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Living to 100 years - are you financially prepared?
The prospect of living to 100 is a concept that has evolved from a distant dream into a tangible reality for a growing number of people. While modern medicine and healthier lifestyles have made it possible to live longer, the question of whether our finances can keep pace with our longevity is a critical one. For many, the traditional notion of retirement at 65 followed by a relatively short period of relaxation is a thing of the past. The increasing life expectancy coupled with the complexities of the modern world are prompting us to rethink our financial futures. The challenge is not just to live a long life, but to ensure that it is a comfortable one, free from financial worry.
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The changing landscape of retirement
The traditional retirement we all plan for is undergoing a significant change. The dual factors of increasing life expectancy and the recent rising cost of living have turned the conventional wisdom on its head. Retirement is no longer a fixed point in time but a new phase of life that could span thirty or even forty years. This extended period requires a more robust financial plan than was previously necessary. The era of retiring and simply living off a single fixed income for life is fading, as we all look forward to a longer and in many cases more active retirement.
Instead, individuals are seeking a diverse stream of incomes from various sources to support a new, longer retirement. This could include a combination of pensions, investments, and even part-time work to supplement savings. The rise of the gig economy and flexible working arrangements has also enabled more people to continue earning a living well into what would have traditionally been considered their retirement years. This shift in mindset is not just about necessity; it is also about a desire to remain active and engaged with society.
What you need to live on
The figures from the Office for National Statistics* reveal that the number of centenarians in England and Wales has reached a record high. This demographic shift has important implications for financial planning. It means that the pension pot we build during our working lives may need to stretch for an additional two decades or more. Consider the difference a single decade can make. Our calculations highlighted that a couple needing an income of £25,000 per year from their pension pot only may need a pension value of around £425,000 for a retirement that lasts 20 years, but that same couple would need an additional £159,000 just to last them until the age of 100. The reality for many is that the state pension alone provides a basic safety net but falls well short of supporting a comfortable lifestyle in retirement.
As we look at the latest Retirement Living Standards** data from the Pensions and Lifetime Savings Association, or PLSA, it becomes clear that building your own wealth is crucial. For a single person to achieve a minimum standard of living, which covers all their basic needs with some left over for fun, they would require an income of £13,400 a year. To reach a moderate standard, allowing for more financial security and flexibility, the figure rises to £31,700 a year, while a comfortable lifestyle requires an annual income of £43,900. For a two-person household, the figures are £21,600 for a minimum standard, £43,900 for a moderate one, and £60,600 for a comfortable lifestyle. This is a clear reminder that we need to take control of our financial futures and ensure that we are saving enough for the lifestyle we desire in retirement.
The family factor
As financial pressures grow, an increasingly common phenomenon is the 'bank of mum and dad'. While it might seem like a simple way to help a child get onto the property ladder or pay for a grandchild's education, the financial support offered to the younger generation is putting a significant strain on the retirement savings of their parents. Many well-meaning parents are using their own hard-earned pension pots to assist their children and in doing so are affecting their own financial security.
This act of generosity can inadvertently create a new layer of risk for their own retirement plans. The money that was carefully set aside for their later years is being used for immediate family needs, reducing the total wealth available to them when they stop working. This places even greater importance on having a comprehensive and forward-looking financial plan that accounts for both your own needs and the needs of your family, without compromising your own long-term wellbeing. This intergenerational financial pressure highlights the need for a holistic approach to financial planning, one that considers the entire family's financial health and requirements, not just that of the individual.
Planning for the future
For most people, the idea of living to 100 is intimidating from a financial standpoint. The question of whether you can afford to live that long often feels like a difficult one to answer. This is where the true value of financial planning comes into its own. At its heart, financial planning is not just about numbers; it is about providing peace of mind. A good financial plan will provide a clear and concise visual picture of your financial future, helping you to understand the impact of your decisions on your wealth over time.
For us at The Private Office, cash flow planning is central to how we work with our clients. We begin by gaining a deep understanding of your current financial situation, including all your sources of income, capital and your expenditures. We use this detailed information to create a dynamic cash flow model that illustrates what your financial future might look like for you under different scenarios. This approach allows us to test your wealth against potential events like a market downturn, higher than expected inflation, a long-term health issue, or unexpected expenses. It also gives us the opportunity to see how your wealth can support you to achieve your life goals such as funding your children’s education, renovating your home, or retiring earlier than planned. By providing this comprehensive visual overview, we can work together to ensure you have the financial freedom to live a long and fulfilling life.
Use our retirement calculator
No one has a crystal ball. But what you do have is a range of tools that can help you understand whether your plans are on track. Our retirement calculator is one of the most useful, especially if you’re hoping to retire at 55.
By inputting your current savings, your target retirement age, and the income you’d like to receive, our retirement calculator can provide an estimate of how long your money might last – and what you’d need to contribute to reach your goal.
Retirement Calculator
A useful tool to get a basic understanding of what your future retirement plans look like is our retirement calculator. From your own personal circumstances , you will be able to forecast an estimate of the pension income you will get when you retire and receive a target retirement income to aim for based on your choices.
It’s important to remember that these tools are only as accurate as the assumptions they’re based on. Investment growth, inflation, life expectancy and future tax rules are all variables. But using a calculator is an excellent way to create a picture of what your retirement might look like – and how close you are to achieving it. This is not guaranteed and is for illustrative purposes only.
How we can help you
A comprehensive financial plan allows you to make informed decisions about your future with confidence and clarity. Living to 100 may seem like a distant challenge, but with the right financial planning and advice, it is a future you can look forward to. We’re offering anyone with £100,000 or more in savings, pensions or investment a free retirement review, worth £500. Why not get in to speak to one of our team for a free initial consultation.
Sources:
* Office for National Statistics
** Retirement Living Standards
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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.
A pension is a long-term investment. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
The Financial Conduct Authority (FCA) does not regulate tax advice or cashflow modelling.
