IMPORTANT NOTICE: FOR FINANCIAL ADVISERS ONLY
The life expectancy of Australians has increased dramatically over the past 60 years. This means retirement savings will need to last a lot longer than ever before - otherwise people risk outliving their savings and experiencing a sharp decline in their standard of living.
People retiring today are likely to live well into their nineties and the 100-year life will be a reality for many. Current life expectancy estimates are that Australian females have a 55% chance of living beyond 90, whilst males have a 42% chance.
On average, 50% of retirees are likely to outlive their savings by more than five years – and 25 per cent are expected to outlive their savings by 10 or more years. Australians today need to plan for a period of retirement that might last a quarter of a century or longer. One part of the problem is the retirement planning industry uses lifetable data that is a whole of population average. This significantly underestimates the lifespan of clients who have reached age 65.
Current attempts to solve longevity risk through an insurance solution involve costly overheads that limit returns, such as providing guarantees, meeting capital adequacy requirements or paying profits to shareholders. The alternative solutions of asset disposal, high risk investments or relying on family for support are not adequate or sustainable.
Many people assume they will spend less money in later retirement and the age pension will be sufficient for their needs. This isn’t the case. Studies show whilst spending on travel and entertainment decreases, this is matched by a corresponding increase in medical, care and housing needs.