3 mins
Common sense tells you that living to a ripe old age will require your pension wealth to last longer if you are to enjoy a comfortable retirement.
According to the Office for National Statistics (ONS), in the UK between 2020 and 2022, average life expectancy was 78.6 for men and 82.6 for women.1 The ONS also state that in England and Wales the number of centenarians – that is people living to 100 or more - has more than doubled since 2002, with an estimated 15,120 people living to 100 and 640 people living to 105.2
Advancements in healthcare and technology are likely to further extend human lifespans. While longer life expectancy is undoubtedly a positive development, it brings with it significant financial implications that necessitate careful planning and consideration, as we face the challenge of making our finances last for increasingly longer periods of time.
Making our savings last
Whether it’s ensuring that we will continue to have enough money to meet our outgoings or thinking about paying for care costs later in life, we all need to consider how we can make our pension savings last.
Things to consider:
Pre-retirement savings - to accommodate longer lifespans, we may all need to save more aggressively and start planning for retirement earlier to ensure that we have sufficient funds to support us throughout our old age. Traditional retirement age benchmarks may need to be re-evaluated to accommodate the potential of a longer retirement period.
For those still in employment, nearly all workers automatically contribute to a workplace pension, which can accumulate significantly by retirement. Keeping track of your savings and ensuring you’re on course to meet your retirement objectives is essential.
Income generation - longer lifespans may require us to supplement our retirement income through alternative means, such as part-time work, passive income streams, or investment dividends. Developing multiple income streams can provide greater financial security and more flexibility in managing expenses over an extended period.
Inflation - over a longer lifespan, we are more susceptible to the effects of inflation and the rising cost of living. Retirees must account for inflation when calculating their retirement income needs to ensure they maintain their purchasing power over time. Diversifying investments and incorporating inflation-protected assets into our portfolio can help safeguard against the erosion of wealth due to inflation.
Social Security and Pension considerations – to maximise our retirement income it is important that we take advantage of any Government and pension benefits that we are entitled to. Delaying claiming our State Pension can result in higher monthly payments, providing a more substantial financial cushion in later years. Similarly, fully exploring our workplace and personal pension income options and retirement benefit structures can help to ensure that our income strategy will be effective over the long term.
Healthcare costs - increased longevity often means a greater need for healthcare services, including medical treatments, long-term care, and prescription medications. Rising healthcare costs can quickly deplete savings if not adequately planned for. It may be wise to consider purchasing long-term care insurance and incorporate healthcare expenses into our retirement planning to mitigate the impact on our finances.
Estate planning - with increased longevity, estate planning becomes more critical. We need to ensure that our assets are properly managed and distributed according to our wishes, especially if we may live longer than our expected heirs or beneficiaries. Estate planning tools such as Wills, Trusts, and Lasting Powers of Attorney can help to protect our assets and provide for loved ones more effectively.
In conclusion
An increased lifespan presents both opportunities and challenges from a financial perspective.
While longer life expectancy offers more time to enjoy retirement and pursue personal goals, it also requires diligent financial planning to ensure long-term financial security and stability.
There are many complex decisions to make to help you achieve your long-term goals. It is important to consider factors such as investment growth, asset allocation, and withdrawal strategies over an extended retirement period.
By proactively addressing the financial implications of increased longevity, you can better navigate the complexities of retirement and enjoy a fulfilling and financially secure future.
If you are unsure about any aspect of your financial planning, always seek guidance before taking action. A Wealth Planner can help you create a retirement budget and use cashflow planning to calculate how long you are likely to be able to fund your desired lifestyle in retirement. If necessary, they can also help you find ways to make your savings last longer.
1 22/01/2024 | National life tables – life expectancy in the UK: 2020 to 2022 | www.ons.gov.uk
2 11/01/2024 | Estimates of the very old, including centenarians, England and Wales: 2002 to 2022 | www.ons.gov.uk
Please note: This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate advice on trusts, estate planning, lifetime cash flow planning and will writing.
You should seek legal advice to ensure that your Will reflects your wishes and is legally binding.
FP 2024-205 - Last updated April 2024