Many people over the age of 50 are underestimating how long they will live for, which means they are potentially risking not having enough money for the whole of their retirement.
Research by Retirement Advantage found that 78% of people in their 50s thought they would live to 82. However, Government statistics estimate that men aged 50-64 will live to be 88, while women of the same age will make it to age 90.
To add to the problems, these are just averages. Some of the millions of people who are underestimating how long they will live could end up enjoying a retirement of more than 30 years.
You're likely to live eight years longer than you think
The survey found that 83% of the women surveyed thought they would live to 82. In fact, official statistics say the average woman currently aged between 50-64 will live to 90. Many will live even longer than that, with more and more people making it past their 100th birthday.
Of the men surveyed 75% thought they would die before they reached 88. In fact, that is the average life expectancy for a man currently aged 50-64.
The problem with the big discrepancy between how long people think they will live, and how long they are likely to live is that people may not be saving enough for retirement because they aren’t planning for a long enough retirement.
To add to the complications the pension freedoms mean you can now start dipping into your pension pot from the age of 55, which could mean you take money today that you could desperately need in the future.
“The pension freedoms have given people the opportunity to plunder pension pots early, often before planned retirement ages. This is potentially storing up trouble for the future, especially if people are underestimating how long these pensions need to last in retirement,” says Andrew Tully, pensions technical director at Retirement Advantage.
The pension freedoms have also stopped the practice of forcing everyone to buy an annuity. Many see this as a good move as annuity rates have plummeted in recent years leaving people handing over large amounts of money in return for a relatively small annual income.
That said, the big plus point of an annuity is it provides you with a guaranteed income for life – regardless of how long you live.
With life expectancy steadily increasing this leaves people facing poverty in their final years if their pension pots run dry because they didn’t estimate their life expectancy correctly.
One solution to this could be to buy an annuity with part of your pension savings so you can guarantee you will always be able to pay for your basic needs.
You could be getting your pension sums wrong
“Planning for retirement can be a complicated business and no-one knows how long they will actually live,” says Andrew Tully.
When you are thinking about your pension needs you have to weigh up how much you can afford to save, what income you think you’ll need in retirement, when you want to retire, whether you will give up work completely, how long you might live, and how much you might need for care.