About life expectancy
Using the ONS' tool, here's an example for a 65-year-old woman:
As the chart above shows, it's not just about average life expectancy but how far beyond that we may live too.
For a 65-year-old woman the average life expectancy is currently 87 with a 25% possibility of living to 94.
A 65-year-old man has an average life expectancy of 85 but also has a 25% chance of living to 92.
What does it mean?
Let's look at drawdown.
If you're going to use drawdown to provide your retirement income you'll need to know how long it will last.
So let's consider the example of a 65-year-old woman, as shown on the left. She has a £100,000 pension pot.
If her pension savings were projected to last to age 88, she might think that this would be more than enough.
However, as we've seen, she has a substantial chance of living well into her 90s, which would mean that if she used drawdown, running out of money in her late 80s would be a problem.
Let's now look at the same scenario but with an annuity.
Her £100,000 pot would provide an yearly income of £6,680 on a single life non-increasing basis, with no guarantees.
On this basis, it would take roughly 15 years for her to have been paid all of her money back and if she lives to 94 (which she has a 1 in 4 chance of doing) she would have been paid almost double.
“Understanding your own life expectancy is vital to ensuring a good retirement.
Many people underestimate how long they'll live for, which means they risk running out of money in later life.”
Josh Gordon BA (Hons) FPFS
Head of Financial Planning
What should I do next?
Find out about retirement living standards
More to explore
