The rainbow of death

The rainbow of death
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I have a theory about why pensions are so problematic. It’s probably not the whole story, but I bet it plays a part. You see, there’s a rainbow of death that no-one realises exists. Except perhaps actuaries. So here are my thoughts, using some good old statistics to help explain. It’s happening to me, you see. I’m seeing the rainbow myself.

When I was 21 and just starting work, all the statistics said “Men live until they’re about 73”. So I thought that if I retired at 65, which seemed like the right sort of age, I’d only have 8 years in retirement. Seemed unfair, since women lived a few years more, but I accepted it. And quite frankly, I could probably sort myself out for 8 years. So why bother doing much saving?

Then the rainbow started to happen, although slowly at first. I realised that the life expectancy for a 21 year old was actually age 74. So really, I’d have 9 years in retirement, not the 8 I had first thought. But hey, does that really matter? What’s 1 year?

Approaching 40, I realised the life expectancy for a 40-year-old was age 75. So that’s just extended my retirement by yet another year. That made me think more about what would happen when I actually retired. The statistics showed that if I did actually retire at 65, my life expectancy at that point would then be to age 79.

So really I should be counting on about 14 years in retirement, not 8. Now that’s a bit more serious and I’d have needed to have some savings to make it through.

Other changes have happened since I was 21 too, moving the rainbow back even further. Medicine is thankfully better and our standard of living mercifully higher. The new millennials have an expected innings of 75, those born today are likely to make it to 80 on average and it’s predicted that those in 2035 will get to 84. The rainbow continues to move even without me getting older. So let’s add another 9 or so years to mine too.

The older I get, the longer I’m expected to live. So, like a rainbow, you can travel quite some way and never reach the end. OK, so life is not completely like a rainbow (there is an end, eventually), but hopefully you get my point. We underestimate the amount of time we’ll need to support ourselves in retirement. I suspect not many 100-year-olds ever thought they’d live quite that long.

What to do? Like all plans, it’s best to keep checking you’re on track regularly. All these changes are gradual, so if I’d been reviewing my savings each year using a realistic planning tool I would have been checking and altering my contributions gradually, and my retirement plans would be as bright as the sun which accompanies all rainbows.

Wish I’d known that when I was 21. I would have started saving more for my 25 years in retirement!

Andrew Storey

Andrew, a Fellow of the Institute of Actuaries and a keen technology advocate, uses his unique mix of skills to help clients understand what our range of solutions can do to provide the financial insight they demand.

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