Life expectancy figures from the Office of National Statistics (ONS) confirm that we’re living for longer. Around 1 in 4 children born today can expect to live to almost 100, while those aged 50 today will live for an average of 34 to 37 years more.
Increased longevity is great news, but a longer life could put a greater strain on your retirement fund. It might also mean more years spent in ill health.
Keep reading to find out how to factor increased longevity into financial plans for your “second 50” and why you should.
Improved medicines and technology mean we’re living longer
The latest ONS figures confirm that in 2022, life expectancy at birth was 79 years for males and 82.9 years for females. Men aged 65 could expect to reach 83 while 65-year-old women had an average life expectancy of over 85.
A woman aged 50 today has a 1 in 4 chance of reaching 95 and a 7.8% chance of making it to 100.
Your retirement fund is designed to start paying at retirement and last you for the rest of your life. Current figures suggest that your pension pot will need to sustain your desired standard of living for 20, 30, or even 40 years.
This could put a huge strain on your budgeting and make efficient pension saving more important than ever.
3 factors to consider when navigating your second 50
1. Working for longer and the benefits of a flexible phased retirement
A recent report from Aegon looked into the rise of the second 50. It found that almost three-quarters (73%) of surveyed workers planned to eschew the traditional cliff-edge retirement in favour of a more flexible approach.
The main reasons were:
- Enjoying their current working life
- Wanting to keep their brains active.
A phased retirement has financial benefits too, possibly allowing you to work and receive a pension at the same time.
You might find that you can move into a part-time consultancy role, using your acquired knowledge to help the next generation. You might even throw caution to the wind and opt for a later-life career change, challenging yourself in a completely new direction.
The rise of flexible working across sectors as a result of the pandemic has made a phased retirement easier than ever. Pension Freedoms legislation means that you have flexibility in your pension options too.
2. Careful budgeting of flexible withdrawals and factoring inflation into your decisions
Flexible pension options like flexi-access drawdown and uncrystallised fund pension lump sums (UFLPS) can be useful during a phased retirement and your second 50.
That’s because your expenditure won’t be static in retirement. You’ll likely spend more during the early, active years before starting to spend less as you slow down. You might find that later in life your expenditure rises again as you incur costs (more on which shortly).
Using flexible options to withdraw cash as and when you need it can be great for paying for one-off expenses or luxuries. At the same time, you’ll want to know that your regular expenditures (household bills, your mortgage, etc.) are covered elsewhere. This might be via your State Pension or a private pension annuity.
Regular, known payments make budgeting easy but this won’t be the case with your flexible withdrawals.
Think carefully about the withdrawal decisions you make and remember that your fund may need to last until you reach 100. That will require careful budgeting, factoring in inflation and stock market performance.
High inflation reduces the buying power of your money while falling markets will mean that you’ll need to sell more units to achieve the same level of income.
Both factors can deplete your fund more quickly than you think.
3. Years spent in ill health and the potential costs of later-life care
One reason that life expectancies are rising is human advances in medicine and technology. But increased life expectancy won’t always mean more years spent in good health and it’s only natural to worry about your quality of life as you get older.
This means acknowledging the possibility of later-life care and the financial implications of this.
Your long-term financial plan will already include provisions for later-life care and a contingency for what happens to that money if care isn’t needed. But be sure to check in with your plan regularly to ensure it’s still fit for purpose.
Figures from UK Care Guide confirm that care home costs increased by more than 11% in the 12 months to February 2023. Carehome.co.uk confirms, meanwhile, that the average weekly cost for a residential care home is £760, while the average nursing home costs £960 a week (that’s an annual cost of around £39,500 and £50,000 respectively).
Factoring in these potential costs is crucial so speak to us if you’re unsure about the later-life care provision in your long-term plans.
Get in touch
If you have any concerns about the effect of life expectancy on your long-term plans, or you have any other concerns about your finances, contact us now to find out how our Chartered financial planners could help you.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
