I am often asked by clients “how much money will I need in retirement?”
This always depends on 2 factors:
- How much will you spend each year?
- And how long will you live for?
I can usually calculate the answer to the first question easily, however the great unknown is the second question, how long will you live for once you have retired?
I am constantly having these conversations with my clients and most times they underestimate how long they will live for once they retire. It is my job to help educate them to plan for the realistic time frame, not the desired timeframe.
Based on current statistics, if you are currently 65 years of age, your life expectancy at birth was 68 for males and 74 for females. The reality today though, is that on average, those aged 65 are expected to live another 19.5 years if they are male (to 84.5 years old) and 22.3 years (to 87.3 years old) if they are females. Those figures are also based on historical data, not taking into account any medical advances that could be made over the next 20 years.
Furthermore that is just average life expectancy, did you know that 65 year old males have a 42% chance of living beyond their 90th birthday and 65 year old females are even higher at 55%?
At present, each generation is living longer than previous generations, mainly due to advances in medical science, technology, education, nutrition and hygiene.
But what does all this mean for your retirement?
Well as people have progressively been outliving their previously estimated lifespans, the risk of running out of money has become far more significant. Furthermore, with the baby boomer generation now retiring, an increasing proportion of the Australian population are ageing, which forces governments to reduce the reliance on the Age Pension, especially in its current format (and we have seen this over the past 10 years with the significant changes to the Centrelink Age Pension).
At Crest Financial Services, we believe that if you have a better understanding of how long you live, you are able to make better superannuation and investment decisions now to plan for the future.
By Rhys Higgins
Deaths, Life expectancy – Australian Institute of Health and Welfare. (2018). Retrieved from https://www.aihw.gov.au/reports/life-expectancy-death/deaths-in-australia/contents/life-expectancy