Understanding longevity risk in retirement

Data from the Australian Bureau of Statistics (ABS) shows that life expectancy at birth is now 81.1 years for males and 85.1 years for females1. Despite the increases in these averages, many Australians will live well beyond these ages, making planning for your retirement income more important than ever. 

Longevity risk refers to the possibility of outliving your savings. Living longer allows you to enjoy the fruits of life for longer but it also means planning carefully to ensure your savings last as long as you do. For Australian retirees, this is especially important, as the Age Pension alone may not be enough to cover all living expenses over an extended period.

According to the Challenger Retirement Happiness Index2, 72% of Australians aged 60+ report that the rising cost of living has adversely impacted their financial security, with 34% admitting the impact was significant. This highlights the importance of planning for longevity risk to maintain financial confidence in retirement.

To ensure a comfortable and secure retirement, it’s important to take proactive steps to manage longevity risk. Here are some key considerations:

Knowing how long you might live can help you plan your finances to last throughout retirement. Factors like health, lifestyle and family history can play a role in estimating life expectancy. 

Retirement income can come from a mix of sources, including the Age Pension, superannuation, personal savings and investments. For many Australians, the Age Pension alone may not be enough to cover all living expenses, especially if superannuation or other savings run out. Adding a source of regular income such as a lifetime annuity to your retirement income plan can help you manage the risk of outliving your savings.

By using some of your super or other money to set up a lifetime income stream, you could create an additional layer of secure income that complements the Age Pension, if you are eligible. This approach helps to provide peace of mind by ensuring you have a regular source of income that can cover essential needs throughout your life. This can form part of a comprehensive retirement income plan.

1. Make a budget
2. The Age Pension is a key safety net for many Australians. Consider how it works, including eligibility and its role alongside superannuation and lifetime income streams.
3. For personalised guidance to help you make informed decisions about your finances, consider accessing free services like the Financial Information Service (FIS) offered by Services Australia or see a Financial Adviser.

Financial security can transform retirement into a time of freedom and fulfilment, allowing retirees to focus on what truly matters. With a lifetime income stream you can enjoy meaningful activities like traveling, pursuing hobbies or spending quality time with loved ones without the stress of financial uncertainty.

The Challenger Retirement Happiness Index2 reveals that 41% of Australians aged 60+ see "having enough money to enjoy retirement" as essential for happiness, while 33% value knowing their money will last. This financial confidence provides the foundation for a retirement filled with confidence, happiness and peace of mind.

A well thought out retirement plan provides the confidence to enjoy life without the constant worry of running out of money. By understanding longevity risk and taking proactive steps, you can feel more confident that your retirement income will last as long as you do.