Managing longevity risk

Longevity risk is one of the biggest risks that retirees face and is the risk of outliving your savings.  Longevity issues arise as people enter retirement, generally with a fixed amount of money to fund their retirement years but with no idea how long they will live or how long their money needs to last.

Longevity risk is made up of two unknowns, which are:

  • how long a person will live
  • how investment markets will perform over that time

According to the Australian Bureau of Statistics, over the last 50 years the life expectancy for a newborn male increased from 66.1 (born in 1946-48) to 80.1 years (born in 2011-13).

In line with this, the life expectancy for a newborn female increased from 70.6 to 84.3 years during the same period.

So, how do you manage longevity risk?  This is where the importance of your investment strategy comes in and being able to balance the following objectives:

  • Sustaining a comfortable standard of living in retirement, ideally similar to your pre-retirement lifestyle.
  • Maximising your Age Pension and other potential social security benefits
  • Protecting your savings against being eroded by inflation and volatile markets
  • Having access to savings to pay for any unplanned expenses, without penalty
  • Minimising the risk that you will outlive your wealth

It's important to have a spending and investment strategy in place that is flexible enough to be able to respond to a variety of factors, such as your changing retirement income needs, unexpected large expenses, market movements and regulatory changed to Age Pension and super which, in turn, helps manage longevity risk.  If you are concerned that you may not be able to sustain your income through retirement, give us a call on (03) 6231 3448 to make an appointment today.