This article, from the US smart money magazine, is a fascinating look at the latest thinking on how long we are likely to live. You really should read it in full.
It looks at the latest thinking on longevity, and what that means for retirement planning. Some US life insurers are providing insurance older and older, even for people who have had brushes with cancer and other nasty diseases, on the basis that modern medicine really is getting much better. Some of the underwriters interviewed for the article suggest that you really should plan on living to age 95.
Many Australian financial plans tend to look at the average life expectancy and save on that basis. On average, a 65 year old Australian man should expect to live to 83, and a 65 year old woman should expect to live to 86. So if you are likely to live to 86 (based on your current age) you should make sure you have enough capital and income to last that long. If you die sooner, at least you can pass on the left over money to your heirs.
But what if you live longer? Most Australians would assume they will live off the aged pension in that case. And it is generally enough so that you won’t starve (although if you don’t own your own house you’ll find it tougher). But the aged pension is not a huge amount of money. The maximum rate for a single pensioner is $748.80 per fortnight, and $564.50 per person for one half of a couple. That’s $19,536 for a year for the single pensioner.
Longevity is a real risk, but not one that most people are willing to insure against. It feels like a bet that you lose twice. If you die too soon, you’ve missed out of years of life, and an insurance company got to keep your money. I blogged about this years ago. I don’t believe the longevity insurance (generally annuities) will ever be more than a tiny niche product in Australia. But it is still a risk most people should think about.
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Cross posted at my new blog actuarial eye.
Planning for retirement is a bit of a joke to me. I’ve got to 60, have virtually nothing in superannuation, have my half-share of a $200 000 mortgage to pay off, haven’t even been able to get a part-time job for 5 years and became so depressed I couldn’t have done any job for most of that time anyway. I have an apparently rare psychological difficulty about living off another person’s income but an awful feeling of being imprisoned because I have no financial independence as I did in reasonable jobs until I was 50. People ask why I managed to put so little into superannuation- it wasn’t from lack of trying. When I started working as a lecturer in tertiary education in my late 20s, contract work meant no employer superannuation. Okay then- I dutifully took out the old life insurance-type pension/superannuation, paying the exorbitant fees so the “agent” got a nice salary from the contributions while my nest egg grew very slowly. After a few years I got a public service job, but there was no superannuation with that either. When superannuation finally came along I was able to accumulate the princessly sum of around $30 000 before I decided to retrain and change careers. Around the same time, my private pension fund went through a cascade of ownership changes and became publicly listed shares which weren’t a lot of cop and retraining ate my long service pay out. Ten years later, not finding my second career could occupy me fruitfully, I’ve retrained in a different aspect of my first career, only to be told by my academic supervisor that I am unlikely ever to get employment in the area! My thirst for work & knowledge can’t be redirected into volunteering as I need some sort of income of my own to make life worthwhile. As “life” goes on and I face the natural possibility that I’ll live as long as my father, (95 & died from the results of a congenital heart defect!!), I find myself frequently driving swiftly towards large trees. What does everyone else do?