Some perspectives on planning for retirement
Inaugural lecture delivered on 16 April 2013
This paper explores two themes related to the financial aspects of retirement – real-age adjusted life expectancy and the financial survival probability of living annuitants. The first theme focuses on the development of a model to determine an individual’s adjusted life expectancy based on his or her real age as opposed to his or her calendar age. The model incorporates aspects such as gender, residing province, income, HIV status, ethnic background, weight, exercise, family illness history, stress, substance abuse and diet. The finding was that the real-age adjusted life expectancy of individuals retiring at age 65 may be as much as twice the life expectancy based on the latest South African actuarial mortality tables. This has significant implications for retirement planning. The second theme focuses on the financial survival probability of pensioners who have selected living annuities as their preferred retirement investment option. It addresses the question of how long a given amount of capital will be able to fund a living annuitant if the following parameters are known: expected retirement duration (i.e. years between retirement date and expected date of death), investment returns, inflation, annual withdrawal amount and initial capital amount. A model was developed that shows how retirement duration and different withdrawal rates change the probability of having sufficient capital in retirement for different investment scenarios.