How would living longer affect your finances?

Financial News

Can you afford to live until you’re 100?

If not, you need to start taking charge of your finances before it’s too late.

Research from Retirement Advantage shows that, on average, people aged 55 to 64 believe their life expectancy to be 82 years. However, for men, the national life expectancy is 88, whilst the average woman is expected to live until she is 90.

The same age group expect to retire just before their 65th birthday, which means that they are likely to be planning to financially support themselves through a retirement of less than 20 years. In fact, they could be relying on their retirement income for 30+ years.

Admittedly, there’s no guarantee that you will reach the triple-digit milestone. But when you consider that the number of UK residents reaching 100 has increased so dramatically that The Queen now has a staff of seven people who are responsible for sending the infamous celebratory telegrams.

So, if you do live longer than you expect, how will it affect you and your finances?

1. Providing an income

The longer you live, the more money you will need to have available to draw an income from. It sounds obvious, but you will need to start working toward this goal earlier in life to ensure that there is enough capital available.

The way you access your retirement income will influence how long your money is able to last. For example, if you were to purchase a guaranteed income, you could be sure that you will have a regular income. Though it will not necessarily be enough to cover the rising costs which tend to develop in later life.

2. Health

According to research from the International Longevity Centre, healthy life expectancy; the number of years someone is likely to remain in good health is getting longer for 65-year-olds, but it is not growing in line with average life expectancy. This has resulted in men spending an average of 8.1 years of their retirement in ill health, with women expecting 9.6 years.

With decreasing health comes increases in living costs. As many long-term illnesses and conditions can require home adjustments, equipment and medication which are not subsidised. This means that the cost of living in retirement often increases in the later years.

3. Care

If long-term care is required, the cost of living will increase dramatically. In 2017, the average cost of care exceeded £1,000 per week in some areas (Source: UKcareguide). Whilst some living cost will be included in this charge, it is unlikely that your standard income will stretch to cover these costs.

It is also important to factor in that you do not know how long your will require care for. Some may only need to pay for it during their final few years, whilst others could need some form of assistance for most of their retired life.

4. Changing attitude to working in retirement

As the potential for a longer life increases, many people are turning to part-time work, self-employment and consultancy to both stay mentally active and bring in additional income. 44% of 50-64-year olds plan to continue working part-time during retirement, whilst a small number (6%) expect that they will never be able to stop working full-time. (Retirement Advantage)

The days of ‘cliff-edge retirement’, where you would work full-time before stopping altogether on a set date are over. Now, it is much more common to continue working past the State Pension Age to continue to add to your income. The number of self-employed individuals aged 65+ has increased more than any other age group in the past decade. (Source: Office for National Statistics)

You may choose to join those who continue to work past retirement age for many reasons. However, if finances are a concern, then continuing to work whilst delaying your State pension will lead to an increased income when you do decide to start taking it.

6. Your legacy will look different

As you get older, your family’s situation will change. So, the legacy you plan to leave at 80 will be used for different purposes if it is left 15 years later. Therefore, it is important to review what you want to leave behind for loved ones, depending how their circumstances will change as they too get older.

For example, if you leave money to a 25-year old grandchild at age 80, you may imagine that they will use it to put a deposit on a house or to fund a wedding. However, if your will remains unchanged and you die aged 97, that grandchild will be 42 years old and is likely to have different priorities. Which, if you knew about when making your will, may have led to you making different decisions. For this reason, it is important to review your will regularly and maintain up-to-date records of your wishes.

Financial advice can help you to explore how your lifestyle could change throughout a retirement which lasts longer than you predict. For more information or to book your first appointment, contact Sarah or Bev on 0115 933 8433.