Longevity tables lag actual life expectancy

longevity tables life expectancy

Financial planners should reconsider their use of longevity tables that do not reflect current and future increases in life expectancy.

Longevity tables used by financial planners to build retirement income models are out of date and do not take into consideration longer life expectancy figures, according to the Actuaries Institute.

The institute noted that since the mid-1960s there had been a consistent increase in lifespans and while the average age of death for women in retirement in 1970 was just over 80, in 2010 this figure had increased to 87.

While this latter life expectancy figure is currently being used in longevity tables, financial planners still needed to factor in any further longevity increases between the present and the time someone retiring today reaches their 80s or 90s, it added.

The call for revised longevity figures stems from a research note, written by Jim Hennington of the Actuaries Institute Retirement Incomes Working Group, that stated inaccurate longevity figures could lead to inaccurate planning outcomes.

“To have more than a coin-toss chance that a person’s retirement planning horizon is sufficient, you need to look at the time frame that gives 80 per cent or more certainty of being sufficient,” the research note said.

The institute used the example of a couple, a 65-year-old man and 62-year-old woman, of average health, claiming a retirement plan would need to extend until the male is 100 in order that the couple can be 80 per cent sure the plan meets their potential lifespan, well beyond the age range used in current longevity tables.

In making recommendations to financial planners, it stated the age of both retirees should be used if the household was a couple “because joint life expectancy is longer than single life expectancy. Also, one spouse is typically younger than the other and can therefore dominate the required planning horizon”.

The report note also pointed out that if an adviser group had 1000 healthy, educated, professional 65-year old couples as clients, it could expect more than half of these households to still have one spouse alive at age 95.

“The basic look-up tables used in legislative instruments and financial planning tools used by advisers don’t allow for this critical planning issue. Clients need significantly different advice and strategic investments than if their life expectancy was assumed to be age 84 or 87,” it said.

The institute also recommended financial planners use the most recent Australian Government Actuary life tables and their calculations show results in such a way that considers the range of possible lifespans and the likelihood the recommended planning horizon is sufficient.

“Retirees wanting confidence need to know what age to plan to in order to have, say, 90 per cent certainty their planning horizon is sufficient,” it said.

“If the lens through which we view retirement is inaccurate, then incorrect conclusions will be drawn about retirement strategies and products.”

Longer life spans also have an impact on the need for health care, according to Aged Care Steps director Louise Biti, who pointed earlier this year that current retirement funding models were ignoring these costs and potentially leaving financial planning clients exposed to unfunded aged care liabilities.


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