Retirement planning is about more than saving enough; one of the critical variables is how long your savings will need to last. In Australia, as elsewhere, increasing life expectancy means retirees are living longer than past generations, which has major implications for retirement savings, withdrawal strategies, and financial risk management. Below I explain what life expectancy is, how it affects retirement, how withdrawal strategies can be adjusted, risks you need to account for, common mistakes, and why personalised advice matters.
What is Life Expectancy?
- Definition
Life expectancy is a statistical estimate of how long, on average, a person is expected to live based on their current age, sex, and prevailing mortality rates. There are several types:- Life expectancy at birth: how long a newborn is expected to live under current mortality rates.
- Life expectancy at a given age (e.g. at age 65): how many more years one can expect to live, given survival to that age.
- Cohort vs period life expectancy:
- Period life tables measure mortality rates of a specific period and apply them forward.
- Cohort life tables try to adjust for expected future changes (e.g. mortality improvements). (actuaries.asn.au)
- Recent Australian Statistics
Some relevant figures in Australia (as of recent ABS / Government Actuary data):- A male born in 2021-2023 can expect to live to about 81.1 years, a female to about 85.1 years. (AIHW)
- A person who has already reached age 65: expected further life is longer. For example, as of recent estimates, a 65-year-old man is expected to live to about age 85, and a woman to about 88. (TALGroupHQ)
- If one uses cohort‐life tables (which assume improvements in mortality over time), life expectancy tends to be several years higher than period‐life tables. For example: for a 60-year-old male, cohort life expectancy is about 87.9 vs period life expectancy about 84.0; for females similarly about 89.8 vs about 86.9. (actuaries.asn.au)
- Why these figures matter
Because they set an estimate of how many years your savings need to cover. Underestimating how long you'll live increases the risk of depleting funds in older age. Overestimating may mean being overly conservative, possibly leaving unused wealth or unduly restricting spending.
Impact of Life Expectancy on Retirement Savings
- Longevity risk
The risk that you will outlive your savings. If life expectancy increases, or if you personally live substantially longer than average, then retirement can last 25–30 years or more for someone retiring at 65. This requires larger savings or more cautious spending. - Time horizon for investments
Living longer means your investment portfolio (superannuation savings, private savings, etc.) needs to be invested with a longer timeframe, which affects asset allocation, risk tolerance, exposure to equities vs fixed income, etc. - Withdrawal strategy pressure
Longer lifespans mean higher cumulative withdrawals; small adjustments early or assumptions about returns matter greatly. Also fees, taxes and inflation can erode real value over decades. - Superannuation policy / pension age effects
Australia’s aged pension age, and access to superannuation, interacts with life expectancy. If people live longer but retire earlier (or access their super earlier), then they need to fund more years pre-pension or with lower income. (ABC)
Withdrawal Strategies: How To Modify Them to Stretch Your Funds
Given longer life expectancies and uncertainties (inflation, market changes), retirees can use several strategies to improve the odds of funds lasting.
- Safe Withdrawal Rate (SWR) rules / heuristics
- The well-known 4% Rule: withdraw 4% of your portfolio in the first year of retirement, then adjust each subsequent year for inflation. Traditionally intended for a 30-year retirement horizon. (ID Advice)
- However, research (including Australian perspectives) indicates that the 4% rule may not always be “safe” in all contexts, particularly with lower returns, higher inflation, or longer retirements. (Griffith University)
– For Australians, some studies suggest lower or more flexible withdrawal rates given local market behaviour and inflation risks. (Morningstar)
- Dynamic / adaptive withdrawal strategies
- Adjusting withdrawals over time based on portfolio performance: reduce in down markets, perhaps increase in up markets.
- Using bucketing: keeping a portion of cash or low-volatility assets to fund near-term years (say first 5-10 years), reducing pressure to sell volatile assets in down markets.
- Including “guardrails”: thresholds at which spending is reduced or increased, rather than rigid fixed percentages.
- Delaying retirement or partial work
- Working a few extra years reduces the number of years needing full withdrawal.
- Also, delaying access to certain superannuation or pension benefits increases compounding period.
- Annuities / income streams
- Using part of savings to purchase lifetime annuities can shift longevity risk (i.e. the risk of living too long) to the insurer.
- Hybrid strategies: keep portion invested, portion in guaranteed income (pension, annuity, bond ladder).
Accounting for Inflation, Market Changes, and Other Risk Factors
When calculating withdrawal amounts or planning general retirement strategy, it’s essential to include several risk factors:
- Inflation
- Inflation erodes purchasing power. Even moderate inflation (e.g. 2-3%) over decades compounds significantly.
- Australia’s inflation target is around 2-3% (RBA target band), but historical inflation has varied. Withdrawal strategies should adjust annually for inflation. (Pearler)
- Sequence-of-returns risk
- If the market drops sharply early in retirement (when the withdrawal percentage is high relative to portfolio), you may reduce principal when it is low, making recovery harder.
