Retirees could lose out after underestimating life expectancy

Published by Holly Black on 16 April 2018.
Last updated on 16 April 2018

Brits may not be saving enough for retirement because they are underestimating how long they will live.

A report by the Institute for Fiscal Studies (IFS) reveals that people are routinely misjudging their life expectancy. Men interviewed at age 65 believed they had just a 65% chance of reaching age 75, but the official estimate is 83%.

So-called survival pessimism could mean retirees are left with a shortfall as they are not financially prepared for their life expectancy. The IFS says people who underestimate how long they will live may save less during their working life and spend more in the earlier years of retirement.

It is estimated that around 65% of people could misjudge an annuity as offering an unfairly low income because they have overestimated their life expectancy.

David Sturrock, research economist at the IFS, says: “As individuals are given more responsibility for saving for their retirement, and more freedom over how they use those savings in their later years, it is a particular concern that may are systematically misjudging their longevity.”

Current life expectancy in the UK is 78 for men and 82 for women. But lifespans are increasing rapidly and around two-thirds of those born now are likely to live to reach 100. 

But those in their 70s and 80s are more optimistic, routinely overestimating how much longer they will live. Almost a third of 80-year-olds predict they will reach they 95th birthday – almost double the official estimate of 17%.

Experts point out that these people may spend too little, potentially reducing their overall living standards in a bid to eke out their wealth.

Mr Sturrock adds: “When people underestimate their chances of surviving through their 50s, 60s and 70s, they may save less and spend more than is appropriate given their actual survival chances.

“In contrast, people who overestimate their survival chances may show an undue reluctance to spend their remaining wealth near the end of life.”


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