Actuaries Institute finds a fatal flaw in retirement planning

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Australians are severely underestimating how much money they’ll need for how long they will live, says the Actuaries Institute, which claims longevity tables need to be reviewed.

“The tables have a material impact on the way retirement income strategies and products are evaluated, and currently underestimate longevity,” said the Actuaries Institute.

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

The institute claimed that a couple consisting of a male aged 65 and a female 62, would need a plan that lasts until the male is 100, so that they can be 80 per cent sure their financial plan meets their potential lifespan.

“That is 16 years longer than if the adviser used the simple look-up table for a 65-year-old male,” it said.


Actuaries Institute president Nicolette Rubinsztein praised the government’s commitment to improving retirement income products but decried the tools that it and financial advisers use to assess life expectancy. She said that today’s basic lookup tables do not reflect the rapid and consistent increases in Australian lifespans, and using them will negatively affect retirement income strategies.

“Life expectancy calculations are often required in the superannuation and financial planning industries,” said Ms Rubinsztein.

“They have a material impact on the way retirement income strategies and products are evaluated. A healthy, well-educated female entering retirement today, who had an affluent career and enjoys a good quality of housing, is just as likely to live beyond age 100 as she is to die before age 80.”

The current tables overlook factors that affect longevity, such as improvements in medical research, living standards, nutrition and lifestyle, education, occupation, genetics and wealth.

Research note author Jim Hennington states said that if an adviser group has 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,” he wrote.

“Clients need significantly different advice and strategic investments than if their life expectancy was assumed to be age 84 or 87.”

The note also highlighted that any uncertainty in how long a person will live will also affect other aspects of retirement planning.

Do you think current longevity assessments are correct? Are you worried that you’ll outlive your retirement savings? Should longevity tables be reassessed annually?

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Written by Leon Della Bosca

Leon Della Bosca is a voracious reader who loves words. You'll often find him spending time in galleries, writing, designing, painting, drawing, or photographing and documenting street art. He has a publishing and graphic design background and loves movies and music, but then, who doesn’t?



Total Comments: 31
  1. 0

    Remember – I said to the local newsagent 20 years ago that he’d need about $2m in super for a good retirement – now the figures tossed around as providing a reasonable retirement is $1.6m – and indexed…. or should be…

    The bills don’t keep getting smaller because you’re not working…

    Thank Tony Abbott for that one – he referred to fat cats on $150k still having bills to pay when taking time off for sprogging, as if such a family could not budget to cover their costs like 99% of people in this nation have and had to do…

    Now it comes home to bit his kind over and over, by referencing it to other and more pertinent issues…

    The bills don’t stop because:-

    You travel overseas.
    You retire from work.
    You get sick.
    You are booted to the gutter from work.
    Your business/workplace is burnt out.
    .. and so forth….

    Kinda makes those on $150k needing PPL etc look pretty good, eh??? Socialism for the fat but not the thin…

    • 0

      Welcome to Around The World With Trebor, the show for the thinking genuine Australian – a dying breed…

      Gotta get me that fishing trawler and sit off the coast and Brando ’em on the mainland…

      “The government sends young people out to work in Macca’s one hour a week and starve and calls them employed and cuts their already chopped Youth Allowance… but it won’t let them say “F**k” at their Centrelink Office…”

      Coupla chestnuts in the cheeks and a raspy voice…

    • 0

      How many of those 95 year old or even say 80 to 95 year olds are running around doing lots of activities. Obviously some do but to suggest that these is this massive number of 95 year olds spending as much money at that age as they do when they are 70 is ridiculous.

      Also we maybe living longer but again what quality of life are we having, they may stop/slow down illnesses but those people are often sitting/lying around doing nothing.

    • 0

      I expect to spend more as I age for services in the home and garden and medical care.

  2. 0

    **splutter – blow froth off top of beer** .. ACTUARIES Institute? What the hell would they know about hunger gaming?

    • 0

      Hunger Gaming is when a poor person stakes a pension on the pokies in the fervent wish to win a motza and eat well for a week… only one winner and only one survivor… the rest perish like autumn leaves in a bushfire…

    • 0

      Hunger Gaming would have been an apt term to describe the scene in the Western Suburbs Leagues Club in 1980. A much younger and more naive moi could not believe how many folk, mostly women, were tearing open their pay envelopes and proceeding to feed the contents to the pokes over the next hour or two. I wondered how did they explain this to their families. Meanwhile for a little over a week my dad and I enjoyed the cheap meals and beers subsidised by these “hunger gamers” while in Sydney visiting from Perth.

  3. 0

    How do you know how much you need in retirement.Food cost alone will blow most budgets as this never ending drought rolls on.We have a government that has not planned for the future so how can we.

  4. 0

    Part of the review of the retirement system should involve consideration of allowing people to buy extra age pension from the government either using assets or equity in their homes. This will give them longevity and investment protection. Pooling of the risk gives benefits to all. The government could offer a good rate as its in their interests. However, there are plenty of technical considerations not to mention political. Compulsory or voluntary for part of your retirement savings? What to do on early death? How to set mortality rates?

  5. 0

    The questions are:
    “Do you think current longevity assessments are correct?”
    “Are you worried that you’ll outlive your retirement savings?”
    “Should longevity tables be reassessed annually?”

    Yes, I believe that the current longevity assessments are correct because they are achieved by calculations from the Census. I don’t know of any better way to calculate age expectancy figures. They are, after all, an average.

    Anyone that doesn’t answer yes to the question about outliving their savings must be very, very rich. At present, our super averages higher than the 5% compulsory drawdown but what the future holds is unknown.