- Adaptive withdrawal or setting aside safer assets for early years helps mitigate this.
- Investment return uncertainty
- Future returns may be lower or more volatile than past.
- Asset allocation matters: higher proportion in equities may lead to higher long-term average returns but greater short-term risk; bonds and fixed income lower return, but more stability.
- Longevity beyond average
- Half of retirees will live longer than the “average” life expectancy.
- Many Australians currently aged 65 have nontrivial chances of living into their 90s. (TALGroupHQ)
- Health, lifestyle, family history
- Your personal life expectancy may differ from population average based on health, genetics, lifestyle, socio-economic status.
- For example, Australians in disadvantaged areas tend to have lower life expectancy. (The Guardian)
- Policy / regulatory risk
- Changes in tax, superannuation regulation, aged pension eligibility, or required minimum drawdowns can affect how much you can withdraw, when, and how it’s taxed.
- Cost risks (fees, taxes, unexpected expenses)
- Investment fees, insurance, estate or medical costs (e.g. aged care) may rise.
- Losses from market downturns, taxation on withdrawals, or inflation on costs of health and care provision are relevant.
Examples: Withdrawal Amount Calculations
To illustrate, here are stylised scenarios (not advice, but showing how different assumptions lead to different outcomes):
| Scenario | Retirement age | Life expectancy assumed | Portfolio at retirement | Annual withdrawal strategy | Outcome risks |
| A | 65 | Average to age 85 (i.e. 20 years) | AUD 700,000 | Withdraw 4% first year (~AUD 28,000), then increase with inflation | If inflation or poor returns are higher, risk of depletion before 20 years; if you live beyond 85, risk accrues |
| B | 65 | Cohort life expectancy: assume 90 for women, 88 for men (i.e. 23-25 years) | AUD 700,000 | More conservative withdrawal: say 3.5% first year, guardrails to reduce withdrawal if portfolio falls 20% | Sacrifice some spending early vs better chance of funds lasting longer |
| C | 60 | Assumes working until 67 delaying full retirement; portfolio grows longer; life expectancy cohort estimate ~90 | Lower withdrawal rate early or partial drawdowns | Better buffer; more years with portfolio growth; reduced risk of running out |
These show how sensitive outcomes are to assumptions of how long you’ll live and how market and inflation behave.
Common Mistakes Related to Life Expectancy in Retirement Planning
When planning retirement in Australia (or elsewhere), people often make mistakes around life expectancy. Some common ones:
- Using life expectancy at birth instead of at retirement age
Many people look at “average life expectancy at birth” and assume that applies to them when retiring at 65. But what matters is remaining life expectancy given survival to that age. Mistaking one for the other leads to under-provision. - Ignoring that many will live longer than average
“Average” means 50% die sooner, 50% later. Individuals who are healthier than average, or whose families live long, may need to plan for longer. - Failing to allow for inflation over long periods
Withdrawals that look sufficient now may erode in purchasing power significantly over decades if inflation is higher than expected or volatile. - Over-reliance on fixed withdrawal percentages (like strict 4% rule) without flexibility
Because market returns, inflation, and individual lifespan vary. A rigid rule may lead to too high withdrawals early or too low later, or might exhaust funds if markets perform poorly. - Neglecting sequence of returns risk
A poor decade early in retirement combined with high withdrawals can severely damage long-term sustainability of savings. - Underestimating non-financial risks
Health costs, aged care, changes in policy, family obligations, unforeseen large expenses can all increase spending needs in older age. - Failing to revisit and adjust plans
Life expectancy, portfolio returns, inflation, costs, personal health all change. Many set a plan and don’t review it over time.
How Withdrawal Strategies Can Be Modified to Extend Duration of Funds
Putting together what life expectancy and risks imply, here are modifications retirees can use to increase the chances their funds last as long as needed.
- Lower initial withdrawal rates
E.g. instead of 4%, using 3-3.5% if your retirement horizon is more than 30 years or if markets/inflation are uncertain. - Flexible withdrawal frameworks
- Use rules that allow for reductions in bad years, increases in good years.
- Consider “guardrail strategies” (e.g. reduce withdrawal by x% if portfolio drops by y%).
- Combine fixed income (safe assets) with growth assets; use safe assets to cover short-term needs so forced selling is avoided.
- Diversify investment mix appropriately
Maintain exposure to growth (so your nest egg can grow over time) but balance so volatility is acceptable. As one ages, shift more to safer assets but not so conservative that inflation erodes value. - Delay retiring or partial withdrawals
If possible, stay in part-time work or delay full drawdowns. This postpones the start of withdrawals, gives more time for savings to grow. - Use annuities or lifetime income products
To shift part of longevity risk to an insurer. Especially useful if worried about living well beyond average. - Regular reviews and adjustments
Periodically (say annually or every few years) review actual vs assumed returns, inflation, health, spend patterns; adjust withdrawals accordingly. - Stress-testing with conservative assumptions
When you plan, test worst-case scenarios: high inflation, poor market returns, longer-than-expected lifespan. See how long your savings last under those.
