Retirees Warned to Not “Take Life Expectancy Data Too Literally”

The Office for National Statistics (ONS) has now published data indicating that a 65-year-old man can now expect to live until age 83, with a same-aged female still being still alive at age 86.  It is being strongly suggested that those retired or planning on it should not take these projections too specifically when deciding what monies will be needed for retirement.

Other indicators of mortality predict life expectancy in a variety of ways.  Aegon, a pension purveyor, has claimed that when death indicators improve, men’s rates jump into expecting them to live until age 90, and it jumps even higher for women at age 92.

This is a good problem to have unless retirees who are counting on their pensions to bring forth adequate retirement income run out of money because they are not being realistic about their life expectancy.

According to Aegon, a woman with a fund worth £250,000 at age 65 would need £49,000 to fund another six years of life, whereas a man with a pension worth that same figure would require an additional £66,000 to fund another seven years of retirement.  Even having said that, Aegon and EValue say that even these figures may not hold up because one in four men will live to the age of 95 with one in three women reaching that same age.  Only 12 percent of 65-year-olds will die before age 80 with just five percent dying at age 91, be they woman or man.

This data proves how hard it can be to make the right financial plan to account for life expectancy.

“Preparing for retirement is uniquely challenging because it involves planning an income for an unknown period of time. The pension freedoms have made it absolutely critical that advisers and their clients are using the right tools to plan for retirement, especially when it comes to estimating how long someone is likely to live. National statistics are an obvious first port of call, but they can never be more than a blunt tool for estimating individual life expectancy,” commented Steven Cameron, pensions director at Aegon, adding that these statistics are not the starting point; rather, lifestyle, health, and genetics are better predictors.

“For advisers, one solution is to focus on ‘survival probability’: the chances that someone will live until a certain age. By taking into account improving trends in life expectancy, retirees and their advisers can both agree on an acceptable level of risk that they will outlive a certain age, and plan around this,” Cameron concluded.