Michael Sherris
The latest figures from the ABS show significant jumps in longevity.
This, on the one hand, should be celebrated. The jump in our lifespan is enormous. Just last year a man turning 50 could expect to live an extra 31.7 years – now it is 32 years and well up on the 29.9 years a decade ago.
However it is causing serious concern for Australia’s superannuation system.
Quite simply, most of us will run out of money before we die. Australians who get their super in a lump sum – or even if you take it out gradually – will almost certainly exhaust it before they are dead.
However financial planners who are setting savings levels for old age just don’t understand the risk.
The longevity tables released by the Bureau of Statistics say a girl born today can expect to live 84.2 years and a boy 79.7 years, but if they survive the first few decades (which are relatively dangerous) the figures are even higher.
Most people’s ideas of what they need to live on in retirement are outdated.
When many people retire their superannuation accounts will let them draw down what they want, but they typically live for maybe 20 years after retirement, and so they soon run out of money. They should buy lifetime annuities – or what is called longevity insurance – and self-insuring their future lifetime risk, but most people do not because the annual income it gives is small, compared to drawing on your super savings.
Also remember that while 20 years is what the tables say retirees have left, longevity is improving all the time – and someone just starting to work now may last much longer than the tables show. Allowing for future improvements in mortality due to better healthcare etc, a girl born today is quite likely to live to 100, with about half the girls born this year likely to live beyond 100.
There is also enormous variability about the core figure of how long you’ll last – remember this is an average, and some people will live much longer. When their super runs out most people fall back on the old age state pension – but that will represent a sharp drop in income for most people, and also the state may change what or when you can collect. For some people, there may be no safety net at all in the future.
Michael Sherris is a Professor of Actuarial Studies at the Australian School of Business, and a Chief Investigator at the ARC Centre of Excellence in Population Ageing Research.
2Comments»
Very interesting article Michael. One conclusion that might be drawn, is that the trend towards increasing longevity supports the case for increased levels of compulsory superannuation during working life, plus the need to increase the retirement age for accessing super funds.
What the quality (rather than quantity) of life will be like for an aging Australian population, is another matter. There’s bound to be some major social and economic consequences from our changing demographics!
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