When you're trying to work out how much you'll need to save for retirement, one important consideration is estimating how long you'll need the money for.
A popular way to do this is by using the Australian Bureau of Statistics (ABS) life expectancy tables. However, it's important to adjust this information for your personal circumstances, such as your health and lifestyle. You might also consider that:
- fifty percent of us will live beyond the average life expectancy, so you may want to add extra to your retirement goal as a safety net
- couples tend to have a longer life expectancy than singles1, so you may also want to adjust your life expectancy to take account of your relationship status, and
- if you're part of a couple, you may want to use the life expectancy of the younger person so you both have enough money to last through retirement.
Are life expectancy tables the best way to estimate life expectancies?
Even after adjusting your life expectancy for your personal circumstances, advances in health care, medicines and our access to heathy food means life expectancies will continue to increase. This means that by the time you retire, your life expectancy is likely to be even higher than the current tables show.
A report by the Actuaries Institute, titled Australia’s Longevity Tsunami. What Should We Do?, says most people significantly underestimate their life expectancy, as the life expectancy tables are based on actual deaths, rather than considering future life expectancies of people who are currently alive. So while the current ABS data shows that males born today can expect to live to age 79 while females can expect to live to age 84, by 2050 the average life expectancy for people aged 65 is projected to be 92 years for men and 93 years for women, or even older!
Making saving for retirement easier
There are a few solutions to adequately fund our ever-longer retirement, one of which is to reconsider when we retire. Many people are already planning to work longer, even if only part-time. Retiring later means you'll save more for retirement and your time in retirement will be shorter, increasing how much money you'll have to spend.
1 Minister for Ageing media release, Marriage Increases Life Expectancy, 3 August 2008