Planning for a long and prosperous life
Living a long, happy life is the ultimate goal for most people, but with it comes the challenge. Can your retirement finances go the distance?
This uncertainty is known as longevity risk, the risk of living longer than we expected and running out of money. Itโs a fear that haunts many retirees, often ranking higher than the fear of death itself. We simply donโt know how long we have on this Earth. We do know it will always cost money to live on it.
Despite a slight dip due to COVID, we are generally living longer. Average life expectancy has increased from 68.69 years in 1950 to 82.06 years today. That means allowing for an average of 14 years extra living โ and potentially many more, with around 14,850 people having celebrated their centenary.
There are countless personal factors influencing life expectancy, some within our control and others not. Thankfully, there are steps you can take to help your money last as long as you do.
Estimating your longevity risk
Despite the best efforts of the actuaries who price up life insurance, predicting your lifespan isnโt an exact science.
However, online life expectancy calculators can offer personalised projections, and assessing your health and family medical history can help. If both your parents lived (or are living) to a ripe old age, there could be a better chance that you will too.
Once you have an estimate, consider how much income youโll need in retirement.
This can help calculate how much you will need to save. And remember, if you want to retire early, your longevity risk becomes all the more crucial, so you will need to plan accordingly.
Sadly, living longer does not always mean living in good health. Your chance of needing care increases year by year. Long term care, whether in your own home or in a residential faciality is expensive.
What can you do to help ensure financial security if you live longer than expected?
Maximising your pension pot may be done in several ways.
You can increase your contributions
Currently, the annual allowance for pensions, including your employerโs pension and private pensions is ยฃ60,000 or the total of your income, whichever is lower. With an employerโs pension plan you can usually increase your own contribution, should your circumstances allow it.
You can potentially make your pot grow faster
With some plans, such as a SIPP (Self-Invested Personal Pension) you can decide how your contributions are invested. If you are an experienced investor with a high tolerance for risk, you may be able to find opportunities to help maximise growth.
You can take a smaller pension
A common guideline suggests building a pension fund large enough to support your annual spending over several decades, with an initial yearly withdrawal that can be adjusted for inflation. Adapting your withdrawals based on market conditionsโtaking more in strong years and less in downturnsโcan help your savings recover and provide financial security for a longer period
You can work a few more years
Working for longer will let you put more money into your pension pot and reduce the time when it will be your sole income.ย Part-time work, consulting or a phased retirement can also ease the transition into full retirement, allowing time to adjust your plan if needed. There are tax and other financial implications, so be sure you understand how working in retirement could affect you, both positively and negatively.
You could make your pot work harder
The larger your pension pot the better, but there are potential ways to make the most of a smaller pot. Judicious use of drawdowns, possibly in conjunction with an annuity could offer a pension for life, however long that may be.
You can get expert help
When itโs a matter of pensions, or any other financial question, the easiest way to get the expert help you need is to call us at Continuum.
We can help you plan your retirement strategy; make your pension savings work harder โ and show you the ways to help you get the maximum returns from them โ however long you need them.
National life tables: UK - Office for National Statistics
The 4% pension rule to retire comfortably | MoneyWeek
U.K. Life Expectancy 1950-2025 | MacroTrends
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to retirement or investment strategy, you should seek independent financial advice before embarking on any course of action.
The value of an investment can go down as well as up and you may get back less than you invested. When investing Capital is at risk.
A pension is a long-term investment; the fund value can go down as well as up and this can impact the level of pension benefits available. Pension Income could also be affected by interest rates at the time benefits areย taken. Pension savings are at risk of being eroded by inflation.
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