What Happens if I live longer than expected - Financial blog series by Paul Swales - part 1

Living longer is becoming part of modern day life, with the chances of living beyond 100 increasing with each new-born generation, particularly in the western world.


Key fact:

  • The number of centenarians in the UK rose to its highest ever level in 2020, reaching 15,120 - an increase of almost a fifth from last year, according to the ONS


As we live longer, planning for 100-year lifetimes could become crucial in helping to secure financial wellbeing in a world worth living in. Everyone’s financial journey will be different, and as such there is no right or wrong way of planning to live a long life, and that is why it is imperative that everyone should plan ahead, from as early as possible, and base their planning around their own individual goals.

We will come back to planning in a future blog, but for today it is worth considering some questions to understand what happens if you live a long life, which was the first question I posted in the last blog.


Here are some questions for you to consider…

  • How much in today’s money will you need monthly to live off once you retire, assuming you retire mortgage/debt free?

  • Is starting a pension at £200/month in your twenties worth doing, and what benefit that would provide over starting to save for your pension in your 40’s? How would each option look at retirement?

  • Have you considered how you will structure your retirement funds over the time period prior to retirement?

  • Will your children still be in some form of education when you retire? Will they still be financially dependent and until what age? Have you already planned for this cost?

  • What age would you like to retire at? Would that be state retirement age of 67/68 or sooner? If sooner, remember you will need to fund the time period between ceasing employment, and claiming your state pension/pensions.

  • Do you know what level of State Pension you will receive? Do you know the number of qualifying NI payment years required to receive the maximum State Pension?

  • How is your health? Is there a family history of health issues that may cause concerns in later life that you may need to plan for?

  • If there are any hereditary family health concerns or personal health issues you need to plan for, would these be manageable through the NHS, or would you benefit from private care? It is always good to think about the potential need for later-life care and how you would fund this.

  • Are you expected to look after older generations of your family, and if so, have you factored this into your plans?

  • How long will you need to financially support your children after education, and do you intend on passing on parts of your estate?


These questions highlight several areas for consideration around health, income in retirement, later life care and estate planning. Each of these areas is worthy of further exploration, and for today we will touch on income in retirement, how much is required and how can this be generated. In the following weeks we will explore the rest of the questions in more detail.


Let us start with thinking about what funds you will need in retirement. According to The Pensions and Lifetime Savings Association (PLSA), 77% of savers do not know how much they will need in retirement, and only 16% can give a figure.2


According to the Pensions and Lifetime Savings Association (PLSA), a single person will need (in today’s money) £10,900 a year to achieve the minimum living standard, £20,800 a year for moderate standard, and £33,600 a year for a comfortable standard. For couples it is £16,700, £30,600, and £49,700 respectively.3


  • The minimum living standard covers most people’s basic needs and would allow for some participation in social occasions. For example, you could holiday in the UK, eat out about once a month, and do some affordable leisure activities about twice a week.

  • The moderate lifestyle provides, in addition to the minimum lifestyle, more financial security and more flexibility. For example, you could have a two-week holiday in Europe and eat out a few times a month.

  • At the comfortable level, retirees could enjoy some luxuries like regular beauty treatments, theatre trips and three weeks a year in Europe.


Assuming you qualify for the full State Pension of £9,339 a year (2021/22 tax year), the PLSA says you will still need to build up a pension pot worth at least £599,667 to achieve a comfortable retirement, which is based on turning your pension into an annuity that pays you a guaranteed annual income for life in retirement.

The broad-brush way of calculating a pension pot size is as follows, though you should always seek expert financial advice when assessing your pension funds:

  • If we assume you need £2,000 per month, that is £24,000 per year (we will ignore tax and inflation for now, but they will eventually need factoring in on top) and let us say you retire at 67 and you expect to live a further 25 years until you reach 92. This means you will need approximately £600,000 in your pension pot at today’s money

--> £24,000*25 years = £600,000


Given that the average amount sitting in pension pots after a lifetime of saving is £59,242 many retirees may be shocked to learn how little income their savings will provide them in retirement.

Once you have an idea of the level of pension pot required, you can then turn your attention to what you have already provided for, and how much you are currently contributing to your pension scheme. When you take the ‘required pension pot’ less the ‘value it is worth today,’ it then gives you some idea of the gap that needs to be bridged.

In assessing the gap, this does not mean that you necessarily need to bridge it through a retirement account. Your plans could include one or more of the following income streams in retirement:

  • ISAs or Unit Trusts

  • A Property Portfolio of either commercial or buy to let property

  • A business with ongoing income or the sale of the business

  • Inheritance

  • Your current home and an anticipation you will downsize to release equity.

The key message here is to start as early as you can. Planning how you are going to retire means you have more time to achieve your aims and means your investments have longer to mature. The later you leave it to fill the gap, the harder it will be to achieve what you want, or you must accept that retirement will come with some compromises.

Earlier I posed a question around starting to contribute to a pension in your twenties and the benefit that may bring. These points are important to note:

  • A £200 pension contribution per month from age 25 through to 68 into a retirement fund providing at least 5% growth per annum after annual fees, could provide a retirement fund in excess of £350,000 come retirement.

  • Starting your pension at age 45 would require a monthly contribution of over three times the amount of starting in your twenties, for the same level of retirement funds.

  • It is never too early to make a start and for your plan to be affordable and manageable. It is also something that you can adapt over time and amend your contributions based on circumstances and affordability to achieve your goals.

In the next post, we will continue looking at what happens if you live a long life and will explore our understanding and assessment of the gap in more detail, and how to bridge this with the alternative income streams listed above.





Appendix

1 Annual mid-year population estimates for people aged 90 years and over by sex and single year of age (90 to 104 years, and 105 years and over) and comparisons between UK countries published 21 September 2021by Angela Storey of ONS.

2Pensions and Lifetime Savings Association (PLSA), 2019

3Retirement Living Standards, Pensions and Lifetime Savings Association, 2021

4Retirement income market data, FCA, Sept 2020

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