Working out how long someone might live is based on looking at the age their grandparents died – even though lifespans have stretched another 11 years for the over 50s.
The average UK life expectancy is 87 years old – yet when asked, people expect to retire at 65 years old and live until the age of 82.
That means most people have financial plans for 17 years in retirement, when they are more likely to have to pay for a retirement of 22 years.
This funding gap is calculated to cost an extra £80,000 than most retirement savers have planned for – or saving £340,000 across their working life, according to research by financial firm Scottish Widows.
£80,000 funding gap
And surprisingly, one in 10 over 50s does not know where this extra money will come from and one in four (28%) worry that they will run out of cash before they die.
Emma Watkins, annuities director at Scottish Widows, said: “Life expectancy has grown substantially in the last 60 years and now one in 10 people will live to be 100. As the concept of the three-stage life is becoming out of date, people facing into retirement are also facing a trade-off between saving more, working longer or having a clearer plan.
“Pension freedoms opened the door to new opportunities and flexibility for savers, but advice on the best way to put in place a stable, predictable income for life would give some comfort to those facing a retirement that could last more than 20 years.”
Better financial planning needed
The study reads that many underestimate their life expectancy and when faced with the possibility that they will live longer than they think; 12% of people over 50 expect to work longer, 15% say they’ll have to budget their retirement savings better, and 9% say they’ll need to put more aside than they originally thought.
Over 50s in the North have the lowest lifespan expectation – 80 years old, while those in Wales and the South East of England have the longest – 85 years old.
The study asked 2,095 people how long they thought they might live.