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How long is retirement?

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How long is retirement?

Our way of life has changed more over the course of the past century, than it did in the previous two Millennia combined. We now live in an era of great change and innovation, fuelled by advancements in science, medicine and technology.

One of the many aspects of our lives which has witnessed a drastic change during the past century is our lifespan. Progress in healthcare, improved hygiene and state-of-the-art technology mean that, on average, people now live longer than at any other point in history.

In fact, between 2000 and 2015 alone, life expectancy around the world increased by 5 years1. What’s even more amazing perhaps, is the fact that one in three people born today are expected to live to 100 years old2, with the number of centenarians in the UK expected to increase from 14,000 in 2013 to 111,000 in 2037. Furthermore, studies indicate that we’re not only living longer, but that the additional years are also healthier ones3. This means that the longevity trend we’re witnessing at the moment isn’t a fleeting one, but one which is set to continue in years to come.

This radical change in lifespans is however, raising questions about the prolonged length of time people will spend in retirement, and consequently whether they will have enough money to have a comfortable and enjoyable later life.

Longevity risk – perceptions vs. reality

Life expectancy in years at age 65

Source: Expected - Aviva Longevity Report (2015) Actual - Office for National Statistics

Simply put, longevity risk is the risk of living longer than expected in retirement. This is not to say that living longer than expected is a bad thing, but when these added years haven’t been accounted for in retirement plans, financial issues may arise further down the line.

We carried out a survey4 which highlighted that people in the UK tend to underestimate their life expectancy, leaving them at risk of running out of money in retirement. The participants, all aged between 50 and 65, placed the average life expectancy for someone of their age and gender at 80 years for men, and 84 for women. However, according to the Office for National Statistics5, 65 year old men could live to almost 84 years, while women of the same age could reach 86 years of age. This means that, on average, men are underestimating their life expectancy by almost 4 years, and women by 2 years. While a couple of years may not seem like a long time, these can make a significant difference to people’s quality of life in their later years.

Why do people think they'll live a shorter life than average?

Not enough money to support themselves should they fall ill

Serious unexpected health condition running in their family

They smoke

Family doesn't live long

Lifestyle - drinking and lack of exercise

A serious health condition

Source: Aviva Longevity Report (2015)

Expect the unexpected

Another critical and significant point relating to longevity is the fact that – the longer you live, the longer you will live. For example, a 65-year-old man could live to 84. However a year later, at the age of 66, six months could have been added to his life expectancy. Once the same man reaches the age of 70, their life expectancy could be almost 86 years. This means that our life expectancy could continuously change and, as we age, we’ll need to keep revisiting our retirement plans.

Adequate planning, based on realistic life expectancy and an understanding of future needs, can be extremely important when thinking about retirement savings. As is the case in numerous other areas of our lives, when it comes to retirement planning it’s certainly better to overestimate that underestimate. What would happen if you made a retirement plan based on the presumption that you will live to 84, and instead live to 90? The additional six years would certainly prove to financially stressful if not accounted for.

One way of approximating life expectancy is through tables and calculators, which estimate how long you’ll live based on your age, gender and lifestyle. However, looking into personal and family history could also be a good indicator of how long people are likely to live.

All of this being said, the fact that life expectancy cannot be pinpointed to a precise age or exact year shouldn’t be a matter for worry. With adequate planning and provisions put in place, you can experience a comfortable retirement, no matter how long this lasts.

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Additional sources

[1]www.who.int/mediacentre/news/releases/2016/health-inequalities-persist/en/ 
[2]Office for National Statistics – 11 December 2013
[3]www.healthland.time.com/2013/07/29/were-living-longer-and-healthier/ 
[4]Aviva consumer research conducted summer 2014 in collaboration with ICM Unlimited research

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