    I see no reason to change the current system by the ABS, each four years should give an acceptable average. I note that to achieve an average one adds up all of the numbers and divides the total by the number used to achieve the total. There will be winners and losers but I can’t see any more acceptable way. As Kenny Rogers mentioned, it’s best to die in your sleep but I might add that to do so one day before your money runs out would be everyone’s choice.

    I note that this forum has lately been quoting from actuaries and I wonder where they come from. Following the introduction of computers, the jobs of actuaries has almost disappeared. Are the remaining few suffering from relevance deprivation syndrome?

    • 0

      The problem it’s an average. It’s affected by those who die early. What if you live much longer than the average? Hence pooling averages out the risk for all but most people worry about “losing” if they die early. To a degree you can have some payments in these cases but the more you do this the more you defeat the purpose. Can’t have it all.

    • 0

      Thanks Macheke, I can’t think of any other way than that used at present. Perhaps those who die before the “average” can have their assets handed over to those who are live above the “average”. *totally tongue in cheek*

    • 0

      Horace. Not totally tongue in cheek. If people are required to buy a lifetime pension with their super (after keeping some minimum amount) they would then have a pension for life. For me this system would be best be offered by the government as could give better options than private enterprise. The technical and political issues are complex though.

    • 0

      Difficult Macheke, I worked for an organisation for a time which had super as a part of the employment. On retirement there was only the ability to take the pension as a fortnightly payment which was approximately ¾ of the final salary. All good except that an ex employee who was in his 90’s did not have enough money to bury his wife. The super was indexed to CPI but wages were higher than CPI and buying power over the 30 years since his retirement didn’t keep up. Sure, that’s an isolated case but my fear is how to tailor a lifetime pension that maintains the buying power.

    • 0

      Horace, “the jobs of actuaries has almost disappeared” … surely you jest. Actuaries are playing bigger roles in more industries than ever in the world of big data and increased computing power.

    • 0

      The jobs for some Actuaries have disappeared. They are now retired with one I know travelling, playing in a rock band, doing amateur stand up and having plenty of time to post on life choices lol.

  6. 0

    Nobody can accurately assess how long they are going to live. If you have any kind of reasonable Super you might as well spend it and have a good time early in retirement while you are still healthy enough to enjoy the fruits of your labour. This is a change in mindset from always saving for the future. Once you are retired that IS the future. As you get older you probably won’t travel as much and will make do with less therefore will probably be able to manage on the Aged Pension. A QSuper presentation told us not enough people are spending enough of their Super early in their retirement.

    • 0

      Interesting. I agree why would you leave the bulk of your wealth to others. Spend it and enjoy it while you are in good or reasonably health.

    • 0

      It’s a balance which is hard to get right because it’s hard to predict what you will need to live, how long you will live and how much your investments will earn. Hence solution needs to involve lifetime pensions with CPI increases and more efficient to do this via government.

  7. 0

    Given that people are worried they will outlive their super, it makes sense to plan earlier for a longer life. After all, if you plan for and spend as if you will live into your 90s it’s a win all round: you get a more comfortable, stress free retirement and the kids get to inherit more if you cark it sooner!

  8. 0

    How can the fully privatised market risk system actually predict any future correctly? It’s not possible.

    i held insurance with MLC for decades and the prediction was a payout of $80 000. I actually got $23 000 that was how poorly the prediction worked out.

    One good market correction and all this becomes a nonsense.

    Privatisation of the retirement system is excessively risky and expensive.

    Just taxing everyone properly and a universal pension would be cheaper and more effective in my opinion.

    • 0

      I agree that a well managed government system should deliver a better outcome as there are no solvency and profit margins. Pooling is also national not just insurance client base.

    • 0

      So I take it you consider the ‘private industry model’ to not be appropriate to this situation? As it plainly is not to countless others, salient ones being water management…. a huge issue at this time…

      We’re fire free, thanks all – just smoke and evacuees arriving.. visited the RFS today and offered help and then checked the rallying point for evacuees.. all under control…

    • 0

      Hi Trebor, The more I watch democracy in action anywhere in the world the more its obvious failings stand out. I am not advocating a dictatorship as these have obvious failings too. What we as voters should be pushing is that whoever is in power has a bi-partisan approach to solving serious issues or that independent boards are set up like the Reserve Bank with a particular charter. Bi-partisan solutions are more likely to be balanced and fair and stand the test of time. The superannuation review was announced by Josh Frydenberg and in the same breath he said that the family home would not be included in the assets test. The reason is simple. He would lose his seat in his electorate. It is clearly not fair to exclude the family home not matter what its value. A bi-partisan group would come to this conclusion easily and the recommendation would be a joint one so that the LNP would not have to “take the blame” and have this an election issue. Without this we will get a half baked, complex and unfair solution which Labor would and should change when they get in one day.

  9. 0

    Bren it is similar to the pension loans scheme but the difference is the retirees part with a lump sum that is converted to a lifetime pension with CPI increases. I think the government could offer really attractive terms like an effective return of CPI plus 4 or 5 %. Much more attractive than most retirees can achieve without risk which is obviously a key concern. The government could earmark the funds for infrastructure investment and hence justify this return plus it lessens the risk of these people falling in the age pension later in life which is what will happen if they invest in term deposits. The other option is to exchange the equity in the home for extra pension. The government gets the money on death of survivor or if they finally sell to move into age care.

  10. 0

    Only yesterday or say before YLC was telling ys we are underspending our super & saving it for a rainy day that we wont live long enough to se..hhhmm surveys area load of crap!

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