Longevity risk: Will you outlive your savings?
Written and accurate as at: Mar 14, 2025 Current Stats & Facts
When we map out what our retirement will look like — or what we hope it will look like — there are plenty of assumptions we have to work from. Few, however, have as much uncertainty swirling around them as how long we’ll live.
Thanks to new medical technologies and lifesaving wonder drugs, the life expectancy of the average Australian is now much higher than it used to be. While this is good news, it means our finite savings now have to stretch a lot longer to cover those extra years.
For soon-to-be retirees and Australians who have already hung up their hats, this can be a major source of stress, especially when healthcare costs, inflation and unexpected bills are factored in. But that doesn’t mean that a retirement that’s both long and prosperous is out of reach.
How long you can expect to live
While life expectancy in Australia fell slightly during the pandemic years, it’s still one of the highest in the world. Only citizens of Japan, South Korea and Switzerland enjoy longer lives than the average Australian.
ABS data from 2024 puts life expectancy at birth at 81.1 years for boys and 85.1 for girls. But those numbers aren’t static — the chances you’ll reach an older age tend to go up as you survive each decade.1 For example, by age 60, the average Australian man and woman can expect to live until 84.2 and 87.1, respectively — slightly higher than their life expectancy at birth.
Of course, how long you’ll live will ultimately come down to your health and the kind of lifestyle you lead, but it’s good to have an estimate to work with.
What is longevity risk?
While your life expectancy might not seem all that pressing now, it warrants much more attention once you begin planning for retirement.
It’s at this point that longevity risk — that is, the possibility that you’ll outlive your retirement savings — becomes a genuine concern.
While the Government Age Pension can provide much needed assistance, it might not be enough to give you the lifestyle you want. And there’s always the chance that medical bills or aged care costs will pile up, adding to the financial burden.
Many retirees self-insure against longevity risk by tightening their purse strings or only drawing down the minimum amount of super each year. But this can be a problem in itself — while you’re less likely to burn through your savings, you might wind up denying yourself the retirement you dreamed of all your life.
Going the distance
Average life expectancy statistics are a useful starting point, but there’s a 50% chance you’ll live beyond the average. You might be better served assuming maximum life expectancy and letting that inform your planning. Here are a few ideas to get started:
- Top up your super: If you’re still working, making extra contributions to your super from your take home pay or via salary sacrificing can get your super balance looking healthier, setting you up for a more comfortable retirement.
- Be flexible: Your retirement strategy doesn’t have to remain fixed from the outset. Being adaptable — whether that means paring back your spending, downsizing your home, or working part-time — can be the key to making your savings last.
- Find out if you’re entitled to the Age Pension: Assuming you satisfy the income and assets test, the Government Age Pension can be accessed alongside or in place of your super, providing a much needed safety net.
- Consider a lifetime income stream: For more certainty around your retirement income, an annuity, for example, can help provide a predictable, fixed income stream that lasts for the remainder of your life.
Finally, it helps to speak to a financial adviser. There’s no ‘one size fits all’ approach to retirement planning, and a qualified financial adviser will be able to look at your unique circumstances and recommend a plan to help keep headwinds to a minimum and your retirement goals intact.
Sources
1 Australian Bureau of Statistics