Can you afford to live to 95? What you need to know about retirement planning

retirement planning

When it comes to planning for retirement, there are so many questions. How much will I need annually? How do I budget? How can I get the most out of my superannuation?

Most of these questions, with a little thought and planning, can be answered. But there’s one important question that stumps us all: How long will I live?

Calculating when you’re likely to die and whether you’ll be able to afford to live that long is not a fun Friday night activity – nor is it a romantic topic of conversation for you and your spouse. But it’s a conversation worth having, because the data suggests many of us will live much longer than we expect.

Statistically, almost one in five women will reach the age of 95. One in 10 men will do the same.

For a male and female couple aged 65, there’s a 49 per cent chance that at least one will live to the age of 91, and a 24 per cent chance that at least one will live to be 95.1

If you retire in your sixties and live to your nineties, that’s about one-third of your life spent in retirement. It had better be good!

Well, it can be great – if you plan carefully. The best time to start is now.

Here’s how to get started.

1. Assess your financial position

Make a list of your assets and their value, along with any savings, investments and superannuation. This gives you a solid starting point for planning how much you’ll need once you reach retirement.

2. Understand your future income needs

Living longer than expected has all sorts of financial implications. If you plan to live to 85 and end up living to 95, you somehow need to make your money last an extra 10 years – not to mention the fact that living beyond the average life expectancy often costs more in long-term care and medical bills. So not only have you not budgeted for these years, but life is costing even more than before.

Contrary to popular belief, it’s not only about the size of your nest egg. It may be better to look at how much income you’ll need to live the lifestyle you desire.

You can minimise the risk of running out of money by ensuring income from investments. As the property and share markets are prone to change, keep your goals flexible and take calculated risks based on your life stage.

If you’re still a decade or two away from retirement, you may take a riskier approach and invest in high-growth assets, but if you’re closing in on retirement, you might take a more conservative approach to protect what you have. Be aware that while investing in cash and bonds is generally seen as safer, there is a risk your returns may not keep pace with inflation, meaning less income when you really need it.

3. Plan, plan, plan

When you reach your eighties, you want to be enjoying your twilight years, not stressing about how you’re going to afford to live another 10 years. By planning early, you can make things much easier on your future self.

If you don’t have a financial plan, make one. If you have one, reassess it. Take off those rose-tinted glasses and ask yourself: is this plan going to get me to where I want to be when I retire? If not, what changes can I make to improve my position?

What do I need to plan for re aged care? What happens if your spouse is well but you aren’t? How do you fund the aged care bond and ongoing fees? What are other alternatives.

There are simple steps you can take now to improve your financial outlook as you head into retirement. To avoid taking debts into retirement, make it a priority to pay them as quickly as possible. Work a couple of extra years if that’s what it takes. Sell any assets you no longer need and cut down on unnecessary spending.

Although the pension is available to you if you need it, it is means tested so think of it only as a safety net and plan not to need it.

Speak to a professional financial planner who can help you devise strategies to help you meet your retirement goals.

Although none of us can predict how long we’ll live, with the right plan in place, you can enjoy a long, happy and financially secure retirement.

  • Helen Baker is a licenced Australian financial adviser  and author of two books: On Your Own Two Feet – Steady Steps to Women’s Financial Independence  and On Your Own Two Feet Divorce – Your Survive and Thrive Financial Guide. Helen is among the 1% of financial planners who holds a master’s degree in the field. Find out more