Considering Inflation, Changing Markets, and Other Risks in Withdrawal Amounts
These are especially important in the Australian environment:
- The cost of retirement (leisure, health, housing, care) tends to rise over time, often faster than general CPI.
- Australian markets have historically done well (especially equities), but past performance is no guarantee of future returns. Global events, shocks and low return environments may reduce expected return.
- Inflation cycles: Australia has had periods of higher inflation; retirees should build buffer for inflation risk.
- Regulatory risk: Superannuation policy changes, minimum drawdown rules, tax rules can change. For example, required minimum drawdown rates on super accounts for older ages. (Shape Financial Advisory)
- Longevity improvements: If mortality continues to improve (healthcare, lifestyle, medical technology), life expectancy may increase, meaning more years to fund.
Why Consultation with a Financial Planner Is Essential
Because your circumstances are unique. A planner can:
- Estimate your personal life expectancy given health, family history, lifestyle.
- Factor in your spending needs: current vs expected future lifestyle, expected costs (health, aged care, travel).
- Help determine a withdrawal strategy tuned to your risk tolerance, investment portfolio, inflation expectations.
- Advise on tax and regulation implications: superannuation rules, age pension eligibility, minimum drawdown rules.
- Run scenario analyses and stress tests: what happens if markets are weak, inflation high, life expectancy longer than expected.
Summary and Key Takeaways
- Life expectancy is not a fixed static number; estimating how long you’ll live (beyond average) is essential in making retirement savings last.
- Higher life expectancy means you may need your savings to cover 25-30 years or more in retirement.
- Withdrawal strategies (safe withdrawal rate, fixed vs flexible, adaptive) must account for inflation, market returns, sequence risk, and longevity.
- The “4% rule” is a useful guideline, but in many Australian settings it is risky if applied rigidly without flexibility or adjustment.
- Many people underestimate how long they’ll live, underestimate inflation or fees, or rely too much on general averages.
- Because of all the uncertainties, it's wise to consult a financial planner to build a personalised, flexible plan, revisited over time.
Example: Some Australian Research on Withdrawal and Life Expectancy
- A report Safe withdrawal rates in retirement – an Australian perspective shows that government minimum drawdown rules start at around 4% for those under age 65, increasing to much higher minimums (up to ~14%) for those aged 95+. This means retirees may be forced to withdraw more even if market or portfolio conditions aren’t favourable. (Portfolio Construction Forum)
- Research “Just how safe are ‘safe withdrawal rates’ in retirement?” draws from the Dimson, Marsh & Staunton data (1900-2008) across many developed countries and finds the 4% flow is not always safe, especially for long horizons, and in many countries safe initial withdrawal rates are lower. (Griffith University)
- Morningstar Australia has published guidance that for current conditions, safe withdrawal rates may be lower than 4%, depending on asset allocation, valuation levels, inflation risk etc. (Morningstar)
What to Do Next (Practical Steps)
- Find your likely life expectancy at your retirement age, using recent Australian life tables. Adjust it upward if you anticipate improvements in health, or if family history / lifestyle suggests you may live longer.
- Estimate your expenses in retirement (today vs in future, including inflation). Include likely health, housing, travel, care costs.
- Choose a withdrawal method that has flexibility: plan for reductions / increases depending on performance.
- Keep a diversified portfolio; consider keeping safer assets for early years.
- Run stress tests: what if inflation is 4-5% instead of 2-3%; what if markets have weak returns for first decade; what if you live to 95+.
- Regularly review your plan (every few years or sooner if circumstances change).
- Engage a qualified financial planner to tailor all this to your situation.
By integrating good estimates of life expectancy with careful withdrawal strategies, planning for inflation, market variability, and risk, Australians can increase the likelihood that their retirement savings last as long as needed, maintaining quality of life throughout.
References
- “How long you can expect to live and what it means for your super.” SuperGuide Australia. (SuperGuide)
- “Life expectancy at birth by state and territory; life tables; Australian Bureau of Statistics.” (ABS life expectancy data) (SuperGuide)
- “How long does retirement last? | TAL Whitepaper.” (TALGroupHQ)
- “Period Life Expectancy vs Cohort Life Expectancy: The Difference is Important”, Actuaries Institute. (actuaries.asn.au)
- “Safe withdrawal rates in retirement – an Australian perspective.” Portfolio Construction Forum (Australia). (Portfolio Construction Forum)
- “Just how safe are ‘safe withdrawal rates’ in retirement?” (Griffith University / international historic data) (Griffith University)
- “Withdrawal Rates: Making your retirement savings last”, Morningstar Australia. (Morningstar)
- “What is a safe level of drawdown in retirement? Minchin Moore (Australia).” (minchinmoore.com.au)
- “Australian Retirement Age, life expectancy, and statistics: ABS, CEDA etc.” (australianretirementtrust.com.au)
