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Pensions - freedom and choice...and danger | How long ...

In planning how to use pension savings to provide an income in retirement a key factor to consider is how long you will live.

People have a tendency to under-estimate their life expectancy and this creates a danger that they will exhaust their pension savings long before they die.

 The table below indicates on the basis of government mortality figures how many people out of an initial population of 1000 at age 65 will survive to different ages up to 100:

Survival rates for people retiring at age 65

Age

 

65

75

80

85

90

95

100

 

 

 

 

 

 

 

 

 

 

 

MALE

 

1000

885

785

625

420

200

60

 

FEMALE

 

1000

915

835

710

525

305

115

 

The average life expectancy for men is around 88 and for women 90.

At these ages 500 of the initial 1000 will still be alive and their average life expectancy would then be a further 6 years. So 250 men would still be alive at age 94 and 250 women at age 96 – i.e. a quarter of the 100 will survive to these ages.

Although based on people aged 65, the figures for people now aged between 55 and 65 surviving to these ages are pretty similar.

What these figures show is that if a person planned a strategy as would provide an income for 25 years after their retirement then 42% of men and 52% of women would exhaust their pension savings before they died, and would then have to rely on other sources of income.

A modeller, developed by consultants First Actuarial, accessed via http://Lifetime.faife.co.uk will provide further indicative information including how lifestyle factors can affect life expectancy.

An annuity, if purchased at retirement or at any time during retirement, provides an income for life and so removes the risk that you might outlive your savings.