Longevity in retirement – how long is your piece of string?

Kiwis and the rest of the developed world are rapidly living longer and longer each year, on average. This makes the prospect of retirement planning more critical than ever before. So, how long might your retirement be?

The numbers are compelling – over the last 100 years, on average the life expectancy in a “rich country” like New Zealand has increased at a rate of 3 months per year. If this continues, 50% of children born in rich countries today are likely to live to 100. 

It’s easy to imagine the pressures a few extra years will put on your retirement savings, and also the burden that will face tax payers and the government to keep social welfare at a healthy level in years to come. 

So, how long should you plan to save for?

Life expectancy calculators

There are a lot out there and all should be taken for what they are – a statistical guide only, and not an indication of how long you will actually live. 

Statistics New Zealand has a very basic calculator that’s easy for a quick guide – it’s an Excel spreadsheet that takes your age and gender and spits out an average life expectancy. Women on average live longer than men, and it’s worth noting that factors such as health, ethnicity and lifestyle choices will all play a part in your actual lifespan. 

Working beyond 65

Currently, almost 1 in 5 Kiwis over 65 is still in the workforce, but that is set to increase – sometimes by necessity, sometimes by preference, or both.

Let’s look at some scenarios from the last few generations.

> John, born in 1945, worked 42 years and retired for eight. He had to save only a small portion of his salary in a pension every month, which the government and his company also contributed to. 

> Doug, born 1971, has a life expectancy of 85. If he works for 44 years and retires for 20, he will probably need to save a massive 17% of his income during his working life. It gets worse.

> Sophie, born in 1998, will need to cover 35 years of retirement on the same 44 years of work. This means she’ll have to save 25% of her income – a stressful and potentially unachievable target once you consider other commitments like mortgages, student loans and childcare.

When you put it like this, it seems that working longer is likely to become a necessity for the majority. Getting serious about your retirement planning is now crucial.

How can you prepare for retirement?

The best time to start is yesterday, the second best time is today. It’s about plotting out your future, and making some estimates as to how much you might need. The Sorted website has a good retirement planner that allows you to forecast how much you might need in retirement based on your lifestyle preferences, and can estimate how much you’ll need in your KiwiSaver to afford it.

We always recommend talking to your Adviser about your retirement plans to equip you with practical solutions and ideas specific to your situation. Just knowing you are on the right path will be a weight off your mind. 

Need help? Ask an Adviser.

For a helpful chat about your retirement plans, send us an enquiry today and we’ll be happy to assist.

Sources: The New Zealand Commission for Financial Capability website (Sept 2016), Statistics New Zealand website (Sept 2016), The Economist ‘Live Long and Prosper’ (June 4, 2016) on the book ‘The 100­Year Life: Living and Working in an Age of Longevity’, by Lynda Gratton & Andrew Scott for Bloomsbury.

Photo by Mae Mu on Unsplash

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