You can read the full report here: https://www.ifs.org.uk/uploads/WP201814.pdf
Key findings of the report:
People in their 50s and 60s underestimate their chances of living to age 75 by around 20 percentage points and to 85 by 5-10 percentage points
Conversely, older people in their 70s and 80s are, on average, overly optimistic about the likelihood of living to age 90 and beyond
Risk savers who underestimate life expectancy will save too little and/or spend too much in retirement
The findings support AJ Bell’s own research into the subject, with the vast majority of people expecting to retire somewhere between age 65 and 70. Almost half (41%) of these people don’t expect to survive much beyond their 80th birthday, whereas the IFS reports suggests that men in this age bracket have around a 70% chance of reaching at least that age and women have around an 80% chance.
Tom Selby, senior analyst at AJ Bell, comments:
“While the rapid rise in average life expectancy experienced in the UK over recent decades is to be celebrated, it also poses a serious retirement planning conundrum. If large numbers of people massively underestimate life expectancy and spend too much in retirement as a result, they risk running out of money early and potentially falling back on the state.
“There is no clear evidence that savers are squandering their hard-earned pension pots in the wake of the pension freedoms. However, our own research shows a significant minority are making annual withdrawals of 10% or more, with the average person expecting post-charges investment returns of 5%.
“The combination of underestimating life expectancy, overestimating investment returns and overspending could create a perfect storm for future retirees.
“Automatic enrolment should help ensure people don’t massively undersave for retirement. It is now critical policymakers focus attention on engaging savers approaching retirement to ensure they are better informed about their options and the potential risks.”