Make your super last your whole retirement

While the only certainties in life are death and taxes, at least we usually know when our taxes are due. Time of death is rather less certain.

Statistics tell us that a 65 year old male can “expect” to live for an additional 17.7 years, – or until about age 83. A female at 65 can “expect” to live for 21.2 years – or 86 . But what do these averages really mean, and do they give us helpful answers in terms of planning our own retirement?

Predicting life expectancy – a risky business.

While the figures above are used bygovernments to calculate important factors like Pension eligibility, how much do these statistics on ‘average life expectancies’ reflect the reality that may apply to us? It’s illuminating to think of the analogy of Australian Cricket Captain Ricky Ponting’s test data. Prior to the 2006 Test Series in South Africa Ponting’s statistics looked
like this:

uns made 8,253
Highest score 257
Times batted 166
Times out 143
Times not out 23
Average 57.7
No. of 50s 32
No. of 100s 28

How do we interpret this illustrious career? Well, we can say that each time Ponting takes the crease, we expect him to make around 57 runs. But given that his scores have ranged from zero to 257, is this helpful? In fact he has never made exactly 57.

A range of outcomes

Just as Ricky Ponting has never scored exactly 57, most people won’t live to theirexact life expectancy. To put this into a retirement planning perspective, let’s look at 100 men and 100 women who are about to retire at age 65.
How long does their money need to last? The following table shows the number expected to be still alive at various ages after allowing for improvements in longevity.
This means that half the women and one third of the men need their retirement savings to last at least 25 years if they retire at 65. One in seven women and one in 12 men will still need an income after 35 years! Of course, for those who retire at 60 you can basically add another five years to those numbers.
How many people retiring at 60 do you think would budget for their savings to last 40 years?

Age         No. of men still alive    No. of women still alive
65             100             100
70             93             96
75             83             90
80             70             82
85             54             68
90             34             50
95             19             29
100             8             14


What can you do to make your retirement income last?

As the example above hints at, most retirees will live longer, often much longer, than the commonly quoted ‘life expectancies’. And the range of incomegenerating products, such as Term Allocated Pensions and lifetime annuities, may not be effective in managing this risk. So what can you do to help manage this risk for your future – so that you’re not left with a long life and too little income to enjoy it? There is no magic remedy but some strategies which may be effective include:

•    See a financial planner early and review your plans regularly.
•    Take advantage of the changing tax rules to stretch your retirement savings further.
•    Look beyond just the family home as your number one investment – ask your financial planner for innovative strategies.

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