A famous quotation by American statesman Benjamin Franklin: … nothing can be said to be certain in this world, except death and taxes.
Not sure about taxes though but one surely cannot avoid death. Talking about life, death, and finances, dying early or living longer which one is a bigger problem?
Living Longer could be a Problem
For most of the population living longer is the real problem. And, definitely so in the recent world where life expectancy has been increasing significantly with economic developments and one needs to support a longer life period without active income post-retirement.
Let us look at some interesting data. In 2023 India has a population with a median age of 28.2 years which is a relatively young population compared to other major developed and developing economies around the world. The forecast for the years 2050 and 2100 is 38.1 years and 45.9 years respectively. With such a relatively young median age range for the coming years, India is set for a period of considerable economic growth which in turn (as we have already seen) will aid in increasing the life expectancy of the Indian population further, like many other already developed economies. These numbers indicate something very important. If you do not plan for your retirement life well, you will be in trouble.
So, how many years of post-retirement (expenses) should we plan for?
Let us look at some more relevant data. Like all economically developing countries worldwide, Life expectancy in India has also drastically increased from 41.7 years in 1950 to around 70 years in 2020. Another important piece of data (source: UN population division via World Bank): the life expectancy of women in India is higher than men. In addition, women generally have more health issues than men, and in India expected years of living with a disability and disease burden is 9.66 (2016).
More health issues mean more need for funds or suitable and sufficient health insurance coverage during the post-retirement period.
Now, if someone retires today at the age of 60 when the life expectancy as per data is 70 years, how many years of post-retirement he or she needs to plan for? 10 years or maybe a few more years.
But this consideration is incorrect because 70 years is the average life expectancy of the whole population, and we have some other data points that are more significant and not considered by the financial planners.
The data shown below indicates that “the longer you live, the more you are expected to live.”
It is evident from the above data that if someone reaches the age of 70 (the current life expectancy) he is more likely to live for another 14.4 years. So, if you are planning for a post-retirement period of 10 years after 60 you are in for a fix.
And this is very critical data that is ignored by almost all and is the basis for the formulation of insurance and pension plans and should be considered by you as the period for planning your retirement life and not the regular life expectancy so that you never have to face a difficult situation at a later stage if we outlive your life expectancy.