It is reasonable to
conclude that having a higher pension will for many increase their longevity
Mark Webster, Business
Development at Equiniti Pension Solutions, admitted that this may be simply a
reflection of the fact that wealthy people tend to live longer on average - and
that wealthy people tend to have bigger pensions - so they are both a sign of
wealth rather than being directly linked to one another.
Research, by pension
scheme administrator Equiniti, looked at the details of 610,000 deceased pensioners,
and discovered that someone with an annual pension of between £25,000 ($38,440
US dollars) and £30,000($46,128 US Dollars) was likely to live almost a year
and a half longer than someone with a pension of between £10,000 ($15,600 US
dollars)and £15,000 ($23,000 US dollars) a year.
It found that those who
lived on:
- £10,000
($15,600 US dollars) to £15,000 ($23,000 US dollars) would live to an
average age of 78.8 years,
- £15,000(23,
000 US dollars)-£20,000 (30,752 US dollars) lived to 79.62,
- £20,000
(30,752 US dollars) -£25,000 l($38,440 US dollars) lived to an average of
79.76,
- £25,000
($38,440 US dollars) to £30,000($46,128 US Dollars) lived to the age of
80.21.
The same effect sees
people in wealthier areas living longer than those from less well-off areas.
Good News, if you want to live longer, you need to have a higher pension and
live in a nice area. Well living longer is the trend not only in Great Britain
but Average life expectancy in the United States rose by almost eight years from
1978 to 2011, to 78.7 years, according to the Organization for Economic
Cooperation and Development (OECD).
American men are living an
average of two years longer than they were in 2000, and women are getting an
additional 2.4 years, according to new mortality projections from the Society
of Actuaries (SOA). The SOA is the official keeper of the mortality tables used
to calculate the value of future pension obligations, and longer lives mean
greater cost for plan sponsors.
This means there is a need
for retirees to focus on longevity risk as they set goals for retirement saving
and withdrawal rates. And, when considering the numbers, it's important to
remember that the mortality data simply reflect averages; many of us —
especially women — can expect to beat those numbers.
But the new projections also will have direct implications for defined-benefit pensions.
Maintaining pension plans will become more expensive for plan sponsors, because the longer life spans will require them to increase projected future costs on their balance sheets. The value of payouts will rise anywhere from 4 percent to 8 percent, depending on the age of the retiree.
Maintaining pension plans will become more expensive for plan sponsors, because the longer life spans will require them to increase projected future costs on their balance sheets. The value of payouts will rise anywhere from 4 percent to 8 percent, depending on the age of the retiree.
That, in turn, likely will
accelerate a major trend among plan sponsors to adopt de-risking strategies.
Sometimes, that simply means reducing equity exposure in plan portfolios. But
it also can mean offering lump-sum buyouts
There is a need for
retirees to focus on longevity risk as they set goals for retirement saving and
withdrawal rates. And, when considering the numbers, it's important to remember
that the mortality data simply reflect averages; many of us — especially women
— can expect to beat those numbers
But the new projections
also will have direct implications for defined-benefit pensions. Maintaining
pension plans will become more expensive for plan sponsors, because the longer
life spans will require them to increase projected future costs on their
balance sheets. The value of payouts will rise anywhere from 4 percent to 8
percent, depending on the age of the annuitant.
That, in turn, likely will
accelerate a major trend among plan sponsors to adopt de-risking strategies.
Sometimes, that simply means reducing equity exposure in plan portfolios. But
it also can mean offering lump-sum buyouts.
If you are offered a lump
sum payment you should think very carefully about accepting it. You might want
to wait for a better deal down the road. But there's a caveat: The value of
future offers also will be affected by interest rates, which are at historic
lows. Higher interest rates would be reflected in higher discount rates, which
are used to calculate lump-sum values and lower payouts.
Deciding whether to accept
a lump-sum offer is a highly personal decision. A key factor is how healthy you
think you are in relation to the rest of the population. If you think you'll
beat the averages, a lifetime of pension income will always beat the lump sum.
The bigger picture of your retirement assets also matters; some people decide
to take lump-sum deals when they have other guaranteed income streams, such as
a spouse's pension or high Social Security benefits.
Others think they can do
better by taking the lump sum and investing the proceeds. That is possible, but
it needs to be weighed against the risks of withdrawing too much, market
setbacks, or living far beyond the actuarial averages. However "doing
better" on a risk-adjusted basis means you would have to consistently beat
the rate used to calculate the lump sum by investing in nearly risk-free
investments — certificates of deposit and Treasuries — since the pension income
stream you would receive is guaranteed, with the exception of failed plans.
Although lump-sum buyouts
are take-it-or-leave it deals, there could be additional buyout windows down
the road in many cases, as sponsors work to reduce their pension obligation
So if you live longer do
you want to take the chance and see if you can do better than well managed
pension funds. It is safe to say that the dollar value of your pension, isn't
going to be the biggest determinant of longevity. Given that your retirement
income is only likely to have an impact on your health and wellbeing in the
final third of your life - there is a good chance that your general wealth
throughout your earlier life is likely to have a bigger impact on your overall
health and longevity.
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