None of us can predict exactly how long we are likely to live. However for those approaching retirement it is worth spending some time thinking about how much time they may spend in retirement and therefore how far their savings will need to last. This is also a time when professional assistance provides great benefits.
The average length of time people will spend in retirement is increasing at a dramatic rate. The table below demonstrates this. It shows how long a man or woman can expect to live for on average depending on when they turn 65.
Projected Life Expectancy at 651
|Life expectancy on reaching age 65 in the year shown2|
Source: Pension Policy Institute
- ONS cohort expectations of life
- Based on actual mortality rates and projected calendar year mortality rates from the 2010 based principal population projections
While this is helpful, it's important to bear in mind these are averages. In other words, roughly around 50% of people will die earlier than the average age and 50% will die later.
This begs the question, how long might retirement last? For the answer we need to look at the probability of dying at different ages, rather than the average time people are likely to live for. For example, consider the following:
- A 65 year old man in good health has a 50% chance of living to 89 and a 1 in 4 chance of living to 95.
- A 65 year old woman in good health has a 50% chance of living to 93 and a 1 in 4 chance of living to 97.
- In a couple, both aged 65 and in good health, there is a 1 in 4 chance one of them will still be alive at 99 years of age.
Whether a certain retiree will live longer than the average will depend on a number of factors. For example, their state of health, lifestyle and the genes they have inherited from their parents. While it's impossible to predict life expectancy, it's worth noting that most people tend to underestimate how long they will live. The results of a previous study found that men in the age group 60-69 underestimate their average life expectancy by around 5 years and women aged 60-69 by about 3 years.
As this research suggests even those who do consider their life expectancy often underestimate how long they will need to draw on their financial resources.
Retirement is not a snap decision. It is unlikely that most people will be able to make a considered judgement on how much money they will need in retirement at the point that they commence the transition from employment to retirement. Apart from making a judgement on longevity, they must consider the quality of life they will expect and question what compromises they may have to make.
When it comes to pensions, there is much more to it than just choosing an income vehicle shortly before vesting benefits. Pensions should ideally be managed into final product. The current default is for underlying investments to be gradually "lifestyled" into lower risk options, to facilitate a smooth transition into annuity purchase. For retirees who move their pensions into drawdown, one of the primary reasons for choosing this product is to maintain equity exposure into retirement in order to maximise potential investment growth. By failing to consider their eventual retirement product choice, many people could be unintentionally allowing their pension investments to drift, instead of actively managing their finances toward their final choices.
Many firms now offer educational material either through their own websites or by working with retirement market specialists. The online client experience has been carefully considered, leading to more interesting and easy to understand information, as well as a wider range of media being used. Additionally, these packages offer external links to assist with their wider benefits, such as State Pensions and Benefit calculators, as well as assisting those not already in receipt of advice, to understand where this can prove of real benefit. Additionally, pension sites provide real-time valuations, as well as offering benefit calculators or indicative annuity portals.
There is still a strong desire for direct human contact, even from those individuals who are technologically adept. The demand for retirement seminars is increasing and the response from attendees remains positive. This is an ideal arena for future retirees to be educated about alternative products or discuss ideas with retirement experts, through Q&A sessions.
None of us can predict exactly how long we are likely to live. However for those approaching retirement, early engagement is key to ensuring that finances support the quality of life, no matter how long they live!