Is it really worth it?

bowlhead99

kinger101 wrote: »

You've quoted me old figures.

https://www.gov.uk/government/publications/health-profile-for-england-2018/chapter-1-population-change-and-trends-in-life-expectancy

Not exactly old figures. Looking at different things. As you are taking period life expectancy at age 65 - rather than what ONS calls 'cohort' life expectancy described by the other poster, which drives the simple visualisation tool here

The cohort data is published every 2 years with data to 2016 published in 2017 and the data to 2018 not published yet. But the inadequacy with the 'period' version of the numbers is that it does not fully take into account all the data which shows that life expectancy is increasing over time, even though your link is talking about how life expectancy has increased in recent decades.

The cohort life expectancy for a 65 year old in 2016 looks at that cohort of people getting older and experiencing different mortality rates as they go through their life. So it uses the published mortality % rates for a 65yo in 2016, and assuming you don't die in that first year then the projected mortality rates for a 66 yr old in 2017 are relevant, and projected mortality rates as a 67 yr old in 2018, and what you are expected to get as a 68 yr old in 2019, and as a 69 yr old in 2020, and so on, until eventually you get to the expected (average) age at which you'll die.

Whereas the basic period life expectancy for a 65 year old in 2016 uses the published mortality % rates for a 65 year old in 2016 and then for a 66yo in 2016 and a 67yo in 2016 and a 68 yo in 2016 and so on, to assume that on average you'll die at age X

As government / ONS tell us:

ONS wrote:

Importantly, the cohort life table takes into account observed and projected improvements in mortality for the cohort throughout its lifetime. Cohort figures are therefore regarded as a more appropriate measure of how long a person of a given age would be expected to live on average than the alternative measure, known as period life expectancy, which is calculated using mortality rates for a fixed period in time.

For example, a period life expectancy at age 65 years in 2014 would use the mortality rates for 2014 for ages 65, 66 and 67 years and so on. Period life expectancy would match cohort life expectancy only if there were no change in age-specific mortality rates over time, an extremely unlikely scenario as in reality these change from year to year.

So your comments about 'a lot of misquoting figures' may be just a simple misunderstanding between different parties about what data we should sensibly use when trying to work out the risk of outliving our money. Of course, the 'average' is only a middle of the road version and people who are healthy and wealthy and smart enough to be on here doing research on retirement planning might live a lot longer than average, if they are fortunate.

You're missing the main point. It's entirely possible to plan to live to a ripe old age, with income, without using an annuity. Annuities are poor value for money.

Yes we are probably all agreed that annuities are not the highest-return way to provide for a long retirement because when you are building your retirement pot for the last 30 years of your career, you will use equities and higher-risk assets to provide growth rather than certainty, and one would expect a much lower return if for the subsequent 30 years you completely stop that investment activity and instead demand a fixed interest rate and guarantee from an insurance company.

The 'annuities are poor value for money' is highlighted at the moment because interest rates are very low compared to historic times. However, interest rates are not always at relative lows, and when they are higher, one might expect an annuity to be relatively 'better value'.

There's a lot of misquoting figures here. I'm debunking the 40 years from 65 nonsense. The chance of reaching that is near 1%. We don't need to plan on living to over 105 - certainly not to the detriment of being able to retire at a sensible age on a decent income.

40 years is a convenient number to throw out there as a retirement lifespan to show people that they should make a good effort to provide for their old age. For example, go to school, bit of further education, earn a salary for 40 years, no salary for 40 years, dead at 100 ish. Needs a lot of saving/investment. Hundreds of thousands of people have reached triple figures without assuming they would, and there has been a lot of improvements to health and tech and longevity in the century since they were born.

I take the point that 65+40 is a ripe old age that we generally won't reach. But reaching 65+30 or more, for a 65y/o woman, is shown by the cohort life expectancy tables as being about a 1 in 4 chance. Most people are familiar with the gamble of heads or tails. Living three decades past retirement is no more unlikely than guessing, and flipping, two heads in a row.

So, "make sure you have enough to last you more than 3 decades because you could quite easily do it", is sensible advice. "Plan for 4 decades to be on the safe side" may be overkill, but it is easier to talk generally about round numbers and if you break it down to individual years or part years people will criticise as they think you're implying you have some specific claim of accuracy.

I might get it disastrously wrong, but as long as there's enough left for a one way ticket to a clinic in Switzerland......

