How long do your savings need to last??

The younger you are the easier it can be to cope with financial setbacks. That’s because there is usually a ‘tomorrow’ in sight when you can work harder, earn more, put things back in place.

Things change when you start planning for retirement and leave full time work. Suddenly you become aware that your nest egg will need to be very carefully managed so that it lasts the distance,

And barring unexpected inheritances or lottery wins, it’s unlikely to increase in a significant way. In fact it is possibly steadily decreasing as you drawdown on your savings such as your  Account Based Pension.

You’re entering a time when you are attempting to live off the earnings from these savings.

The big question is, of course, ‘How long do your savings need to last?’

Our research at Retirement Essentials indicates that running out of money is the greatest fear held by retirees. The good news is that there are now more accurate ways to measure the sustainability of your savings. This is because measuring your expected longevity is now easier and more accurate. And the use of digital technology, in the form of online calculators, allows you to do your sums much more quickly and efficiently.

Measuring your longevity used to mean subtracting your age from the expected lifespan of Australian males or females.

Now a lot more science is attached to this exercise. We know that the longer you live, the better your  life expectancy will be. The average life expectancy for Australian males, for instance, is 82.8. But if you are a male, currently aged 65, your life expectancy is 87.7 as you have already negotiated many of life’s mortality risks.  Life expectancy tends to be higher for women than men; better for people with a tertiary education and also better for people that are wealthier.  Having strong relationships and social networks can also improve life expectancy.  My Longevity has a great calculator that can help you with all of these factors and how they affect your life ex.

Why would you bother assessing your life expectancy?

More accurate information provides a better  understanding of how long your retirement income will be needed.  Should you be planning for your savings to last until age 80, 85, 90 or even 100. How much can you spend each year to get the balance right between a good standard of living today and ensuring your savings last the distance?

Our retirement spending guide can help provide some answers to this.

What if you don’t like the answer?

Retirement sustainability  is not only about projected income as measured today.  It changes over time so needs frequent reviews.  And there are other, sometimes powerful, levers you can activate to change your situation.

These include:

  • Working longer
  • Working more hours
  • Reviewing your risk profile and changing investment settings
  • Reviewing your spending and reducing your outgoings

There can also be an element of luck. Some people have retired in times of higher interest rates and strong share dividends and this has resulted in a steady income stream. Those who retire in a low return environment (beginning of the 2000s and currently) face a tougher situation.

As with any review of your appetite for risk and subsequent investment decisions, seeking advice is a sensible first action. Retirement Essentials offers Advice Consultations that can help with this

And if you believe that a review of your spending is in order, Retirement Essentials has a Retirement Spending Guide

This article is provided by Retirement Essentials Representative Number: 001260855.  We are an authorised representative of SuperEd Pty Ltd ABN 88 118 480 907 AFSL #468859.  This information is not intended as financial product advice, legal advice or taxation advice. It does not take into account your personal situation, goals or needs and you should assess your own financial situation, consider if the information is suitable for you and ensure you read  any relevant Product Disclosure Statement (PDS) if you choose to make any changes to your financial situation. It is always advisable to consult a financial adviser before making financial decisions.