Help combat longevity risk

Longevity risk is the risk that a client could outlive their income. Understanding life expectancy is crucial in retirement planning to ensure clients' savings provide a secure, lifelong income avoiding longevity risk. Consider the following:
 

• Are you and your clients planning for longer than average life expectancies? 
• Will your clients be able to meet their necessary costs of living if they outlive their savings and are reliant solely on the Age Pension? 
• What level of certainty do your clients want that their savings will last for their lifetime?

Understanding your clients’ life expectancy

Understanding a client's potential lifespan is key to crafting a robust retirement plan. While average life expectancies provide a baseline, individual factors such as health, lifestyle, and family history must also be considered. Challenger's Retirement Illustrator can help estimate life expectancy more accurately. You can access the Retirement Illustrator on AdviserOnline. 

Period vs cohort life expectancy

Another measure of life expectancy, known as ‘cohort’ life expectancy, takes into account improvements in mortality. Using cohort life expectancy it is projected that¹.

• A 67 year old female today is expected, on average, to live to age 90, and a 67 year old male until age 89.
• Compare this to standard period life expectancies, which suggests that a 67 year old female could expect to live until age 88, and a 67 year old male, until age 86. 
   

¹Australian Life tables 2015-2017. 

How can retirees combat longevity risk?

While you can’t control how long your clients will live, there are a number of strategies you can put in place to help address longevity risk. 

An income layering strategy can provide your clients with a certain level of lifetime income using a number of complementary income streams. 

This could involve using income from ‘secure’ sources, like a lifetime annuity and the Age Pension, to pay for your client’s essential costs, and using income from ‘market-linked sources’, like an account-based pension, to pay for their discretionary costs. 

By adopting this strategy, you can ensure that your client has the cash flow to afford their lifestyle throughout their retirement and doesn’t rely solely on the age pension at any time.

Challenger's Lifetime Annuities provide guaranteed regular income for life, regardless of how long your clients live. This approach offers:
 

• Predictable income: Monthly payments that continue for life
• Peace of mind: Financial security knowing they won’t outlive their income
• Inflation protection: Options to link income to CPI
   

Using annuities to combat longevity risk