calculator, questions around health and family history, ethnic background and lifestyle (drinking, diet and exercise) habits may also feature.
But just because there are more questions to answer, it doesn’t guarantee more accurate results. In fact, due to the lack of official statistics around the impact that specific combinations of lifestyle factors have on lifespan, life expectancy calculators that ask more questions might generate less relevant results.
For example, being asked when your parents died might be used to predict your own early demise. But if your parents died young due to an accident, or an illness that is preventable or treatable today, their early death has no bearing on your own lifespan.
- Whether people are single or partnered
Most calculators that deliver life expectancy outcomes show that people with a partner enjoy a longer lifespan than single people. Obviously, while people who are unhappily lonely may have wellbeing-related issues that could create negative health outcomes, there are others who are single and loving it.
- The experience of the software developers
Just because a longevity calculator exists online it doesn’t mean that the people who designed it are competent and informed by appropriate research data.
Planning for uncertainty is the best retirement planning tool
Having a positive relationship with a trusted GP and monitoring your health is the best predictor of longevity, although nothing is ever guaranteed.
Even if you did have a rough estimation of your life expectancy, you still can’t predict when you die – and when it comes to financial planning for your later years, that makes precise retirement budgeting tricky. Having a 95 per cent chance of dying before you turn 90 still means that there is a 5 per cent chance you might live to the age of 100.
With some financial planning specialists believing that planning for uncertainty is the best way to plan your financial future, budgeting to live until the age of 95 might seem like a sensible safety net that protects you from some of those nagging what-ifs that can keep you awake at night.
Calculating your own longevity
Many people think it’s a simple sum: divide your total savings by the expected years of life and …voila!
But there’s much more to the story about making sure you have enough money left to live a happy, healthy retirement.
Many longevity calculators are based on outdated life expectancy tables (often drawn from the most recent Census, which may be several years old).
Also, they often neglect to factor in what can be a major income stream for a large percentage of retirees – the Age Pension.
A more accurate way of calculating the sustainable longevity of your income is to properly assess your current financial situation and use tools or calculators that include your eligibility for access to the Age Pension (and the timeline and amount of its impact).
Calculating your retirement spending
Whether or not you see longevity calculators as the bee’s knees in retirement planning tools, it’s clear that having a better understanding of your longevity risk is smart.
By identifying your personal retirement ‘sweet spot’, you can make sure that withdrawals from your super and savings match the cover you need to last – for life.
Avoiding overspending is critical. It’s just as important to avoid underspending, which is something that a lot of overly cautious retirees do.
And although it’s noble to leave your lifetime of hard-earned savings to your loved ones, if that comes at the expense of your own fulfilling lifestyle by living too frugally, it’s time to re-do those calculations!
Have you estimated your longevity? Do you have a favourite longevity calculator? Share your thoughts in the comments section below.
Also read: Longevity experts share their top lifestyle tips
Financial disclaimer: The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.
“Also, they often neglect to factor in what can be a major income stream for a large percentage of retirees – the Age Pension.”
It is surprising this factor is ignored by so many retirement planners. The age pension is indexed for cost of living and provides a solid foundation for a comfortable retirement when combined with superannuation and the family home.