When are you going to die?
It’s an unpleasant sounding question with an important answer, from a Financial Planning perspective at least.
Making assumptions about life expectancy is part of the Financial Planning process, where individuals want to ensure they do not outlive their wealth in retirement.
New research from insurer Aviva has found that many people are underestimating their life expectancy. As a result, they are also underestimating how much they need to save for their retirement.
Looking at a sample of 1,100 people, Aviva found more than half thought that they would have what they would consider to be an average life expectancy.
19% of those asked said they thought they would live a longer life.
They did however tend to underestimate their life expectancy; men thought they would live to an average of 80 years old and women to an average of 84 years old.
These figures are slightly below the national average. And with it being an average, half will outlive this age.
Aviva also uncovered a somewhat laissez-faire attitude towards life expectancy as it applies to the wealth needed in later life.
A third of those questioned said, should they outlive their life expectancy, they would live the best way they could without worrying about running out of money.
20% of respondents said they will live off the state pension if they outlive their savings, falling back on this minimal level of income at a stage in retirement where higher income needs might be required for long-term care.
Only 16% said they were looking at ways to make the most of all their assets (rather than just pension or retirement income) to cover the remainder of their lives.
When we construct Financial Plans for our clients, we work on the assumption of life expectancy to age 100.
This is higher than the national average and indeed only one in five people currently reach their 100th birthday, according to the Department for Work and Pensions.
If you are thinking about saving for retirement and formulating a Financial Plan for later life, think carefully about your life expectancy and make reasonable assumptions.
Always include what action you would take if you underestimate your life expectancy and understand the financial consequences.