The travel ticket to fly to the clinic, and the processing fee for the services when you get there might only be a few thousand. But then there's the bribery for the friends or family members who you want to get to help you buy the tickets as you're too old and doddery to do so yourself, but they don't want to see you leave, unless there's some cash in it for them

Apodemus

kinger101 wrote: »

... I'm debunking the 40 years from 65 nonsense. The chance of reaching 100 is near 1%. We don't need to plan on living to over 105 - certainly not to the detriment of being able to retire at a sensible age on a decent income....

Eh, yes..but you raised the “40 years from 65 nonsense” yourself!. Since it was me that mentioned the 40 years I need to clarify that the figure I was quoting was for an RPI-indexed annuity rate of 2.7% at age 60. I’m reasonably healthy and my father lived to 92, my BMI is better than his and unlike him I have never smoked, so it seems reasonable that I might want to avoid running out of money at age 90 or perhaps even 95 or 100.

The thing is, for the risk averse, an annuity means you don’t have to worry about how long you might live, it will just keep paying out. Sure, that comes at a cost and the majority of annuity purchasers will lose out on the deal. But at an individual level, it remains a rational option for some people to take.

hugheskevi

Not exactly old figures. Looking at different things. As you are taking period life expectancy at age 65 - rather than what ONS calls 'cohort' life expectancy described by the other poster, which drives the simple visualisation tool here

It isn't important, but I'm not convinced kinger101 is quoting period figures although it is very possible. The cited source (which is this spreadsheet) does not state whether it looks at period or cohort statistics, and although the figures quoted in the article say:

The trend in life expectancy at age 65 years has been upwards in recent decades. In 2014 to 2016, males aged 65 lived a further 18.8 years (up from 16.3 years in 2001 to 2003) and females an additional 21.1 years (up from 19.2 years in 2001 to 2003).

there are figures for 2015-17 available in the spreadsheet, and the spreadsheet shows the figures as being for the 65-69 year age group. Unfortunately the figures are poorly documented in terms of assumptions and calculation methodology, but I think it possible they are cohort-based but for the group aged 65-69 rather than age 65.

You're missing the main point.

I'm simply saying it is reasonable to consider a retirement lasting close to 40 years if retiring at age 65 based on latest longevity statistics. 'Consider' does not mean that money needs to last that long, it can be a plan to consume less, rely on funds planned to pass on as an inheritance to deal with tail-risk scenarios, rely on releasing funds from main property, etc.

The chance of reaching 100 is near 1%.

The 2016-based cohort life expectancy statistics from the Office for National Statistics do not support this.

It is also important to note that there are many factors which bias the average. This is well-illustrated by looking at the longevity assumptions used by Defined Benefit pension schemes (Table 6.1 on page 39), which shows that a male pensioner aged 65 is assumed to live to 87.8 and a female aged 65 is assumed to live to about 89.8. These assumptions are higher than the population average, reflecting the different characteristics of the population who have private-sector Defined Benefit pensions. For example, those with such pensions tend to be higher-income than average, and as they have a history of work will exclude the most seriously sick who have not been able to work, and so forth. Hence individuals who are fit, healthy and reasonably well off need to adjust the population average statistics upwards by a couple of years.

We don't need to plan on living to over 105 - certainly not to the detriment of being able to retire at a sensible age on a decent income.

We do not need to plan for as a central scenario, but it would be sensible to consider the financial implications of tail-risk scenarios. 40 years is a bit high, but 35 years is sufficiently likely to need to be considered as it is probably a little better than a 1 in 20 chance for a healthy, fit and reasonably well off 65 year-old.

jamesd

40 or not is a interesting but not that big a deal compared to 30 because the effect on safe withdrawal rate is modest compared to other things:

1. UK 4% rule draws 3.7% before costs. 30 years, 100% success rate requirement.
2. UK Guyton-Klinger starts drawing 5.5% before costs. 40 years, 95% success rate requirement.

There's already a lot of safety margin built into safe withdrawal rates just because we're likely to live through better times than the worst case we pick. I rather like Blanchett's work on how success rate can be varied based on income flexibility and how much of the income is guaranteed. Picking the right - not too high - success rate is another big deal issue.

kinger101

Apodemus wrote: »

Since it was me that mentioned the 40 years I need to clarify that the figure I was quoting was for an RPI-indexed annuity rate of 2.7% at age 60.

2.7 percent is a tad optimistic at the moment, unless it's a single policy. You'll get it for a joint-life 3 percent escalation.

If you think you've a good chance of living that long, why not leave a larger portion of it in stocks longer?

Maybe I'm fortunate in the state pension + a DB scheme will keep me above the breadline. I can afford to be bold with my DC pot.