Managing super in retirement is a growing concern for many Australians, partly due to the quality of life we expect, but largely because we are living longer.

How long will retirement savings last?

A key to enjoying the quality of life you may desire in retirement is financial security. However, we often find that many Australians are unaware of the level of savings they require.In particular, they tend to underestimate how long they can expect to live in retirement. In the past, reaching 75, or even 80 years, was considered a good age; today most retirees could look forward to living well past this age, and can generally expect to be healthy and active for a good part, if not all, of their retirement.

Looking at the numbers?

In considering life expectancies there is a tendency to focus only on averages when looking at the numbers. For example, The Australian Life Tables show that the average 65 year old man will live to 86, while the average 65 year old woman will live to 89. However, these figures do not provide us with the full picture of just how long we could potentially live.

The table below indicates out of a group of one hundred Australian couples aged from 65 years, how many are expected to survive to various ages:

So, if we take one hundred couples aged 65, then 70% of the couples may have at least one partner alive at age 90 and 24% of couples could have at least one partner alive at age 100. Plus, with continuing improvement in medical technology and knowledge it is expected that life spans will become even higher. 

The “10-30-60*” rule

What the figures in the table also indicate is the importance for retirement plans to incorporate a long retirement period – that is, certainly planning to live past age 90.

To help us illustrate the crucial role that post-retirement investment returns can play in generating retirement income, let’s consider one rule of thumb, the “10-30-60” rule. This rule states that if an individual saves a constant percentage of salary from age 25 to 65 then spends it over around 25 years, then for every dollar of retirement income, 10 cents consists of savings contributed, 30 cents comes from earnings on savings prior to retirement and 60 cents comes from investment returns earned during retirement. (These figures assume an investment return of about 7.5% per annum is earned throughout retirement).

So what can you do?

In order for the 10-30-60 rule to work, super savings should be held within the superannuation system as long as possible.

One way to help achieve this is by taking a benefit as an  income stream rather than a lump sum. It is also important that super savings are invested in an investment option which will produce greater returns over time. Of course, there is a trade-off between risk and return and everyone is different when it comes to how much risk they are comfortable with.

So set your sights on the long haul and remember, even in retirement, your super savings may need to last you a very long time to come.

This article was written and provided by Russell Investment Management Ltd ABN 53 068 338 974  AFS Licence 247185