How long are you expecting to live? It may seem like an unanswerable question, but when you are planning for your retirement, life expectancy is an issue that you have to confront.
Ensuring your money does not run out involves a complex series of calculations and assumptions. Once they are made, your savings may have to be adjusted accordingly, and possibly continually tweaked throughout your life.
Everyone’s mileage will vary, but confronting average life expectancy and your own retirement expectations will help you to plan your pension savings in the best possible manner.
Retirement for the many, not the few
When the state pension was introduced in 1908, this was the first time the idea of a relatively secure retirement was something to even consider for many. At its inception, the state pension only kicked in at 70 years old, meaning that most men had an average retirement of around six years, and women just over seven .
What’s more, these life expectancy figures only take into account those people who had made it to the ripe old age of 65, meaning they’d already proved to be relatively hardy. Only one in four people reached the age of 70 in 1908, making retirement on a pension a relatively rare event.
Compared to those days, nowadays most of us can expect to live far longer than the average retirement age. As such, drawing a pension, from private as well as state sources, is now something that most of plan to do. Most also plan to start their r etirement sooner than those in the past, seeing it as a time to fulfil dreams of travel and leisure.
Many people choose to retire early and can access their pensions from the age of 55. The most recent figures from the Office for National Statistics (ONS) show that life expectancy at 65 is now 18.8 years for men and 21 years for women .
That’s a lot more time in retirement for many of us, with women being able to access their pension money 31 years before the average age of death.
A growth in expectations
And while we are all living longer, we have higher expectations for our retirement too. A recent paper from thinktank the Institute for Fiscal Studies (IFS) found that the wealthiest quintile of people expect to retire earliest , which is perhaps just as well given our plans.
Retirement favourites include travel (a study from Which? found that, pre pandemic, retirees were spending over £4,000 a year on this) . Those in early retirement also find that they spend money on hobbies and eating out, while the bank of mum and dad props up school and university fees for dependents.
That’s a lot of spending from our pension pots over a long time.
Two stages of retirement
Planning for 20 to 30 years of retirement may seem daunting, but the reality is that your spending won’t remain constant for the entire time.
Retirement spending changes by age, according to the International Longevity Centre, with those in the early stages of retirement spending more than those in the later stages.
Making plans with different goals in mind for different stages of retirement may help you to work out how much you need to save.
Getting the experts in
Preparing to fund retirement in a world of uncertainties is a complex business. Rising life expectancy, your own retirement goals, any desire to leave a legacy and your own comfort and tolerance for risk will all come into play.
That’s why many people choose to involve the experts. Cashflow planning, as well as modelling different retirement scenarios, will help you to visualise how savings made now can ensure you have the retirement that you want later.
Knowing that you have enough saved to live comfortably will ensure you go into retirement with confidence, living all of it to the full.