Life expectancy

Life expectancy is a population statistic: the average period that a person is expected to live, based on birth and death statistics, for the population of a country.

For a retirement plan it is the input nobody controls. The workbook lists it among the circumstances that are beyond the control of the individual, alongside health, and it directly decides how many years the retirement corpus has to last.

Rising life expectancy is, the workbook says, a positive parameter for any population. But it brings with it the risk of longevity — living longer than the money.

The Indian figure. Life expectancy at birth rose from 58 years in 1990 to 72 years in 2024 (source: World Bank), and the trend is upward, helped by better diet, health care and lifestyles.

Three places it enters the paper.

How annuity payouts respond (Chapter 4):

• Older annuitant — higher payout, because the period of payment is likely to be shorter
• Women — lower payout than men, because their life expectancy is higher
• Poor health and lifestyle — higher payout, because life expectancy is reduced

The product answer. Income sources in retirement must take increased life expectancy into account. The workbook's example is a deferred annuity bought at 65 that starts paying only from 85, for life — insurance against the tail of a long life. It also cites longer lifespans, pay commissions and more retirees relative to workers as the pressures that made the old unfunded government pension unsustainable.

Two retirees, same corpus, different lifespans (built on the workbook's Rani figures). Each retires at 60 needing Rs 1,50,215 a month, with the corpus earning a real 1.89 percent.

The workbook's own trend — 14 extra years of life expectancy between 1990 and 2024 — shows why a plan built on the age at which parents lived is dangerous. Adding five years to the plan adds about Rs 59 lakh to the corpus.

The annuity angle (illustrative quote). Suppose an insurer quotes a 60-year-old man Rs 60,000 a year per Rs 10 lakh of purchase price for a life annuity. On the workbook's pricing logic, a woman of the same age would be quoted less for the same Rs 10 lakh, and a 70-year-old man more — not because the insurer values them differently, but because it expects to pay the woman for longer and the 70-year-old for less long.

Chapter 1, section 1.1.4 (Increasing Life Expectancy), gives the 58-to-72 figures and links them to longevity risk and the deferred annuity; Chapter 1's sample questions ask which feature of the retirement goal it directly affects (the period in retirement). Chapter 3, section 3.2.3, uses it to estimate years in retirement, Chapter 4, section 4.2.3, lists it among the factors affecting annuity rates, and Chapter 7 calls longevity the biggest risk to the retirement goal.

• 58 in 1990, 72 in 2024, source World Bank. Swapped or shifted years are a standard distractor.
• It affects the period in retirement, not monthly expenses, working years or returns — the Chapter 1 sample question.
• Higher life expectancy means a lower annuity rate. Women get lower payouts; older annuitants and those in poor health get higher ones.
• Defined contribution shifts longevity risk to the subscriber. Defined benefit plans carried it for the employee.
• A population average is not a planning horizon. The workbook tells advisers to adjust for gender, health, genetics and lifestyle — and underestimating is the costly direction.
• The deferred annuity answer is 65 to buy, 85 to start paying in the workbook's illustration.